Roth IRA Fund Options from SoFi

SoFi Technologies Inc. (SOFI) is a financial technology (fintech) company founded in 2011. It operates a digital platform offering a range of financial products and services, including loans, savings and checking accounts, and credit cards. The company also offers brokerage services, including a robo-advisory service that provides automated, algorithm-driven financial planning with little to no human supervision.

SoFi’s robo-advisory service manages customer portfolios of stocks, bonds, and exchange-traded funds (ETFs). SoFi does not offer mutual funds. But investors can use the company’s large selection of ETFs issued by other companies to build a Roth IRA or other kinds of portfolios.

SoFi, through its subsidiary SoFi Wealth, has assets under management (AUM) of approximately $523 million as of Jan. 3, 2022.

SoFi provides discount brokerage services through SoFi Invest, which encompasses three subsidiaries under the following names and focusing on the following services: SoFi Wealth LLC, automated investing and advisory; SoFi Securities LLC, active investing and brokerage; and SoFi Digital Assets LLC, cryptocurrency trading. SoFi Invest enables investors to actively trade stocks, ETFs, and cryptocurrencies. They also can take a more passive approach and have SoFi manage a diversified portfolio for them with no management fee. SoFi also allows investors to save for retirement with various retirement account options.

Investors in the United States have access to several tax-advantaged saving plans offered by a broad range of other financial services companies, including 401(k)s, individual retirement accounts (IRAs), and Roth IRAs. The main difference between a Roth IRA and a traditional IRA is that the former is funded with after-tax dollars. That means that contributions to Roth IRAs are not tax deductible, where they are with traditional IRAs. But unlike a traditional IRA, where withdrawn funds are taxed, a Roth IRA allows investors to withdraw funds tax free.

All data in the bullet point lists for each fund below are as of March 8, 2022, unless otherwise indicated.

Vanguard Total Stock Market ETF (VTI)

• Expense Ratio: 0.03% (as of April 29, 2021)
• Assets Under Management: $267.3 billion
• One-Year Trailing Total return: 6.6%
• 12-Month Trailing (TTM) Yield: 1.33%
• Inception Date: May 24, 2001

VTI is an ETF that aims to track the performance of the CRSP U.S. Total Market Index, an index composed of thousands of stocks across the market capitalization spectrum and which represents approximately 100% of the U.S. investable equity market. The fund provides broad, diversified exposure to the U.S. equity market.

VTI is managed by Gerard O’Reilly and Walter Nejman. O’Reilly has advised the fund since 2001 and Nejman since 2016.

Of the ETF’s 4,136 holdings, 66.9% are large cap stocks, 3.9% are somewhere between midcap and large cap, 14.9% are midcap, 6.1% are between small cap and midcap, and 8.2% are small cap. The average market cap within the fund is $537.0 billion.

VTI is the cheapest broad stock fund with the most holdings offered on SoFi’s platform. A single broad stock fund is normally sufficient for most investors looking to build a long-term portfolio for retirement. A total stock market fund, like VTI, is preferable to an S&P 500 index fund because it offers greater diversification by providing exposure to small-cap and midcap stocks in addition to large caps. The iShares Core S&P Total U.S. Stock Market ETF (ITOT) and the Schwab U.S. Broad Market ETF (SCHB) are also inexpensive alternatives. But VTI has more holdings, making it more diversified than the other two.

A broad-based equity fund like VTI carries a certain degree of risk, but it also provides investors with fairly strong growth opportunities. For many investors, this ETF may act as the foundation of a well-diversified investment portfolio. However, for those with a very low risk tolerance or who are approaching retirement, a more income-oriented portfolio may be a better option.

BNY Mellon Core Bond ETF (BKAG)

• Expense Ratio: 0.00%
• Assets Under Management: $256.6 million
• One-Year Trailing Total Return: -3.5%
• 12-Month Trailing (TTM) Yield: 1.61%
• Inception Date: April 22, 2020

BKAG is a passively managed ETF that aims to track the performance of the Bloomberg Barclays U.S. Aggregate Total Return Index, a broad-based benchmark that gauges the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The fund provides investors with broad exposure to the overall U.S. bond market.

BKAG has a 0 percent expense ratio and is the cheapest broad bond fund offered by SoFi. It is managed by Nancy G. Rogers and Gregory A. Lee, both of whom have advised the fund for two years.

Of the fund’s 2,082 holdings, 39.5% are Treasurys, 27.6% are agency fixed-rate bonds, and the remaining 32.9% of holdings are bonds or other debt securities issued by entities operating in the following market sectors: banking, consumer noncyclical, technology, communications, energy, electric, consumer cyclical, and capital goods.

Broad-based bond or fixed-income funds are generally less risky than equity funds. However, bond funds don’t provide the same growth potential, which means generally lower returns. They can be useful tools both for risk-averse investors and as part of a portfolio diversification strategy. Consistent with modern portfolio theory, risk-averse investors will find that investing in both a broad-based bond fund and a broad-based equity fund provides diversification. It is an approach that tends to maximize returns while minimizing risks.

Traditional wisdom suggests that that the precise mix of stocks and bonds in a long-term portfolio should follow the 60/40 rule—60% stocks and 40% bonds—and that the proportion of stocks to bonds should shrink as the investor ages. But conventional wisdom has changed, and many financial advisors and prominent investors, including Warren Buffett, are now recommending that holding a higher percentage of stocks throughout an investor’s career can greatly enhance potential returns while only marginally increasing the risks. Investors should always consider their own financial needs and appetite for risk before making any investment decision.

The Bottom Line

A Roth IRA offers investors certain tax advantages. Roth IRAs are unique in that they are funded with after-tax dollars and are not taxed when the funds are withdrawn at a later date. In short, funds invested in a Roth IRA can grow tax free. After opening a Roth IRA, the types of investments chosen will depend on the individual investor’s risk tolerance and how much time and energy they have to research various investments.

For investors with little time and energy, one option is to go with a few large and diversified funds, allocating part of their money to a broad-based stock fund and another part to a broad-based bond fund. These large, diversified funds also may create a solid foundation for many investors who do have the extra time and energy to evaluate other, sometimes riskier, investment options involving investments in individual companies or specific niches of the market, such as small cap stocks.