In the not-too-distant past, if you wanted to be a serious investor, you had a few choices with well-established brokerages. They knew they were the only game in town and charged fees accordingly. However, only the well-to-do participated.
Then index funds exploded, exchange-traded funds (ETFs) took off, and robo-advisors were dominating the industry.
Consequently, those traditional brokerages scrambled to adjust.
A slew of dynamic, technology-driven companies were born to grab a vastly under-served, yet coveted community, urban millennials.
SoFi (short for social finance), with its background in student loan refinancing and personal loans, was in a great position.
Its established reputation among young college-educated professionals allowed it to expand into an area their clients were suddenly demanding.
The recent addition of their investing arm, SoFi Invest, specifically addressed the investing and retirement planning needs of their target consumer.
What Is SoFi Invest?
If you’re looking for a brokerage that’s all things to all people, SoFi Invest is probably not the best place. While SoFi offers a variety of ETFs and stocks, it may not have the same depth of choices as brokerages which are generally geared toward experienced investors.
SoFi’s marketing and platform are designed to appeal to young adults who are new to investing. They offer features like fractional shares and commission-free trades, which make it easier to start with smaller amounts of money.
Looking at their advertisements, with not a Boomer or Gen-Xer in sight, it’s obvious whose business they covet. With a laser focus on the younger and marginally less financially savvy, they’ll hit all the right notes.
SoFi Invest has two distinct services:
- Active investing – This allows you to choose individual stocks and ETFs to buy and sell yourself, similar to a traditional brokerage account.
- Automated investing – This is SoFi’s robo-advisor service. You answer questions about your risk tolerance and goals, and SoFi builds and manages a diversified portfolio of ETFs for you automatically.
While Retirement Investing is not a distinct service for SoFi, you can utilize either of the above for retirement savings. You can open an IRA (Individual Retirement Account) through SoFi Invest and choose to actively manage your retirement investments or use their automated service.
SoFi Invest Features
| Management Fees | $0 |
| Minimum Investment | $1 |
| Accounts Supported | Individual, Joint, Traditional IRA, Roth IRA, SEP IRA, Rollover IRA |
| Portfolio Allocation | ETF blend of either conservative, moderately conservative, moderate, moderately aggressive, or aggressive |
| Portfolio Rebalancing | Yes |
| Can you choose the ETFs in your portfolio? | No |
| Tax-Loss Harvesting | No |
| Active Trading Platform | Yes |
| Automated Investing | Yes |
| Fractional Shares | Yes, Stock Bits is SoFi's fractional shares investing vehicle |
| Customer Service | Live chat, email, or phone |
SoFi Invest Tiers
Active Investing
Their active investing arm is like a junior version of a traditional taxable brokerage account. You can buy stocks and ETFs (SoFi discontinued cryptocurrency trading in December 2023), but not much else.
If you’re looking to invest in mutual funds, non-ETF-based index funds, cryptocurrencies, or even bonds, you’re out of luck. It’s not to say SoFi is limited, there are thousands of stocks and ETFs to fill your portfolio.
SoFi doesn’t offer a lot of things, including target-date funds, bonds, and other traditionally conservative investments. This shows they’re focusing on people who are new to investing and might not be comfortable with those options yet.
Stocks are alluring while ETFs are convenient and easy. No one brags at a cocktail party they just built a rock-solid bond ladder providing stable but modest returns over ten years.
You can get started with as little as a single dollar to fund your account. You can deposit the money in any number of ways including:
- Linking to a SoFi Money account (their cash management platform) for easy transfers
- Linking to an external checking or savings account
- Transferring your investments from another brokerage using ACAT (Automated Customer Account Transfer Service)
- Sending a physical check
- Making a wire transfer
Stock Bits
But what do young people want to own? Amazon? Apple? Google? But what 20-something has enough money burning a hole in their pocket to buy even one share of these pricey stocks?
SoFi has a solution for those hungry young capitalists; stock bits. Stock Bits is the name for SoFi’s fractional stock share investing vehicle.
With as little as one dollar, you can own a fractional share of a sky-high stock like Tesla.
Instead of buying a certain number of shares, with Stock Bits, you can specify how much money you’d like to invest in a particular stock, no matter the price by allowing you to buy a tiny portion of a stock.
As the stock rises or falls, the percentage you own reflects the value of your stake in the investment.
Automated Investing
For those who don’t want to steer their investment ship through the choppy market waters, there’s SoFi’s portfolio management offering.
After specifying your risk tolerance, SoFi’s Automated Investing platform designates a portfolio mix based on your risk level.
It’s not a tailor-made, personalized investment portfolio someone hand-picks for you—that level of attention comes at a cost.
It’s as basic a robo-advisor as you can find. Yes, there is portfolio rebalancing, but it’s not because you’re unique. To maintain the risk goals for their pre-fabricated portfolios, they naturally have to rebalance as things become over and under-weighted. This adjusts your portfolio allocation back to the original target percentages within the pre-built model.
Most beginning investors don’t need to get into the nitty-gritty details of fine-tuning a portfolio. They’ll do fine with SoFi’s offering of a well-diversified mix of the ETFs.
SoFi’s minimal fee structure compensates for its lack of customization.
It also offers free access to real financial advisors to help guide you through the process.
SoFi offers a select range of ETFs focusing on specific asset classes. These can be a good option for investors looking for exposure to those particular areas but may not provide the comprehensive diversification of a broader ETF selection.
As of March 2024, SoFi’s ETFs focus on specific areas:
- SoFi Select 500 ETF (SFY) – Large-Cap Growth Stocks
- SoFi Next 500 ETF (SFYX) – Mid-Cap Blend Stocks
- SoFi Social 50 ETF (SFYF) – Global Large-Cap Growth Stocks with a Social Responsibility Focus
- SoFi Enhanced Yield ETF (THTA) – Combines Treasuries with Options Strategy for Income
Retirement Accounts
SoFi Invest also offers Traditional IRAs, Roth IRAs, and SEP IRAs. You can even rollover current retirement accounts (401(k)s and 403(b)s) to a SoFi IRA.
Currently, SoFi’s retirement options seem to be an extension of its Automated Investing arm. You choose investing goals for your retirement accounts, and they use their allocation algorithms (like their
For beginner investors, it can be sufficient. But with most IRA brokerages, you have many more investment options, including mutual funds and individual bonds.
Those who would like more than a basic set of investment options may feel restricted.
So, if you’re comfortable with
How SoFi Invest Compares
Minimum Investment:
$1
Management Fees:
$0
Promotion:
Start Investing
Tax Loss Harvesting:
No
Portfolio Rebalancing:
Yes
Assets Under Management:
$138 million
Minimum Investment:
$500
Management Fees:
0.25%
Promotion:
Invest your first $5,000 free, for life
Tax Loss Harvesting:
Yes
Portfolio Rebalancing:
Yes
Assets Under Management:
$10 billion
Minimum Investment:
$100
Management Fees:
$0
Promotion:
Low cost investing
Tax Loss Harvesting:
No
Portfolio Rebalancing:
Yes
Assets Under Management:
$1 billion
SoFi Invest Fee Structure
SoFi Invest remedies its lack of investment choices and advanced brokerage features with a simple, low-cost fee structure.
A few years ago, this was a game-changer as up-and-coming brokerages like SoFi and Robinhood put the investing world on notice by offering fee-free trading.
However, the old guard eventually caught on and followed suit, getting rid of many of their fees, making it less of a distinguishing trait.
SoFi Fees
- SoFi’s Active Investing accounts don’t charge account fees. Stock and ETF transactions are commission-free. Lastly, there is no account minimum requirement nor fees for inactivity.
- Their Automated Investing accounts don’t charge any set management fees, account fees, or inactivity fees.
- Like all ETFs, including the ones in other brokerages and their Active Investing accounts, there are underlying expense ratios reflected in the returns on investments. However, these are low (from 0.03% to 0.10% annually) and, for the most part, unavoidable.
How Does SoFi Invest Make Money?
SoFi makes money through a combination of approaches across their different financial products:
- Lending: This is their biggest earner. SoFi profits from student loan refinancing, personal loans, mortgages, and private student loans.
- Technology Platform: Their Galileo technology powers financial services for other companies. SoFi earns revenue through fees for platform access and card management services.
- Investing: While SoFi doesn’t charge commissions or account fees for stock and ETF trades in their Active Investing accounts, they can make money in other ways. Like any other bank, any uninvested cash you have sitting in your account earns interest for them that they keep.
- Securities Lending – They also lend out securities to institutions for things like short-selling and charge an interest rate on the loan.
- Another way they make money is by Payment for Order Flow, which is a fancy way of saying they use a go-between. When SoFi executes trades, they use a wholesaler who provides a small fee to them. The goal is to get the best price possible, but there’s debate on the efficiency of this model.
The money has to come from somewhere.
They also have their own branded ETFs, which have an associated expense ratio baked-in. A couple of their ETFs currently advertise as having no expense ratio, while they might not be losing money directly, the long-term profitability of these funds depends on how they are structured and how they attract investors.
SoFi Invest Platform
SoFi’s mobile app is a great starting point for beginner investors with basic needs.
If your investment goals become more complex, you might find the web platform or a different broker more suitable due to their wider range of features and research tools.
Here’s a table summarizing SoFi’s mobile app vs. their web platform for beginners:
Editor's Note
Note: A Market Order means you have to buy or sell a security at its current price.
Most brokerage platforms let you set a price where you’d like to execute your trade or even wait for the price to rise or fall a certain percentage before trading.
There are other, more complex methods, but that discussion is for another time.
It may not seem like a big deal to most people. But those who want to do more active trading and don’t have the patience to watch individual stocks find only using market orders becomes a chore.
Customer Service
SoFi makes a considerable effort here. They seem to understand their clientele will need some hand-holding at first to delve into the investing world.
It’s a great strategy for them as they build a loyal base who may stay for the long haul.
SoFi features live, friendly financial advisors with whom you can interface through phone, email, or chat. Though financial advisors are no longer legally bound to the fiduciary standard, they pledge to hold to it, which may not mean more than their word.
This makes sense considering their offerings are all straight-forward. Their representatives don’t have to dive deep into their finance tomes to find the right answers.
One caveat, however, is for Active Investing accounts, will not advise you on which investments to buy.
They’re not going to make stock picks for you. Imagine the liability. Their advice is limited to general financial strategies that are perfect for their Automated Investing platform.
They also advertise things such as seminars, coaching, and experiences to round out their appeal to a dynamic and younger investor population. See SoFi Experiences for the latest.
Editor's Note
Note: Registered Investment Advisors (RIAs) have a fiduciary duty to their clients and are registered with either the Securities and Exchange Commission (SEC) or state securities administrators.
When seeking financial advice, confirm your advisor is a Registered Investment Advisor and a fiduciary. SoFi is an SEC-Registered Investment Advisor.
SoFi Compared to Traditional Brokerages
I’ve been with traditional brokerages for many years, and quite honestly, about 80% of the things I’ve used them for I could have done with a SoFi Invest account. Not only that, but I could’ve saved several hundreds of dollars in fees.
Most of the stocks I bought were offered on the same stock exchanges that SoFi uses (NYSE, NASDAQ, AMEX). I’ve dabbled in over-the-counter stocks and commodities, but I could’ve lived without them.
I always felt I was under-utilizing the advanced features at my disposal.
In the beginning, you couldn’t pay me to call them for advice. I always worried they’d either be impatient with my questions or try to upsell me on something I didn’t understand.
I think traditional brokerages fostered this sense to justify their fees.
If I had SoFi Invest when I was in my 20s, I would've learned more in the beginning. Confidence breeds success.
Tweet ThisBut I also think after ten years of using SoFi invest, I would’ve outgrown them. My eyes would wander to the more established institutions to satisfy my investing itch.
The irony is traditional brokerages are trying to be like the newer ones. They’re attempting to shed their stodgy image and adopt a modern veneer with mixed outcomes.
The overall result is more options for everyone.
SoFi Invest Security & Protections
SoFi Invest is a brokerage and not covered under the FDIC (the insurance protecting deposits in regular bank accounts).
However, another agency specifically protects brokerage accounts called the SIPC. It insures up to $500,000 per client (of which $250,000 can be in cash deposits) if the brokerage experiences fraud, theft, or fails.
It doesn’t cover investment losses but is the same insurance most other brokerages use.
Is SoFi Invest Right for You?
What’s to Like
- Commission-free trading: Active Investing accounts don’t charge account fees and stock and ETF transactions are commission-free.
- Low fees: Automated Investing accounts don’t charge any management fees, account fees, or inactivity fees.
- Personable advisors and customer service: Experienced, friendly support team offers investors help at every step.
- Streamlined interfaces: SoFi put its development energy into providing a simple, enhanced user experience.
- Fractional share trading: Instead of buying a certain number of shares, you can specify how much money you’d like to invest in a particular stock, no matter the price.
What’s Not to Like
- Limited investment choices: SoFi doesn’t support investing in mutual funds, non-ETF-based index funds, target-date funds, bonds, or other conservative investments.
- Basic research tools: The bulk of its research tools cater to student loans.
- Limited trading platform: Can only place market orders on its Active Investing platform. Those looking for advanced trading strategies will find only using market orders a burden.
Summary
SoFi Invest is starting to make a splash in the recently crowded online brokerage space. Its fast evolution into financial products beyond original student loan refinancing is telling.
It proves the underserved young urban market is sizable, and they’re taking full advantage. They tailor their offerings to their target clientele.
Beginner investors can thrive in this space with its user-friendly interface and helpful support team. Those with modest means can make the most of their money with SoFi’s low balance requirements, affordable investments, and lack of fees
However, many may grow out of what they offer after gaining more experience. If SoFi doesn’t evolve with its customers as their investment needs mature, it may pigeonhole themselves into only serving a single demographic.
Because SoFi seems to be evolving quickly, this description only serves as a starting point of knowing what else they have on the horizon.
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Nathan Kim is a contributor to Listen Money Matters. Learning from past mistakes, he spent the next twenty years educating himself on personal finance. He's logged hundreds of hours helping people improve their financial situation. Nathan has a Bachelor's Degree in Electrical Engineering and a Certificate in Economics from Georgia Tech, where he was a member of the economics honor society Omicron Delta Epsilon.
