SoFi, also known as Social Finance, has become ubiquitous in the world of lending. Perhaps you have seen one of their commercials touting their superiority in refinancing student loan debt. Well, that’s not the only thing they claim to be the best at. Today, we’re going to find out why they claim to be the best in the robo-advisor category and why they just might be correct.
SoFi began in 2011 as a better way to take on student debt. But since then, the company has expanded into mortgages, personal loans, investing, and cash management. In the 9 years since they’ve launched, SoFi has managed to bank over 1 million members. That is an incredible feat in a very crowded space.
For this review, we will be focusing on a feature in SoFi’s investment arm, automated investing. Never has robo-advising been a hotter buzzword than right now and SoFi is making itself known in the category with its low fees and industry matching features.
SoFi is leading the way in the financial services world by providing a full suite of services. This platform does it all and can be the one-stop-shop for all of your financial needs. Put your financial goals on autopilot using SoFi's automated investing platform.
Invest for retirement with a Roth or Traditional IRA or save for a big vacation or a new home by using SoFi's goal-focused investment features. SoFi offers every individual the chance to reach their goals with no management fees or account minimums!
Automated investing with SoFi allows users to save for long- and short-term goals without the need to directly manage their investments day to day.
Think of automated investing as putting your investments on autopilot. You pick where you want your money to go, how risky you want the journey to be, and when you want it to arrive. Then SoFi handles the rest.
In essence, automated investing is the “lazy” but smart way to invest. The adage, work smarter, not harder, certainly has its place in robo-advising.
Automated investing with SoFi allows investors to invest for the long term in retirement or non-retirement personal accounts with no management fee and free financial advice. These perks would normally come at large fees and high minimums at standard financial institutions, but not SoFi.
So, what are my options with automated investing? It depends on your goals. If you are wanting to take a big vacation in two years once you’ve graduated from college or received that big promotion, SoFi can help. For this type of goal, an individual or joint non-retirement account would be best.
If you are young and wanting to get a head start on retirement, then you have the option of investing in a Roth IRA, Traditional IRA, or a self-employed Keogh plan. All of these are designed to benefit users the most for the long term.
SoFi Automated Investing account types:
Users are also able to rollover old 401Ks or previously created IRAs into the SoFi Invest platform as well.
Within each of these account types, SoFi will want to know what your time horizon is and how much risk you want to take on. It will then make recommendations for where to put your precious savings in order to provide the most likely path toward success.
That’s all fine and dandy, but what exactly does this cost? Beginning in 2018, SoFi has waived their management fees for SoFi Automated Investing. This is still a pretty remarkable decision seeing as most other robo-advisors, take Wealthfront or Betterment, charge 0.25% annually. Translation: SoFi does exactly what everyone else does (for the most part) but they do it for free.
In addition, many of these other robo-advisors, Wealthfront for instance, require a minimum investment of $500 or sometimes more! With SoFi, this account minimum is waived so that everyone who wants to can take advantage of this great offering.
While SoFi does not charge management fees, their accounts come with other fees that could potentially impact your earnings.
For instance, if you are unsatisfied with SoFi or would like to try out a different platform and choose to fully transfer your assets, there will be a fee of $75. This should give investors pause before they decide that SoFi is the right option for them. Be sure to do all the necessary research before jumping in with both feet.
Other fees may include the following:
While some are not unique to SoFi, it’s important that you are aware.
Depending on the objective of your savings, your money will be directed to 1 of 11 different ETFs or a combination of the group. These are generally the same for most robo-advisors and use ETFs created by other companies such as Vanguard.
These portfolios generally follow a similar pattern of the below:
While SoFi does not charge any management fees, there are fees from the underlying portfolios. These are generally very small (well under 1%).
When it comes to the specific goals that users input into SoFi, the platform recommends a level of risk needed to accomplish the specific tasks. For instance, SoFi recommends the following portfolios for these goals:
These are determined in part by the time horizon of the goal. For instance, if you begin to save for a child’s education as soon as they are born, you will have at least 17 years to save and invest. With that long timeline, you can afford to be more aggressive since you have the time to ride out the ups and downs of investing in all stocks.
On the flip side, if you are planning to get married, this is generally on a shorter time horizon. Those that are in the stage of life when marriage is on the table typically have 1 – 5 years to prepare. This requires a much shorter time horizon, so a conservative portfolio is more appropriate. This safeguards against any downturns in the market which you will not be able to overcome due to time constraints.
Automatic rebalancing and perseverance is what keeps your goals on track. SoFi can't help out with the sheer willpower required to reach your financial goals, but it can at least help with the automatic rebalancing. When you first begin investing, having your investments allocated toward a certain percentage of stocks or bonds, is an important decision. However, as some stocks outpace other assets, they will naturally form a larger portion of your portfolio than you had originally anticipated.
Without rebalancing, the steps you planned to take to reach your objectives could be way out of whack. It is important that you rebalance occasionally to keep everything in line. SoFi does this automatically with its automatic rebalancing feature. Through this, you will never need to about having a disproportionate amount of one asset in your portfolio.
Rebalancing works by selling or purchasing a particular asset. Because selling is involved, you should be aware of taxable events caused by the selling of an asset. In SoFi’s case, rebalancing happens automatically when there is a 5% drift for any security. So, depending on the level of volatility in the asset, this could happen more than you would like.
However, in the long term, the benefit of rebalancing far outweighs the potentially minor tax consequences incurred by rebalancing.
SoFi offers a unique benefit to its members in the form of free financial planning. Each member of the larger SoFi Invest family has unlimited access to the company's financial advisors at no extra charge. These advisors are Certified Financial Planners with a fiduciary responsibility to give advice that benefits solely the investor and not themselves.
Each advisor has their Series 65 designation (or similar) which means they are qualified to advise in the investment or sale of securities. These advisors are not paid on commission meaning their only incentive is to help you make the most amount of money as possible. A refreshing approach to financial planning industry.
Premium Financial Planning is also offered and provides comprehensive financial planning through a dedicated financial planner on an ongoing basis. The cost of this service is $39.99 per month
SoFi certainly has brought forward a compelling reason to trust their services with your money. These features mentioned above provide a holistic view into the benefits and potential disadvantages of investing with SoFi automated investing.
From the lack of management fees to the wide variety of portfolio allocations, SoFi Automated Investing is a great option for those looking to save for a specific goal or are looking forward to those retirement years. It has the confidence of over 1 million members in its short lifespan so far and I expect this number will only keep growing.