Perhaps best known as a competitive student loan refinancing company that uses non-traditional approval criteria, SoFi has now entered the robo-advisor space with its automated investing platform. With few barriers to entry in terms of account minimums and fees, this newcomer deserves a closer look, particularly if you want a hands-off investment approach with plenty of built-in perks and support.
Here’s everything you need to know about SoFi Automated Investing so you can find out if it’s really worth the hype.
How It Works
SoFi is a growing provider of financial services, from student loan refinancing to mortgages and quite a bit in between. In addition to self-directed investing, you can also sign up for SoFi Automated Investing, which helps you focus on specific savings goals based on a variety of time horizons. Utilizing low-cost ETFs and automatic rebalancing, start by exploring common scenarios and then choose from one of five investment strategies.
Here are each of SoFi’s automated investment strategies based on specific life goals you may have.
Pay for a Wedding
For short-term goals, SoFi recommends low-risk, conservative portfolios for any savings goals you’d like to execute between six months and three years.
Buy a Home
For shorter-term goals like saving for a down payment to buy a house in three to five years, SoFi provides a mix of moderately conservative portfolios, which come with a lower amount of risk.
Trip of a Lifetime
Save up for a major trip within 10 years or less by investing in a moderate portfolio. You’ll take on a bit of risk, but not too much.
Assuming your children are still quite young, SoFi recommends an aggressive portfolio for longer-term goals that aren’t set to come into fruition for 10 or more years.
A moderately aggressive portfolio can be designed for those who want to retire early within the next five to 20 years. SoFi recommends a higher risk tolerance for this type of strategy.
You can obviously have different goals outside of the examples described above, but SoFi uses these five scenarios to illustrate how to balance risk with your intended time horizon in which you’d actually like to use your investment funds.
Types of Accounts Available
SoFi Automated Investing offers both taxable and tax-advantaged investment accounts. For general taxable investing, you can choose between an individual account or a joint account.
For long-term retirement investing, you can choose among three types of IRAs: traditional IRA, Roth, and SEP. The latter is reserved for self-employed individuals and provides a higher contribution limit to make up for business owners not having access to an employer-sponsored plan.
SoFi also lets you initiate a 401k rollover. If you have an existing 401k from a former employer that’s just collecting dust, you can actively manage those funds by transferring them to one of your SoFi Automated Investing accounts. IRA rollovers are also available so you can manage your accounts more holistically.
Those aren’t typos; for now, SoFi Automated Investing comes with no management fee and only requires a $1 deposit to get started. While they may start charging a fee in the future, for now, SoFi is letting investors join for free with an incredibly minimal deposit.
The average expense ratio for ETFs is 0.085% which is on par with other robo-advisors. SoFi also offers some of its own ETFs with no fees. This is likely a temporary promotion, but one worth considering nonetheless.
Automatic rebalancing is a hallmark of most robo-advisors. With SoFi Automated Investing, you can count on rebalancing to occur at least quarterly. This feature goes into effect when an asset is more than 5% off its original allocation. If an asset class undergoes a big change in the market, SoFi’s platform may rebalance your portfolio more frequently to make sure your assets still align with your goals.
SoFi often offers promotions for opening a taxable account, although these aren’t ever offered for retirement accounts. Before you get started, check their website for current promotions to make sure you don’t miss out on any bonus perks or other benefits.
Once you become an Automated Investing customer, you can qualify for rate discounts on loans as a SoFi member. If you hold at least $10,000 in your SoFi investment accounts, you can get discounts on loan products, including a 0. 125% rate discount on a new student loan or personal loan.
If you have at least $50,000 in your account, you can also qualify for a discount on your first mortgage with SoFi, amounting to 50% off the $1,000 home loan processing fee. That’s a $500 savings; as long as you also receive a competitive interest rate, this could be a smart option.
The biggest draw to SoFi Automated Investing right now is that there are currently no management fees. Most comparable robo-advisors include a management fee of 0.25% or more, so that’s quite a difference. If your ultimate goal is to reduce your investment costs, SoFi is a strong contender for your business.
Another upside is the frequency of SoFi’s rebalancing. Many robo-advisors are vague about how often rebalancing takes place but not only is SoFi transparent about it, they are also clear about the exact thresholds they monitor to keep your allocations on target.
A final perk is that all Automated Investing customers receive unlimited access to certified financial planners. You can schedule a talk with a financial planner anytime you have questions and not only is the process free, but it’s also easy to simply pick a time online that works for you to have a conversation.
On top of that, none of SoFi’s advisors work on commission, so you don’t have to worry about upselling or any hidden agenda when soliciting their advice. SoFi’s financial advisors are registered as investment adviser representatives and there is also a planning professionals team if you have more complicated questions about your overall financial plan. This is an upscale service, particularly considering there’s no management fee on your accounts.
One of SoFi’s limitations is the lack of tax-loss harvesting, which is common among some of the more established robo-advisors. However, there are supposed plans to include this feature later in 2019, but a firm date has not yet been announced by SoFi.
Another disadvantage is that while SoFi’s IRA options are robust, those are the only tax-advantaged accounts available. There are no options for college savings plans and there aren’t any taxable trust accounts available for estate planning.
Also, it’s important to know that SoFi is one of the newer robo-advisors on the market. It recently came under scrutiny for liquidating clients’ assets to transfer into new ETFs, which caused investors to incur short-term capital gains. The communication leading up to the liquidation was vague, catching many investors off-guard.
This faux pas may be a sign that the company is still learning the ropes when it comes to serving as an investment fiduciary, although some other robo-advisors have also been in similar situations while navigating new paths in the investment landscape. As with any investment vehicle, it’s important to carefully read any and all documentation you receive about your account. Even though robo-advisors are considered a hands-off approach, you still have to perform your own due diligence when it comes to managing your money.
Who It’s Best For
SoFi Automated Investing is a good choice for people who want to spend as little as possible on investments, at least for the foreseeable future. With no fees for managing your expenses and only a $1 minimum deposit required, you can start investing right away regardless of your current finances. On the downside, if and when SoFi does decide to start charging for its service, it’s impossible to know right now what type of fee to expect further down the road.
If you have good credit and plan on taking out any type of loan in the near future, you may consider joining SoFi Automated Investing so you can also piggyback on the company’s member benefits. Rate discounts on personal and student loans can add up to significant savings over time, while future home buyers can enjoy lower closing costs with a reduction in your home loan processing fees.
The Bottom Line
Like any robo-advisor, SoFi Automated Investing is best for the hands-off investor who prefers continued guidance on how to adjust a portfolio based on savings goals and market conditions. The platform truly stands out thanks to its rare 0% management fee, allowing your funds to grow at a maximum pace without any leaking from fees — at least for now.
With excellent support from advisors included for all customers, there’s no limit on who can invest with SoFi. As with any type of investment, it’s best to start as soon as possible so your deposits can grow as much as possible in the coming years.