What is Sofi Automated Investing and how does it work?
Sofi Automated Investing is Sofi's in house
robo advisor. Like other popular robo advisors, Sofi Automated Investing focuses on using technology to lower the barrier of entry for the average investor. When you first sign up for Sofi, the automated investing service will help you set up a profile by gathering basic information.
Once your profile is set up, Sofi will ask if you want a conservative, moderate, or aggressive investing portfolio. The aggressive portfolio invests a large percentage of your money in
stocks, whereas the conservative portfolio invests a higher percentage in
bonds.
Once you select how much risk you are willing to take with your portfolio, Sofi will help you decide how much and how frequently you want to invest in your portfolio. You can make a one time investment or set up recurring investments to grow your portfolio.
It is important to understand that Sofi does not pick individual stocks or bonds when designing your portfolio. Instead, they use low cost
ETFs which has become common practice in the robo advising world. For example, let's say that you picked an aggressive portfolio to invest in as you are comfortable taking on higher risk for the possibility of higher returns.
Sofi might create a portfolio that is 90% stocks and 10% bonds. In this scenario Sofi would allocate 90% of your portfolio towards low cost ETFs that are made up of stocks and 10% of your portfolio towards low cost ETFs that are made up of bonds.
Additionally, Sofi use automatic portfolio rebalancing. This is a strategy in which Sofi will manage the allocation of your portfolio and adjust it so that it is always aligned with the original portfolio you selected. For example, let's say that you selected a moderate portfolio that had a split of 60% stocks and 40% bonds respectively.
Let's say that for whatever reason your portfolio drifted out of this alignment to a split of 65% stocks and 35% bonds. Sofi would automatically "rebalance" your portfolio to the original allocation of 60% stocks and 40% bonds, respectively. This ensures that your portfolio always aligns with your
risk tolerance.
A Quick Summary
A tax strategy is not offered
Human advisors are offered
Cash managment is offered indirectly
Account Types
Sofi currently offers five account types. These accounts simply hold the investment portfolio that Sofi builds for you and are not investments themselves.
Individual or joint brokerage account: A
brokerage account simply allows you to deposit funds and start investing. This account does not have any special tax features, but anyone can open one. You can own this account as an individual or jointly with another person.
Traditional IRA: A
Traditional IRA allows you to contribute dollars to save for your retirement. The contributions you make to a Traditional IRA may be tax deductible depending if you or your spouse contribute to a
401k and what your income is.
A Traditional IRA is a tax deferred account. This means that all the money you earn from the investments in the account is not subject to taxes in retirement. Once you are 59 and a half years old you can start to withdraw from the account at which point you will owe taxes.
Roth IRA: A
Roth IRA is just the opposite of a Traditional IRA. The contributions that you make to a Roth IRA are not tax deductible. Instead, you contribute to the account with dollars that you have already paid tax on. However, a Roth IRA is a tax-free investing account.
This means that you will not owe taxes as the account grows, and you will not owe taxes when you pull the money out in retirement. In general, the account must be at least 5 years old and you must be at least 59 and a half years old before you can pull money out of the account.
SEP IRA: Simplified employee pension (SEP) IRAs are retirement accounts for business owners in which the contributions are tax deductible. Investments grow tax deferred and are taxed as income upon withdrawal in retirement.
401k or IRA Rollover: A 401k Rollover allows you to "rollover" funds that were previously held in a 401k into an IRA. An IRA rollover allows you to "rollover" funds that were held in an IRA at a financial institution other than Sofi, to an IRA at Sofi.
Key Features
Member Benefits
Unlike Sofi's robo advisor competitors that only offer automated investing services, Sofi is a much larger financial service company. This allows Sofi to offer what they call member benefits when you sign up for their automated investing service.
These member benefits reward you simply for being a customer of Sofi. Benefits include free financial planning, discounts on loans that Sofi offers, a 15% discount on an estate plan, military benefits, and in person experiences and events.
Goal Planning
A big part of the way that Sofi invests your money is based upon your goals. Sofi investment portfolios range from moderate to aggressive risk. If you have a long term goal such as saving for your retirement, Sofi will recommend you invest in an aggressive portfolio. If your goals are short term such as taking a vacation, or buying a home, Sofi will place you in a moderate portfolio as you cannot afford to take as much risk.
Tax Strategy
Sofi does not currently offer a tax strategy to minimize the impact of taxes as you invest. Other popular
robo advisor typically offer a tax strategy called tax loss harvesting. This is a strategy where a robo advisor will intentionally sell investments in a taxable account at a loss.
This might sound counterintuitive, but selling investments at a loss can help reduce the amount of taxes you owe from other investments that were profitable. In the future, it would be nice to see Sofi add a tax strategy to complement their automated investing service.
Human Advisor
Sofi offers access to a team of human financial advisors that have a certified financial planner (CFP) designation. The best part is that Sofi offers access to these human advisors at no additional cost to you. It is a way to get additional financial advice beyond Sofi's automated investing tool.
Sofi says that their advisors can help with you with your investments, budget, debt management, insurance, and more. These advisors are only available virtually and you can set up a meeting in Sofi's app when needed.
Cash Management
One other detail that is worth mentioning is that Sofi loosely offers a cash management option for your uninvested cash. We say loosely because what Sofi offers is a checking and savings combination account under their banking products, where as most other robo advisors offer a cash management option designed to be used with your automated investing portfolio.
Since the account is a combination account, the checking portion earns up to 0.50% APY and the savings portion earns up to 4.60% APY. Sofi is also currently offering a $300 bonus if you set up direct deposit after opening up a checking account. When you open a checking account, Sofi automatically opens a corresponding savings account for you.
The checking account allows you to receive your paycheck 2 days early when direct deposit is set up. You can also get a debit card that will give you access to 55,000 ATMs and allows you to earn up to 15% cash back when you shop with qualifying local businesses. There are no account fees, and the account is FDIC insured up to $2 million.
Cost
Sofi's Automated Investing does not charge an advisory or annual fee. Although their automated investing is free to use, Sofi does note that you could potentially be charged fees and expenses from the EFTs that make up your portfolio. When you do start investing, Sofi only requires a single dollar to start.
Customer Support
Sofi's offers two options for customer support. First you can opt to use their 24/7 live chat feature. The chat feature uses an AI virtual assistant to help answer your questions or connect you with an agent during working hours. Second, you can also contact customer support via the phone from 5 am to 5 pm PT Monday through Friday.
Pros of Sofi Automated Investing
Like other popular robo advisors, Sofi automated investing does a good job at creating low cost investment portfolios based upon your tolerance for risk. However, what makes Sofi stand out from the competition is that it is extremely affordable, and you get access to a human financial advisor for free.
Sofi does not charge an advisory fee and only requires a single dollar to start. This makes the automated investing service accessible to everyone. Having a human financial advisor in your corner as well is also a huge advantage.
Other robo advisors, such as Betterment, also offer access to human financial advisors. However, Sofi does this at no additional charge, whereas other robo advisors charge for this service and often require you to have a minimum amount of money to participate.
Cons of Sofi Automated Investing
The main disadvantage of Sofi automated investing is that the service does not offer tax loss harvesting. This has become a staple in the robo advising world, so it is a disappointment that Sofi does not offer this. If you really want to nit pick, the account types that Sofi offers are also sparser when compared to the competition.
Is Sofi Automated Investing right for you?
Like most robo advisors, Sofi automated investing is a good solution if you are an inexperienced investor who wants an easy, low cost way to get started. Sofi stands out from their competition by offering a human financial advisor in addition to their automated investment service at no additional cost to you.
Alternatives to Consider
Take me to the reviewConsider using Wealthfront if you want a strong tax strategy
Management Fees
0.25% fee
Minimum Deposit
$500
Take me to the reviewConsider using Betterment if you are a long term investor
Management Fees
0.25% to 0.4% fee
Minimum Deposit
$0
Take me to the reviewConsider using M1 if you want to customize your portfolio
Management Fees
$0
Minimum Deposit
$100 to $500