Review of SoFi Automated Investing Platform

Those who have obtained a loan from SoFi or utilize the cash management account offered by the company may be more than willing to transfer their investment portfolio to SoFi as well. If you are unfamiliar with the brand, however, you may find that SoFi Invest is most intriguing to starting investors who are looking for a low-cost robo-advisor that also provides access to human financial counselors.

This pairing is one of the more unusual possibilities. Vanguard Digital Advisor, one of the robos on the market with the lowest fees, provides a hands-off service for a very reasonable rate of about 0.15% of your assets under management per year. However, this service does not come with unlimited access to a team of certified financial advisors who can answer any questions you may have.

The fact that there is no management fee does not, however, imply that SoFi Invest is without cost. This is an essential point to keep in mind. You will still be responsible for paying the fees levied by the ETFs that are a part of your portfolio, which means that you will inadvertently be required to pay SoFi due to the fact that SoFi will be adding its own unique ETFs to your portfolio. Even while the costs of these funds are very low right now, those costs may increase in the future if (or when) fee waivers are allowed to lapse.

If you are hoping to snag a sweet deal by investing for free with SoFi Invest, you should do the math and be aware that you may actually be able to invest for less, or at the same level of fees, with more established investment firms. To summarize, if you are hoping to snag a sweet deal by investing for free with SoFi Invest, you should do the math.

How SoFi Invest Gets the Job Done

Review Of Sofi Automated Investing Platform
Review Of Sofi Automated Investing Platform

SoFi Invest is comprised of several distinct services, including automatic investing, active trading, retirement savings, and cryptocurrency trading. The “automated investment” choice is the one that should be made by everybody who is interested in the robo-advisor service.

Following the selection of an automated investing account, you will be prompted to decide whether you would prefer a tax-deferred individual retirement account (IRA) or a taxable investment account. SoFi gives those who are saving for retirement the option to put their money in either a standard IRA, a Roth IRA, or a SEP IRA. The SEP IRA is a wonderful perk for people who own small businesses and is something that not every robo advisor provides.

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After that, SoFi will ask you a few standard questions to gauge your comfort level with taking risks. This is par for the course when it comes to robo-advisors, but the queries provided by SoFi left a lot to be desired.

The platform will ask you a fundamental question regarding your level of comfort with risk, such as whether you are willing to settle for lower returns over the long term in order to limit any potential losses, or whether you would prefer the best possible long-term performance, even if it meant accepting losses in the short term in exchange for the possibility of higher returns in the future.

People won’t be able to visualize what they may do if they were actually in that situation because of this. This method is a joke in compared to other robotic assistants, such as the Vanguard Digital Advisor, which uses helpful interactive toggles to evaluate the same query.

Finally, SoFi Invest will suggest a portfolio that is suited to your individual circumstances. You can get assistance from a SoFi financial expert if you have any questions or concerns regarding your current circumstances.

How SoFi Invest Takes Care of Your Financial Needs

SoFi Contribute, much like other robo-advisors, invests your money in an ETF portfolio that is diversified according to the level of risk you are willing to take and the amount of time you plan to invest.

SoFi Invest devised a portfolio consisting of eighty percent stocks and twenty percent bonds in response to a sample account that was run by Forbes Advisor on behalf of an investor who was 35 years old, had an adequate risk tolerance, and anticipated needing the money in five to ten years.

Unfortunately, it suffers from the same superfluous syndrome as Betterment and Wealthfront, recommending nearly ten ETFs for our portfolio when only three or four would likely provide sufficient diversification. This is a problem because ETFs are a type of investment vehicle that tracks the performance of a particular asset class.

The typical investment companies, such as Vanguard and Blackrock, were represented by several of the funds that SoFi Invest selected. This indicates that SoFi Invest makes use of cost ratio-conscious exchange-traded funds (ETFs), which are the backbone of any reputable investment portfolio. However, astute investors will detect undesirable additions to the portfolio, including but not limited to the following: ETFs that are exclusive to SoFi.

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For example, about half of Forbes Advisor’s assets were invested in the SoFi Select 500 ETF (SFY). [Citation needed] This fund has a gross expense ratio of 0.19%, however SoFi will waive that fee until at least June 30, 2022, thus the fund’s net expense ratio of 0% is only possible because of that. You are making this investment for the long term, correct? Your expenses are going to go up pretty soon, which presents a problem: The expense ratio of 0.19% is considerably greater than the expense ratio of 0.03% that Vanguard applies to its S&P 500 fund (VOO), which tracks the same index.

A little more than 5 percent was set aside for the SoFi Next 500 (SFYX) investment fund, which makes investments in the 500 largest publicly traded firms and below. This ETF has an expense ratio that is advertised as being 0.02%, but it has a waiver that will expire at the same time as SFY’s, which might cause it to grow to 0.21%.

How Sofi Invest Works
How Sofi Invest Works

The question then is: why do these ETFs demand such exorbitant fees, without offering a waiver? However, compared to VOO’s $245 billion in assets under administration, they only have $285 million in assets under management of their own. The assets held by the Next 500 ETF come in at less than $40 million. To make the economics of the investment firm work, smaller funds typically need to demand higher fees.

Not only do smaller funds have higher expense ratio fees, but there is also a greater danger that the fund would completely close its doors. This is an occurrence that would significantly upset a tax-efficient buy-and-hold strategy because it would force you to realize taxable profits. You would then be required to reinvest the proceeds into a fund that is analogous to the one that you may have been able to begin with as your initial investment.

All of this is to imply that you are not only placing your funds in the hands of SoFi Invest, but you are also placing a wager on the likelihood that more people will do the same in the years to come as well. If you don’t feel comfortable placing that wager, you could be better off using a different robot that requires a larger payment of fees up advance.

Additional Features of SoFi Invest

Financial Advisors

You have access to SoFi’s extensive team of financial experts who do not charge any fees. They act as a fiduciary, which means they will put your financial interests first and won’t try to upsell you on goods or make you trade more than you should be doing. Additionally, they won’t try to get you to invest more than you should.

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You are free to arrange calls at any point during the day; however, you will need to be flexible. According to the findings of a recent investigation conducted by Forbes Advisor, the waiting period to book a call was two weeks, you could only plan one out one month in advance, and there was no guarantee that every time slot on any given day would be open.

Active Investing through SoFi

Investors who want to trade on their own can take use of the taxable brokerage accounts that SoFi makes available to them. Other investing firms that provide robo-services, such as Vanguard, also provide these accounts. (Robot advisors that are more akin to startups, like as Betterment and Wealthfront, are, on the other hand, less likely to give this kind of service.)

However, the fact that this choice is available shouldn’t impact your choice of whether or not to use SoFi as a robo-advisor in either direction. After all, the purpose of robo-advisors is not to place wagers on the direction in which the price of Robinhood or Bitcoin will move; rather, it is to invest for the long term in a diversified low-cost portfolio that corresponds to your level of risk tolerance.

The Fees and Expenses of SoFi Invest

SoFi Invest makes a big deal out of the fact that there are no annual management fees. On the surface, this appears to compare extremely favorably to the products offered by its rivals. While the smallest tier on Ellevest costs only $12 per year, Vanguard Digital Advisor, which is a fully automated robo, charges approximately 0.15% of assets under management in fees. In addition, those rival companies either do not provide access to financial experts or levy an additional fee for using their services.

However, as was mentioned earlier, the reality is that there is no such thing as a free robo-advisor. SoFi Invest will not charge you any annual management fees, but it may use some of its own proprietary exchange-traded funds (ETFs) in the portfolio that is automatically managed for you. The waivers for the expenditure ratio were included in both the SoFi Select 500 and the SoFi Next 500 sample portfolios that were provided by Forbes Advisor.

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These waivers are valid until June 2022. If the expense ratio remains the same after the waivers have expired, then you will be locked with exchange-traded funds (ETFs) that charge far greater fees than the majority of other funds that are comparable.

SoFi Invest Advantages

The absence of costs is the primary benefit offered by the automated platform that SoFi Invest provides. There is no adviser fee, which often amounts to 0.25% of the total amount of money managed at locations such as Betterment or Wealthfront. Not only will you have a savings of $25 if you have $10,000 invested, but that savings will also be reinvestment in the stock market. Because of this, you are able to quicken the pace at which your wealth is accumulated.

If you have any concerns or questions regarding your current financial strategy, you are welcome to contact a SoFi financial counselor at any time throughout the week for a cost-free conversation over the phone or via video chat. Your initial investment can be as little as one dollar, and there is no minimum balance required for your account. Getting started is rather simple.

Additionally, SoFi provides a cash management account that does not charge any fees and comes with an annual percentage yield (APY) of 0.25%. Despite the fact that this rate is larger than what you’ll find at conventional banks with brick-and-mortar locations, it will still be eroded by inflation over time (though cash holdings pretty much anywhere now will fall victim to the same creep).

SoFi Invest Disadvantages

The absence of costs charged by SoFi along with its user-friendly interface may entice younger investors. However, they ought to approach SoFi with a healthy amount of suspicion.

Most significantly, this implies maintaining a healthy level of skepticism for any SoFi ETFs that you simply cannot avoid. Although some companies will eliminate expenditure ratios for the immediate future, you will ultimately be responsible for paying these fees.

Due to the little amount of assets that they have accumulated, it is likely that in the future they will impose fees that are relatively higher. Keep in mind that you are investing for the long term, which means that you will eventually have to deal with whatever comes up, and it is likely that you will end up paying those costs for a much longer period of time than if you had avoided them.

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In a broader sense, SoFi Invest does not genuinely provide customers with an all-encompassing financial plan. It might make sense for you to do so if you have a specific expense, such as a boat, that you want to save up for over the period of five to ten years. However, due to the fact that it does not necessarily take into consideration all of your assets, you may wind up with portfolios that are not tax efficient.

For example, the bond funds that were included in the taxable account that Forbes Advisor was assigned to would have been more suited for a retirement plan than the taxable account that they were assigned to. In the meanwhile, services such as Vanguard Personal Advisor Services and Personal Capital can carry out this balancing of asset allocation across account types on your behalf in order to limit the possibility of tax liability.

Nor does SoFi provide access to more complex tactics, such as tax loss harvesting, which could assist in lowering the amount of capital gains taxes you pay.