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https://www.investopedia.com/average-credit-scores-by-gender-5214525

Average Credit Scores by Gender

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Most people are probably aware of the income disparities between men and women, a phenomenon that has been debated and researched quite extensively. But is there a gap between men and women when it comes to lending and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit scores</a>? This is a difficult subject to gauge thanks to changes in regulations made by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ecoa.asp">Equal Credit Opportunity Act (ECOA)</a> of 1974, which bars lenders from discriminating against groups based on their demographics, including race, color, nationality, religion, sex, age, and receipt of public assistance.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Although the information may not be readily available, we were able to make some determinations on credit scores and usage by gender from a 2020 report issued by Experian, one of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/top-three-credit-bureaus/">three major credit reporting agencies</a>. The company published a major analysis of the issue, “Women and Credit 2020: How History Shaped Today’s Credit Landscape,” that broke down the gap between the genders as the third decade of the 21st century commenced.<span class="ql-inline-citation" data-cite="1"></span> It remains the most recent detailed source available on the subject in 2024. Let’s take a look at the numbers for men and women and some historical background. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>As late as the early 1970s women faced many hurdles in accessing credit, being required to have male cosigners and large down payments to get loans.</li><li>The Equal Credit Opportunity Act of 1974 prohibited several practices that restricted women’s access to credit and their ability to be financially self-reliant.</li><li>The average credit score of the two genders was identical in 2020.</li><li>Men and women carried essentially the same level of credit card debt.</li><li>Men carried more debt than women overall, including in every category except student loans.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-equal-credit-opportunity-act-of-1974"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> The Equal Credit Opportunity Act of 1974 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> It’s hard to believe that women weren’t allowed to take out a loan or apply for credit without a male cosigner as recently as the 1970s.<span class="ql-inline-citation" data-cite="4"></span> What’s more, when buying a home they were typically required to make a larger down payment than male applicants with a similar credit history.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Even today, according to the National Association of Realtors’ “2023 Profile of Buyers and Sellers,” “women face discrimination in obtaining mortgages due to a lower income than men,” a product of the ongoing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/history-gender-wage-gap-america-5074898">gender-based wage gap</a> in the U.S. In 2023, on average, women earned 83.7 cents for each dollar earned by men.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Still, the ECOA was a major milestone in trying to end gender discrimination as it relates to accessing credit.<span class="ql-inline-citation" data-cite="2"></span> The Experian report showed that credit availability and usage for women and men had become largely aligned as of 2020.<span class="ql-inline-citation" data-cite="1"></span> The table below delineates the divergence in scores and the average debt balance according to type for men and women.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_14-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Average Debt and Credit Metrics by Gender</th> </tr> <tr> <th>Debt/Credit Metric</th> <th>Men</th> <th>Women</th> <th>Difference for Women</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Average credit score</td> <td>705</td> <td>704</td> <td>- 1</td> </tr> <tr> <td>Total debt balances</td> <td>$337,957</td> <td>$310,004</td> <td>- $27,953</td> </tr> <tr> <td>Mortgage debt</td> <td>$211,034</td> <td>$192,368</td> <td>- $18,666</td> </tr> <tr> <td>HELOC debt</td> <td>$ 47,017</td> <td>$ 42,746</td> <td>- $4,271</td> </tr> <tr> <td>Auto loan debt</td> <td>$ 20,645</td> <td>$ 17,747</td> <td>- $2,898</td> </tr> <tr> <td>Student loan debt</td> <td>$ 35,188</td> <td>$ 36,131</td> <td>+ $943</td> </tr> <tr> <td>Personal loan debt</td> <td>$ 17,716</td> <td>$ 14,780</td> <td>- $2,936</td> </tr> <tr> <td>Credit card debt</td> <td>$ 6,357</td> <td>$ 6,232</td> <td>- $125</td> </tr> <tr> <td>Number of credit cards</td> <td>3.6</td> <td>4.5</td> <td>+ 0.9</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <strong>Source:</strong> <em>Women and Credit 2020: How History Shaped Today’s Credit Landscape</em><span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> This isn’t to say there were no differences in how men and women applied for and used debt and credit. Men carried more overall debt than women, including across most debt categories. On the other hand, women carried more student loan debt and often had more credit cards.<span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">704 and 715</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The average credit score for women as of the fourth quarter of 2019 and the average consumer credit score in the U.S. for 2023<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="5"></span></p></div></div></div> <span class="heading-toc" id="toc-credit-and-debt-for-women-vs-men"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> Credit and Debt for Women vs. Men </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Any <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/parityprice.asp">parity</a> that does exist between men’s and women’s average credit scores is not entirely new. The numbers were similarly close in the mid-2010s, and both averages rose 10 points from the second quarter of 2015 up through the last quarter of 2019.<span class="ql-inline-citation" data-cite="1"></span> In modern-day <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fico-credit-scores-explained-5072985">credit scoring models</a>, however, there is no consideration of gender factors, thanks to the ECOA.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> There were some differences in the Experian report in how men and women accumulated their ongoing debt. Overall, men had about 9% more debt on average than women: approximately $338,000 vs. $310,000 in total debt balances. This difference came from holding more debt than women in every debt category but one. Men held 9.7% more mortgage and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/home-equity-line-of-credit-heloc-definition-5217473">home equity line of credit (HELOC)</a> debt, 16.3% more auto loan debt, and, most strikingly, 20% more <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-5076027">personal loan</a> debt.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Women held slightly more student loan debt on average (2.7%) than men, and they also tended to have more credit cards, averaging 4.5 cards as opposed to 3.6 cards. When it came to credit card balances, the difference was just $125 between the genders (about 2%), which is not considered statistically significant.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_29-0"><span class="heading-toc" id="toc-are-the-average-credit-scores-for-men-and-women-different"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are the Average Credit Scores for Men and Women Different?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Not materially. As of 2020 women had an average credit score of 704, while the average score for men was 705.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-what-is-the-equal-credit-opportunity-act-ecoa"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Equal Credit Opportunity Act (ECOA)?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Passed by Congress in 1974 and signed into law by President Gerald R. Ford, the ECOA did its best to level the playing field when it comes to women’s access to credit. Prior to the law, women weren’t allowed to take out a loan or apply for credit without a male cosigner. Women were also typically required to put down a larger down payment when buying a home than men were.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-what-is-the-gender-wage-gap"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Gender Wage Gap?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Women still earn less than men for comparable work, something known as the gender wage gap. In 2023, women earned 83.7 cents for each dollar earned by men.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Legislative changes in 1974 allowed for greater access to credit by American women, enabling them to take out loans and credit cards without relying on male cosigners or being unfairly penalized when taking out a home loan. As of 2020 women had largely climbed to credit and debt equity, achieving <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/average-credit-scores-by-age-5214511">average credit scores</a> that were identical to men’s. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The makeup of debt did differ between genders, with men taking on more debt for housing, cars, and other items, while women as a group took on slightly more student loan debt. Although the total average debt balance of men was about 10% higher than women’s, the identical average credit scores implied that there was a similarly responsible approach to the handling of credit across genders. </p></div>

Most people are probably aware of the income disparities between men and women, a phenomenon that has been debated and researched quite extensively. But is there a gap between men and women when it comes to lending and [credit scores](https://www.investopedia.com/terms/c/credit_score.asp)? This is a difficult subject to gauge thanks to changes in regulations made by the [Equal Credit Opportunity Act (ECOA)](https://www.investopedia.com/terms/e/ecoa.asp) of 1974, which bars lenders from discriminating against groups based on their demographics, including race, color, nationality, religion, sex, age, and receipt of public assistance. Although the information may not be readily available, we were able to make some determinations on credit scores and usage by gender from a 2020 report issued by Experian, one of the [three major credit reporting agencies](https://www.investopedia.com/personal-finance/top-three-credit-bureaus/). The company published a major analysis of the issue, “Women and Credit 2020: How History Shaped Today’s Credit Landscape,” that broke down the gap between the genders as the third decade of the 21st century commenced. It remains the most recent detailed source available on the subject in 2024. Let’s take a look at the numbers for men and women and some historical background. ### Key Takeaways * As late as the early 1970s women faced many hurdles in accessing credit, being required to have male cosigners and large down payments to get loans. * The Equal Credit Opportunity Act of 1974 prohibited several practices that restricted women’s access to credit and their ability to be financially self-reliant. * The average credit score of the two genders was identical in 2020. * Men and women carried essentially the same level of credit card debt. * Men carried more debt than women overall, including in every category except student loans. ## The Equal Credit Opportunity Act of 1974 It’s hard to believe that women weren’t allowed to take out a loan or apply for credit without a male cosigner as recently as the 1970s. What’s more, when buying a home they were typically required to make a larger down payment than male applicants with a similar credit history. Even today, according to the National Association of Realtors’ “2023 Profile of Buyers and Sellers,” “women face discrimination in obtaining mortgages due to a lower income than men,” a product of the ongoing [gender-based wage gap](https://www.investopedia.com/history-gender-wage-gap-america-5074898) in the U.S. In 2023, on average, women earned 83.7 cents for each dollar earned by men. Still, the ECOA was a major milestone in trying to end gender discrimination as it relates to accessing credit. The Experian report showed that credit availability and usage for women and men had become largely aligned as of 2020. The table below delineates the divergence in scores and the average debt balance according to type for men and women. | Average Debt and Credit Metrics by Gender | | | | | --- | --- | --- | --- | | Debt/Credit Metric | Men | Women | Difference for Women | | Average credit score | 705 | 704 | - 1 | | Total debt balances | $337,957 | $310,004 | - $27,953 | | Mortgage debt | $211,034 | $192,368 | - $18,666 | | HELOC debt | $ 47,017 | $ 42,746 | - $4,271 | | Auto loan debt | $ 20,645 | $ 17,747 | - $2,898 | | Student loan debt | $ 35,188 | $ 36,131 | + $943 | | Personal loan debt | $ 17,716 | $ 14,780 | - $2,936 | | Credit card debt | $ 6,357 | $ 6,232 | - $125 | | Number of credit cards | 3.6 | 4.5 | + 0.9 | **Source:** *Women and Credit 2020: How History Shaped Today’s Credit Landscape* This isn’t to say there were no differences in how men and women applied for and used debt and credit. Men carried more overall debt than women, including across most debt categories. On the other hand, women carried more student loan debt and often had more credit cards. ### 704 and 715 The average credit score for women as of the fourth quarter of 2019 and the average consumer credit score in the U.S. for 2023 ## Credit and Debt for Women vs. Men Any [parity](https://www.investopedia.com/terms/p/parityprice.asp) that does exist between men’s and women’s average credit scores is not entirely new. The numbers were similarly close in the mid-2010s, and both averages rose 10 points from the second quarter of 2015 up through the last quarter of 2019. In modern-day [credit scoring models](https://www.investopedia.com/fico-credit-scores-explained-5072985), however, there is no consideration of gender factors, thanks to the ECOA. There were some differences in the Experian report in how men and women accumulated their ongoing debt. Overall, men had about 9% more debt on average than women: approximately $338,000 vs. $310,000 in total debt balances. This difference came from holding more debt than women in every debt category but one. Men held 9.7% more mortgage and [home equity line of credit (HELOC)](https://www.investopedia.com/home-equity-line-of-credit-heloc-definition-5217473) debt, 16.3% more auto loan debt, and, most strikingly, 20% more [personal loan](https://www.investopedia.com/personal-loan-5076027) debt. Women held slightly more student loan debt on average (2.7%) than men, and they also tended to have more credit cards, averaging 4.5 cards as opposed to 3.6 cards. When it came to credit card balances, the difference was just $125 between the genders (about 2%), which is not considered statistically significant. ## Are the Average Credit Scores for Men and Women Different? Not materially. As of 2020 women had an average credit score of 704, while the average score for men was 705. ## What Is the Equal Credit Opportunity Act (ECOA)? Passed by Congress in 1974 and signed into law by President Gerald R. Ford, the ECOA did its best to level the playing field when it comes to women’s access to credit. Prior to the law, women weren’t allowed to take out a loan or apply for credit without a male cosigner. Women were also typically required to put down a larger down payment when buying a home than men were. ## What Is the Gender Wage Gap? Women still earn less than men for comparable work, something known as the gender wage gap. In 2023, women earned 83.7 cents for each dollar earned by men. ## The Bottom Line Legislative changes in 1974 allowed for greater access to credit by American women, enabling them to take out loans and credit cards without relying on male cosigners or being unfairly penalized when taking out a home loan. As of 2020 women had largely climbed to credit and debt equity, achieving [average credit scores](https://www.investopedia.com/average-credit-scores-by-age-5214511) that were identical to men’s. The makeup of debt did differ between genders, with men taking on more debt for housing, cars, and other items, while women as a group took on slightly more student loan debt. Although the total average debt balance of men was about 10% higher than women’s, the identical average credit scores implied that there was a similarly responsible approach to the handling of credit across genders.

Most people are probably aware of the income disparities between men and women, a phenomenon that has been debated and researched quite extensively. But is there a gap between men and women when it comes to lending and credit scores? This is a difficult subject to gauge thanks to changes in regulations made by the Equal Credit Opportunity Act (ECOA) of 1974, which bars lenders from discriminating against groups based on their demographics, including race, color, nationality, religion, sex, age, and receipt of public assistance. Although the information may not be readily available, we were able to make some determinations on credit scores and usage by gender from a 2020 report issued by Experian, one of the three major credit reporting agencies. The company published a major analysis of the issue, “Women and Credit 2020: How History Shaped Today’s Credit Landscape,” that broke down the gap between the genders as the third decade of the 21st century commenced. It remains the most recent detailed source available on the subject in 2024. Let’s take a look at the numbers for men and women and some historical background. Key Takeaways As late as the early 1970s women faced many hurdles in accessing credit, being required to have male cosigners and large down payments to get loans.The Equal Credit Opportunity Act of 1974 prohibited several practices that restricted women’s access to credit and their ability to be financially self-reliant.The average credit score of the two genders was identical in 2020.Men and women carried essentially the same level of credit card debt.Men carried more debt than women overall, including in every category except student loans. The Equal Credit Opportunity Act of 1974 It’s hard to believe that women weren’t allowed to take out a loan or apply for credit without a male cosigner as recently as the 1970s. What’s more, when buying a home they were typically required to make a larger down payment than male applicants with a similar credit history. Even today, according to the National Association of Realtors’ “2023 Profile of Buyers and Sellers,” “women face discrimination in obtaining mortgages due to a lower income than men,” a product of the ongoing gender-based wage gap in the U.S. In 2023, on average, women earned 83.7 cents for each dollar earned by men. Still, the ECOA was a major milestone in trying to end gender discrimination as it relates to accessing credit. The Experian report showed that credit availability and usage for women and men had become largely aligned as of 2020. The table below delineates the divergence in scores and the average debt balance according to type for men and women. Average Debt and Credit Metrics by Gender Debt/Credit Metric Men Women Difference for Women Average credit score 705 704 - 1 Total debt balances $337,957 $310,004 - $27,953 Mortgage debt $211,034 $192,368 - $18,666 HELOC debt $ 47,017 $ 42,746 - $4,271 Auto loan debt $ 20,645 $ 17,747 - $2,898 Student loan debt $ 35,188 $ 36,131 + $943 Personal loan debt $ 17,716 $ 14,780 - $2,936 Credit card debt $ 6,357 $ 6,232 - $125 Number of credit cards 3.6 4.5 + 0.9 Source: Women and Credit 2020: How History Shaped Today’s Credit Landscape This isn’t to say there were no differences in how men and women applied for and used debt and credit. Men carried more overall debt than women, including across most debt categories. On the other hand, women carried more student loan debt and often had more credit cards. 704 and 715 The average credit score for women as of the fourth quarter of 2019 and the average consumer credit score in the U.S. for 2023 Credit and Debt for Women vs. Men Any parity that does exist between men’s and women’s average credit scores is not entirely new. The numbers were similarly close in the mid-2010s, and both averages rose 10 points from the second quarter of 2015 up through the last quarter of 2019. In modern-day credit scoring models, however, there is no consideration of gender factors, thanks to the ECOA. There were some differences in the Experian report in how men and women accumulated their ongoing debt. Overall, men had about 9% more debt on average than women: approximately $338,000 vs. $310,000 in total debt balances. This difference came from holding more debt than women in every debt category but one. Men held 9.7% more mortgage and home equity line of credit (HELOC) debt, 16.3% more auto loan debt, and, most strikingly, 20% more personal loan debt. Women held slightly more student loan debt on average (2.7%) than men, and they also tended to have more credit cards, averaging 4.5 cards as opposed to 3.6 cards. When it came to credit card balances, the difference was just $125 between the genders (about 2%), which is not considered statistically significant. Are the Average Credit Scores for Men and Women Different? Not materially. As of 2020 women had an average credit score of 704, while the average score for men was 705. What Is the Equal Credit Opportunity Act (ECOA)? Passed by Congress in 1974 and signed into law by President Gerald R. Ford, the ECOA did its best to level the playing field when it comes to women’s access to credit. Prior to the law, women weren’t allowed to take out a loan or apply for credit without a male cosigner. Women were also typically required to put down a larger down payment when buying a home than men were. What Is the Gender Wage Gap? Women still earn less than men for comparable work, something known as the gender wage gap. In 2023, women earned 83.7 cents for each dollar earned by men. The Bottom Line Legislative changes in 1974 allowed for greater access to credit by American women, enabling them to take out loans and credit cards without relying on male cosigners or being unfairly penalized when taking out a home loan. As of 2020 women had largely climbed to credit and debt equity, achieving average credit scores that were identical to men’s. The makeup of debt did differ between genders, with men taking on more debt for housing, cars, and other items, while women as a group took on slightly more student loan debt. Although the total average debt balance of men was about 10% higher than women’s, the identical average credit scores implied that there was a similarly responsible approach to the handling of credit across genders.

https://www.investopedia.com/articles/basics/03/060603.asp

When Stock Prices Drop, Where Is the Money?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Have you ever wondered what happened to your socks when you put them in the dryer and never saw them again? It's an unexplained mystery that may never be solved. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Many people feel the same way when they suddenly find that their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerageaccount.asp">brokerage account</a> balance has taken a nosedive. Where did that money go? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Fortunately, money that is gained or lost on a stock <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/lose-money-stock-market-crashes/">doesn't just disappear</a>. Read on to find out what happens to it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>When a stock tumbles and an investor loses money, the money doesn't get redistributed to someone else. </li><li>Drops in account value reflect dwindling investor interest and a change in investor perception of the stock.</li><li>That's because stock prices are determined by supply and demand driven by investor perception of value and viability.</li><li>As long as you don't sell your shares, you have a chance to regain lost value.</li></ul></div></div></div> <span class="heading-toc" id="toc-disappearing-money"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> Disappearing Money </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Before we get to how money disappears, it is important to understand that regardless of whether the market is rising (a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bullmarket.asp">bull market</a>) or falling (a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bearmarket.asp">bear market</a>), <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/supply.asp">supply</a> and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/demand.asp">demand</a> drive the price of stocks. And it's the fluctuations in stock prices (and the points at which you buy and sell shares) that determine whether you make money or lose it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-subheading__text"> Buy and Sell Trades </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> If you purchase a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commonstock.asp">stock</a> for $10 and sell it for only $5, you will lose $5 per share. You may believe that that money goes to someone else, but that isn't exactly true. It doesn't go to the person who buys the stock from you. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> For example, let's say you were thinking of buying a stock at $15, and before you do so, the stock price falls to $10 per share. You decide to purchase at $10, but you didn't gain the $5 depreciation in the stock price. Instead, you got the stock at the current market value of $10 per share. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> In your mind, you may think that you saved $5, but you didn't actually earn a $5 profit. However, if the stock then rises from $10 back to $15, you will have a $5 (unrealized) gain. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The same is true if you're holding stock and its price drops, leading you to sell it for a loss. The person <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/04/052704.asp">buying it at that lower price</a>—the price you sold it for—doesn't necessarily profit from your loss. That's because their entry point is the lower price and they must wait for the stock to rise above that level before making an unrealized (or realized) profit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_21-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_22-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>No one, including the company that issued the stock, pockets the money from your declining stock price. The money reflected by changes in stock prices isn't tallied and given to some investor. The changes in price are simply an independent by-product of supply and demand and corresponding investor transactions.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-subheading__text"> Short Selling </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> There are investors who place trades with a broker to sell a stock at a perceived high price with the expectation that it will decline. This is called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortselling.asp">short-selling</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> If the stock price falls, the short seller profits by buying the stock at the lower price and closing out the trade. The net difference between the sale and buy prices is settled with the broker. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Although short-sellers profit from a declining price, they're not taking money from you in particular when you lose on a stock sale. Rather, they're conducting independent transactions and have just as much of a chance to lose or be wrong on their trade as investors who are long (own) the stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> In other words, short-sellers profit on price declines, but it's a separate transaction from bullish investors who bought the stock and are losing money because the price is declining. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> So the question remains:<em> Where did the money go?</em> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-implicit-and-explicit-value"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> Implicit and Explicit Value </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The most straightforward answer to this question is that it actually disappeared into thin air, due to the decrease in demand for the stock, or, more specifically, the decrease in enough investors' favorable perceptions of it to move the price down by selling. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> But this capacity of money to dissolve into the unknown demonstrates the complex and somewhat contradictory nature of money. Yes, money is a teaser—at once intangible, flirting with our dreams and fantasies, and concrete, the thing with which we obtain our daily bread. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> More precisely, this duplicity of money represents the two parts that make up a stock's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketvalue.asp">market value</a>: the implicit and explicit value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-subheading__text"> Implicit Value </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> On the one hand, value can be created or dissolved with the change in a stock's implicit value, which is determined by the personal perceptions and research of investors and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/analyst.asp">analysts</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> For example, a pharmaceutical company with the rights to the patent for the cure for cancer may have a much higher implicit value than that of a corner store. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Depending on investors' perceptions and expectations for the stock, implicit value is based on revenues and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/06/earningsforecasts.asp">earnings forecasts</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> If the implicit value undergoes a change—which, really, is generated by abstract things like faith and emotion—the stock price follows. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/04/030504.asp">decrease in implicit value</a>, for instance, leaves the owners of the stock with a loss in value because their asset is now worth less than its original price. Again, no one else necessarily receives the money; it simply vanishes due to investors' perceptions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-subheading__text"> Explicit Value </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Now that we've covered the above somewhat unreal characteristic of money, we cannot ignore how money also represents explicit value, which is the concrete value of a company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Referred to as the accounting value (or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bookvalue.asp">book value</a>), the explicit value is calculated by adding up all <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a> and subtracting <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liability.asp">liabilities</a>. So, this represents the amount of money that would be left over if a company were to sell all of its assets at <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fairmarketvalue.asp">fair market value</a> and then pay off all of the liabilities, such as bills and debts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Without explicit value, the implicit value of the company would not exist. Investors' interpretation of the financial health and performance of a company is based on its explicit value. Explicit value is the force behind the stock's implicit value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_57-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_58-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Even if your brokerage account suffers a loss of value, you have a chance to regain and even exceed the loss as the stock price recovers—as long as you don't sell your shares. </p></div></div></div> <span class="heading-toc" id="toc-disappearing-trick-revealed"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_59-0"> <span class="mntl-sc-block-heading__text"> Disappearing Trick Revealed </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Let's say Cisco Systems Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO">CSCO</a>) had 5.81 billion shares outstanding. This means that if the value of the shares dropped by $1, the loss would be equivalent to more than $5.81 billion in (implicit) value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Because Cisco has many billions of dollars in concrete assets and makes profits, we know that the change occurs not in explicit value, so the idea of money disappearing into thin air ironically becomes much more tangible. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> In essence, what's happening is that investors, analysts, and market professionals are declaring that their projections for the company have narrowed. Investors are, therefore, not willing to pay as much for the stock as they were before. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_66-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_67-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>When investor perception of a stock diminishes, so does the demand for the stock, and, in turn, the price.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-subheading__text"> The Explicit Drives the Implicit </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> So faith and expectations can translate into cold hard cash, but only because of something very real driving perception. That's the capacity of a company to create something useful and needed by people and businesses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> The better a company is at creating something for which there's demand, the higher <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/03/052303.asp">the company's earnings</a> will be, and the more faith investors will have in the company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_73-0"><span class="heading-toc" id="toc-should-i-sell-stock-if-it-goes-down"></span> <h2 class="mntl-sc-block-questionandanswer__question">Should I Sell Stock If It Goes Down?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Unless there's something fundamentally wrong with the financials of the company whose stock you own (or you need the money), it may be worth waiting to see if the stock price reverses and recovers. Avoid panic selling.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_75-0"><span class="heading-toc" id="toc-do-you-lose-money-when-stocks-drop"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do You Lose Money When Stocks Drop?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When the stock market declines, the market value of your stock investment can decline as well. However, because you still own your shares (if you didn't sell them), that value can move back into positive territory when the market changes direction and heads back up. So, you may lose value, but that can be temporary.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_77-0"><span class="heading-toc" id="toc-what-are-unrealized-gains-and-losses"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Unrealized Gains and Losses?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An unrealized gain is the increase in value of an asset owned by an investor. An unrealized loss is a decrease in value. These gains and losses become realized (and can't change) if the investor sells the asset. Unrealized gains and losses are subject to change when you continue to own the asset.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_79-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> In a bull market, there is an overall positive perception of the market's ability to keep producing and creating. Because this perception would not exist were it not for some evidence that something is being, or will be, created, investors participating in a bull market can make money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> Of course, the exact opposite can happen in a bear market. In other words, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockmarket.asp">stock market</a> can be seen as a huge vehicle for wealth creation and destruction. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> No one really knows why socks that go into the dryer never come out, but the next time that you're wondering where that stock price came from or went to, at least you can chalk it up to investor perception. </p></div>

Have you ever wondered what happened to your socks when you put them in the dryer and never saw them again? It's an unexplained mystery that may never be solved. Many people feel the same way when they suddenly find that their [brokerage account](https://www.investopedia.com/terms/b/brokerageaccount.asp) balance has taken a nosedive. Where did that money go? Fortunately, money that is gained or lost on a stock [doesn't just disappear](https://www.investopedia.com/ask/answers/lose-money-stock-market-crashes/). Read on to find out what happens to it. ### Key Takeaways * When a stock tumbles and an investor loses money, the money doesn't get redistributed to someone else. * Drops in account value reflect dwindling investor interest and a change in investor perception of the stock. * That's because stock prices are determined by supply and demand driven by investor perception of value and viability. * As long as you don't sell your shares, you have a chance to regain lost value. ## Disappearing Money Before we get to how money disappears, it is important to understand that regardless of whether the market is rising (a [bull market](https://www.investopedia.com/terms/b/bullmarket.asp)) or falling (a [bear market](https://www.investopedia.com/terms/b/bearmarket.asp)), [supply](https://www.investopedia.com/terms/s/supply.asp) and [demand](https://www.investopedia.com/terms/d/demand.asp) drive the price of stocks. And it's the fluctuations in stock prices (and the points at which you buy and sell shares) that determine whether you make money or lose it. ### Buy and Sell Trades If you purchase a [stock](https://www.investopedia.com/terms/c/commonstock.asp) for $10 and sell it for only $5, you will lose $5 per share. You may believe that that money goes to someone else, but that isn't exactly true. It doesn't go to the person who buys the stock from you. For example, let's say you were thinking of buying a stock at $15, and before you do so, the stock price falls to $10 per share. You decide to purchase at $10, but you didn't gain the $5 depreciation in the stock price. Instead, you got the stock at the current market value of $10 per share. In your mind, you may think that you saved $5, but you didn't actually earn a $5 profit. However, if the stock then rises from $10 back to $15, you will have a $5 (unrealized) gain. The same is true if you're holding stock and its price drops, leading you to sell it for a loss. The person [buying it at that lower price](https://www.investopedia.com/ask/answers/04/052704.asp)—the price you sold it for—doesn't necessarily profit from your loss. That's because their entry point is the lower price and they must wait for the stock to rise above that level before making an unrealized (or realized) profit. ### No one, including the company that issued the stock, pockets the money from your declining stock price. The money reflected by changes in stock prices isn't tallied and given to some investor. The changes in price are simply an independent by-product of supply and demand and corresponding investor transactions. ### Short Selling There are investors who place trades with a broker to sell a stock at a perceived high price with the expectation that it will decline. This is called [short-selling](https://www.investopedia.com/terms/s/shortselling.asp). If the stock price falls, the short seller profits by buying the stock at the lower price and closing out the trade. The net difference between the sale and buy prices is settled with the broker. Although short-sellers profit from a declining price, they're not taking money from you in particular when you lose on a stock sale. Rather, they're conducting independent transactions and have just as much of a chance to lose or be wrong on their trade as investors who are long (own) the stock. In other words, short-sellers profit on price declines, but it's a separate transaction from bullish investors who bought the stock and are losing money because the price is declining. So the question remains: *Where did the money go?* ## Implicit and Explicit Value The most straightforward answer to this question is that it actually disappeared into thin air, due to the decrease in demand for the stock, or, more specifically, the decrease in enough investors' favorable perceptions of it to move the price down by selling. But this capacity of money to dissolve into the unknown demonstrates the complex and somewhat contradictory nature of money. Yes, money is a teaser—at once intangible, flirting with our dreams and fantasies, and concrete, the thing with which we obtain our daily bread. More precisely, this duplicity of money represents the two parts that make up a stock's [market value](https://www.investopedia.com/terms/m/marketvalue.asp): the implicit and explicit value. ### Implicit Value On the one hand, value can be created or dissolved with the change in a stock's implicit value, which is determined by the personal perceptions and research of investors and [analysts](https://www.investopedia.com/terms/a/analyst.asp). For example, a pharmaceutical company with the rights to the patent for the cure for cancer may have a much higher implicit value than that of a corner store. Depending on investors' perceptions and expectations for the stock, implicit value is based on revenues and [earnings forecasts](https://www.investopedia.com/articles/stocks/06/earningsforecasts.asp). If the implicit value undergoes a change—which, really, is generated by abstract things like faith and emotion—the stock price follows. A [decrease in implicit value](https://www.investopedia.com/ask/answers/04/030504.asp), for instance, leaves the owners of the stock with a loss in value because their asset is now worth less than its original price. Again, no one else necessarily receives the money; it simply vanishes due to investors' perceptions. ### Explicit Value Now that we've covered the above somewhat unreal characteristic of money, we cannot ignore how money also represents explicit value, which is the concrete value of a company. Referred to as the accounting value (or [book value](https://www.investopedia.com/terms/b/bookvalue.asp)), the explicit value is calculated by adding up all [assets](https://www.investopedia.com/terms/a/asset.asp) and subtracting [liabilities](https://www.investopedia.com/terms/l/liability.asp). So, this represents the amount of money that would be left over if a company were to sell all of its assets at [fair market value](https://www.investopedia.com/terms/f/fairmarketvalue.asp) and then pay off all of the liabilities, such as bills and debts. Without explicit value, the implicit value of the company would not exist. Investors' interpretation of the financial health and performance of a company is based on its explicit value. Explicit value is the force behind the stock's implicit value. ### Even if your brokerage account suffers a loss of value, you have a chance to regain and even exceed the loss as the stock price recovers—as long as you don't sell your shares.  ## Disappearing Trick Revealed Let's say Cisco Systems Inc. ([CSCO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CSCO)) had 5.81 billion shares outstanding. This means that if the value of the shares dropped by $1, the loss would be equivalent to more than $5.81 billion in (implicit) value. Because Cisco has many billions of dollars in concrete assets and makes profits, we know that the change occurs not in explicit value, so the idea of money disappearing into thin air ironically becomes much more tangible. In essence, what's happening is that investors, analysts, and market professionals are declaring that their projections for the company have narrowed. Investors are, therefore, not willing to pay as much for the stock as they were before. ### When investor perception of a stock diminishes, so does the demand for the stock, and, in turn, the price. ### The Explicit Drives the Implicit So faith and expectations can translate into cold hard cash, but only because of something very real driving perception. That's the capacity of a company to create something useful and needed by people and businesses. The better a company is at creating something for which there's demand, the higher [the company's earnings](https://www.investopedia.com/articles/basics/03/052303.asp) will be, and the more faith investors will have in the company. ## Should I Sell Stock If It Goes Down? Unless there's something fundamentally wrong with the financials of the company whose stock you own (or you need the money), it may be worth waiting to see if the stock price reverses and recovers. Avoid panic selling. ## Do You Lose Money When Stocks Drop? When the stock market declines, the market value of your stock investment can decline as well. However, because you still own your shares (if you didn't sell them), that value can move back into positive territory when the market changes direction and heads back up. So, you may lose value, but that can be temporary. ## What Are Unrealized Gains and Losses? An unrealized gain is the increase in value of an asset owned by an investor. An unrealized loss is a decrease in value. These gains and losses become realized (and can't change) if the investor sells the asset. Unrealized gains and losses are subject to change when you continue to own the asset. ## The Bottom Line In a bull market, there is an overall positive perception of the market's ability to keep producing and creating. Because this perception would not exist were it not for some evidence that something is being, or will be, created, investors participating in a bull market can make money. Of course, the exact opposite can happen in a bear market. In other words, the [stock market](https://www.investopedia.com/terms/s/stockmarket.asp) can be seen as a huge vehicle for wealth creation and destruction. No one really knows why socks that go into the dryer never come out, but the next time that you're wondering where that stock price came from or went to, at least you can chalk it up to investor perception.

Have you ever wondered what happened to your socks when you put them in the dryer and never saw them again? It's an unexplained mystery that may never be solved. Many people feel the same way when they suddenly find that their brokerage account balance has taken a nosedive. Where did that money go? Fortunately, money that is gained or lost on a stock doesn't just disappear. Read on to find out what happens to it. Key Takeaways When a stock tumbles and an investor loses money, the money doesn't get redistributed to someone else. Drops in account value reflect dwindling investor interest and a change in investor perception of the stock.That's because stock prices are determined by supply and demand driven by investor perception of value and viability.As long as you don't sell your shares, you have a chance to regain lost value. Disappearing Money Before we get to how money disappears, it is important to understand that regardless of whether the market is rising (a bull market) or falling (a bear market), supply and demand drive the price of stocks. And it's the fluctuations in stock prices (and the points at which you buy and sell shares) that determine whether you make money or lose it. Buy and Sell Trades If you purchase a stock for $10 and sell it for only $5, you will lose $5 per share. You may believe that that money goes to someone else, but that isn't exactly true. It doesn't go to the person who buys the stock from you. For example, let's say you were thinking of buying a stock at $15, and before you do so, the stock price falls to $10 per share. You decide to purchase at $10, but you didn't gain the $5 depreciation in the stock price. Instead, you got the stock at the current market value of $10 per share. In your mind, you may think that you saved $5, but you didn't actually earn a $5 profit. However, if the stock then rises from $10 back to $15, you will have a $5 (unrealized) gain. The same is true if you're holding stock and its price drops, leading you to sell it for a loss. The person buying it at that lower price—the price you sold it for—doesn't necessarily profit from your loss. That's because their entry point is the lower price and they must wait for the stock to rise above that level before making an unrealized (or realized) profit. No one, including the company that issued the stock, pockets the money from your declining stock price. The money reflected by changes in stock prices isn't tallied and given to some investor. The changes in price are simply an independent by-product of supply and demand and corresponding investor transactions. Short Selling There are investors who place trades with a broker to sell a stock at a perceived high price with the expectation that it will decline. This is called short-selling. If the stock price falls, the short seller profits by buying the stock at the lower price and closing out the trade. The net difference between the sale and buy prices is settled with the broker. Although short-sellers profit from a declining price, they're not taking money from you in particular when you lose on a stock sale. Rather, they're conducting independent transactions and have just as much of a chance to lose or be wrong on their trade as investors who are long (own) the stock. In other words, short-sellers profit on price declines, but it's a separate transaction from bullish investors who bought the stock and are losing money because the price is declining. So the question remains: Where did the money go? Implicit and Explicit Value The most straightforward answer to this question is that it actually disappeared into thin air, due to the decrease in demand for the stock, or, more specifically, the decrease in enough investors' favorable perceptions of it to move the price down by selling. But this capacity of money to dissolve into the unknown demonstrates the complex and somewhat contradictory nature of money. Yes, money is a teaser—at once intangible, flirting with our dreams and fantasies, and concrete, the thing with which we obtain our daily bread. More precisely, this duplicity of money represents the two parts that make up a stock's market value: the implicit and explicit value. Implicit Value On the one hand, value can be created or dissolved with the change in a stock's implicit value, which is determined by the personal perceptions and research of investors and analysts. For example, a pharmaceutical company with the rights to the patent for the cure for cancer may have a much higher implicit value than that of a corner store. Depending on investors' perceptions and expectations for the stock, implicit value is based on revenues and earnings forecasts. If the implicit value undergoes a change—which, really, is generated by abstract things like faith and emotion—the stock price follows. A decrease in implicit value, for instance, leaves the owners of the stock with a loss in value because their asset is now worth less than its original price. Again, no one else necessarily receives the money; it simply vanishes due to investors' perceptions. Explicit Value Now that we've covered the above somewhat unreal characteristic of money, we cannot ignore how money also represents explicit value, which is the concrete value of a company. Referred to as the accounting value (or book value), the explicit value is calculated by adding up all assets and subtracting liabilities. So, this represents the amount of money that would be left over if a company were to sell all of its assets at fair market value and then pay off all of the liabilities, such as bills and debts. Without explicit value, the implicit value of the company would not exist. Investors' interpretation of the financial health and performance of a company is based on its explicit value. Explicit value is the force behind the stock's implicit value. Even if your brokerage account suffers a loss of value, you have a chance to regain and even exceed the loss as the stock price recovers—as long as you don't sell your shares.  Disappearing Trick Revealed Let's say Cisco Systems Inc. (CSCO) had 5.81 billion shares outstanding. This means that if the value of the shares dropped by $1, the loss would be equivalent to more than $5.81 billion in (implicit) value. Because Cisco has many billions of dollars in concrete assets and makes profits, we know that the change occurs not in explicit value, so the idea of money disappearing into thin air ironically becomes much more tangible. In essence, what's happening is that investors, analysts, and market professionals are declaring that their projections for the company have narrowed. Investors are, therefore, not willing to pay as much for the stock as they were before. When investor perception of a stock diminishes, so does the demand for the stock, and, in turn, the price. The Explicit Drives the Implicit So faith and expectations can translate into cold hard cash, but only because of something very real driving perception. That's the capacity of a company to create something useful and needed by people and businesses. The better a company is at creating something for which there's demand, the higher the company's earnings will be, and the more faith investors will have in the company. Should I Sell Stock If It Goes Down? Unless there's something fundamentally wrong with the financials of the company whose stock you own (or you need the money), it may be worth waiting to see if the stock price reverses and recovers. Avoid panic selling. Do You Lose Money When Stocks Drop? When the stock market declines, the market value of your stock investment can decline as well. However, because you still own your shares (if you didn't sell them), that value can move back into positive territory when the market changes direction and heads back up. So, you may lose value, but that can be temporary. What Are Unrealized Gains and Losses? An unrealized gain is the increase in value of an asset owned by an investor. An unrealized loss is a decrease in value. These gains and losses become realized (and can't change) if the investor sells the asset. Unrealized gains and losses are subject to change when you continue to own the asset. The Bottom Line In a bull market, there is an overall positive perception of the market's ability to keep producing and creating. Because this perception would not exist were it not for some evidence that something is being, or will be, created, investors participating in a bull market can make money. Of course, the exact opposite can happen in a bear market. In other words, the stock market can be seen as a huge vehicle for wealth creation and destruction. No one really knows why socks that go into the dryer never come out, but the next time that you're wondering where that stock price came from or went to, at least you can chalk it up to investor perception.

https://www.investopedia.com/terms/s/statute-of-frauds.asp

Statute of Frauds: Purpose, Contracts It Covers, and Exceptions

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-statute-of-frauds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is the Statute of Frauds? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The statute of frauds is a legal doctrine requiring that certain types of contracts be in written form. The most common contracts covered by the statute of frauds include the sale of land, agreements involving goods worth $500 or more, and contracts lasting one year or more. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The purpose of the statute of frauds is to prevent fraud or other injury. These purposes are often described as being evidentiary and cautionary. The evidentiary function of the statute of frauds is to provide documentation that a legal, binding agreement exists. The cautionary function of the statute of frauds is meant to make each party more intent, serious, and deliberate in their transacting. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Statutes of fraud were adopted in the U.S. primarily as a common law concept—that is, as unwritten law. However, many states have formalized the concept by creating statutes. In a breach of contract case where the statute of frauds applies, the defendant may raise it as a defense where the burden of proof is on the plaintiff. The plaintiff must establish that a valid contract was indeed in existence. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_9-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The statute of frauds is a common law concept that requires written contracts for certain agreements to be binding.</li><li>The statute applies to land sales and most purchases of goods of $500 or more.</li><li>There are significant exceptions, such as oral contracts where work has already started.</li><li>The statute of frauds varies somewhat between states in the United States.</li><li>Many aspects of the statute of frauds are included in the Restatement (Second) of the Law of Contracts.</li></ul></div></div></div> <span class="heading-toc" id="toc-history-of-the-statute-of-frauds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> History of the Statute of Frauds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The statute of frauds has its roots in the Act for Prevention of Frauds and Perjuryes, which was passed by the English Parliament in 1677. The legislation, which stipulated that a written contract be used for transactions where a large amount of money was at stake, aimed to prevent some of the misunderstandings and fraudulent activity that can occur when relying on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/oral-contract.asp">oral contracts</a>.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Indeed, the English legal system of the time suffered from a lack of written evidence. The courts were clogged with lawsuits, and cases were often settled by using professional witnesses who were paid for their testimony. Perjury and corruption became the norm. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> As the founders shaped the U.S. government, they drew on the 1677 Act to help shape how business transactions, and disputes over them, should be handled in the new world. Like their 17th-century British forebears, the founders decided that written and signed contracts minimized ambiguity by providing a clear record of the agreement. That <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/contra-proferentem-rule.asp">reduced</a> the opportunity for later litigation and simplified the settlement of such suits when they occurred. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-contracts-covered-by-the-statute-of-frauds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Contracts Covered by the Statute of Frauds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> As applied in the United States, the statute of frauds generally requires the following types of contracts to be written to be legally binding. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li>Any promises made in connection with marriage, including such gifts as an engagement ring.</li> <li>Contracts that cannot be completed in less than one year.</li> <li>Contracts for the sale of land—leases need not be covered unless they are for a year or more.</li> <li>Promises to pay an estate’s debt from the personal funds of the executor. However, promises to pay such debt from the estate's funds are not subject to the statute of frauds.</li> <li>Contracts for the sale of goods above a specific dollar amount, typically $500.</li> <li>A contract in which one person promises to pay the debt of another person is considered a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/surety.asp">surety</a> and is subject to the statute of frauds.<span class="ql-inline-citation" data-cite="6"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Various legislative bodies outline statute of frauds requirements. For example, the Restatement (Second) of the Law of Contracts is a legal treatise that oversees general principles of contract common law. In addition, Uniform Commercial Code (UCC) Article 2 outlines rules over the sale of goods.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="4"></span></p></div></div></div> <span class="heading-toc" id="toc-requirements-of-the-statute-of-frauds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Requirements of the Statute of Frauds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Not every written document is necessarily protected under a statute of frauds. Examples of some requirements the statute of frauds includes are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <li>Both parties must sign the agreement; otherwise, the agreement is not enforceable.<span class="ql-inline-citation" data-cite="7"></span></li><li>If the quantity of goods shown in the written agreement is different than what is shown in writing.<span class="ql-inline-citation" data-cite="7"></span></li><li>Written rejection of the agreement must be given within a specified time.<span class="ql-inline-citation" data-cite="7"></span></li><li>Written correspondence must be properly dispatched; improper address or other failures to ensure safe transmission yield the correspondence invalid.<span class="ql-inline-citation" data-cite="6"></span></li><li>A contract is invalid if a mistake by one party at the time the contract was made leads to a material effect on the agreed exchange.<span class="ql-inline-citation" data-cite="6"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_29-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_30-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Emails and invoices can sometimes satisfy statute-of-fraud requirements for an enforceable contract.</p></div></div></div> <span class="heading-toc" id="toc-exceptions-to-the-statute-of-frauds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Exceptions to the Statute of Frauds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> In some situations, agreements that would ordinarily require a written contract under the statute of frauds may be enforceable without them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Several exceptions relate to situations in which oral agreements result in work beginning or financial outlays. Take a case in which steps are taken to create a series of specially manufactured items, such as monogrammed shirts. If the customer who commissioned them over the phone subsequently decides to cancel the order, they will likely still be responsible for at least partial payment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The same will usually apply if improvements or modifications to a customer's possessions, based on oral agreements, are begun and then canceled. For example, take a situation in which a house painter purchases materials based on a homeowner’s request and begins to redecorate a house. If the homeowner reverses course and claims no firm painting agreement was in place, the contractor would likely prevail. That's because of what's known as promissory estoppel. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/promissory_estoppel.asp">Promissory estoppel</a> is defined as a principle of "fundamental fairness" intended to remedy a substantial injustice. There are also cases of partial performance. The fact that one party has already performed its responsibilities under the agreement may serve to confirm that a contract existed.<span class="ql-inline-citation" data-cite="11"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-examples-of-the-statute-of-frauds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> Examples of the Statute of Frauds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Provisions for the statute of frauds are enforced by states, based on federal codes. The Universal Commercial Code (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/uniform-commercial-code.asp">UCC</a>) in the U.S. provides a good example. It is the standardized set of business laws that regulate financial contracts.<span class="ql-inline-citation" data-cite="4"></span> Most states have fully adopted the UCC. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> In cases where articles of the UCC that affect the statute of frauds change, it may take time for those alterations to be reflected in every state's laws. Some states, like Louisiana, also have some long-standing variations from the norm in their statute of frauds and related regulations.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_45-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_46-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Before relying on the statute of frauds in any given situation, it is wise to research the statute of frauds provisions in your state or territory and seek legal advice as needed.</p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_47-0"><span class="heading-toc" id="toc-what-is-the-meaning-of-statute-of-frauds"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Meaning of Statute of Frauds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The statute of frauds is written legislation or common law that requires that certain contracts be written to be valid. In addition, that written agreement often has stipulations such as delivery conditions or what must be included in that written agreement. The idea behind the statute of frauds is to protect parties entering into a contract from a future dispute or disagreement on the terms of the deal.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-what-is-an-example-of-statute-of-frauds"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is an Example of Statute of Frauds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Real estate such as the sale of land falls under the statue of frauds. In order to acquire land, you must enter into a written agreement. This is to ensure both parties agree to the exact area of land being sold, the exact terms of the agreement, and other relevant terms to the contract.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-what-are-exceptions-to-the-statute-of-frauds"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Exceptions to the Statute of Frauds?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some contracts, even when not written, may still be enforceable to protect one party that has been at a disadvantage. For example, one exception is when a seller makes specially manufactured goods for a buyer. If the seller can't easily sell the goods to others in the normal course of business, they are protected by different rules. Another exception is when payment has already been made and received by the seller. In this case, the seller is obligated to furnish the agreed terms to the buyer since they have already received payment.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> The statute of frauds is a law that deems certain types of verbal contracts non-binding and unenforceable without written evidence to support them. As was the case when this concept was brought alive back in seventeenth-century England, its job is to make sure both parties in a contract are protected from fraudulent behavior. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Variations can exist, though, depending on where you live in the world. In the U.S., certain states have different rules regarding the statute of frauds. And there are situations when a written agreement can become void or an oral agreement enforceable, such as after payment is made or work commences. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> <em>Correction</em>—<em>May 14, 2023:</em> A previous version of this article mistakenly stated the statute of frauds applied to goods worth more than $500. The statute applies to goods equal to $500 or more. </p></div>

## What Is the Statute of Frauds? The statute of frauds is a legal doctrine requiring that certain types of contracts be in written form. The most common contracts covered by the statute of frauds include the sale of land, agreements involving goods worth $500 or more, and contracts lasting one year or more. The purpose of the statute of frauds is to prevent fraud or other injury. These purposes are often described as being evidentiary and cautionary. The evidentiary function of the statute of frauds is to provide documentation that a legal, binding agreement exists. The cautionary function of the statute of frauds is meant to make each party more intent, serious, and deliberate in their transacting. Statutes of fraud were adopted in the U.S. primarily as a common law concept—that is, as unwritten law. However, many states have formalized the concept by creating statutes. In a breach of contract case where the statute of frauds applies, the defendant may raise it as a defense where the burden of proof is on the plaintiff. The plaintiff must establish that a valid contract was indeed in existence. ### Key Takeaways * The statute of frauds is a common law concept that requires written contracts for certain agreements to be binding. * The statute applies to land sales and most purchases of goods of $500 or more. * There are significant exceptions, such as oral contracts where work has already started. * The statute of frauds varies somewhat between states in the United States. * Many aspects of the statute of frauds are included in the Restatement (Second) of the Law of Contracts. ## History of the Statute of Frauds The statute of frauds has its roots in the Act for Prevention of Frauds and Perjuryes, which was passed by the English Parliament in 1677. The legislation, which stipulated that a written contract be used for transactions where a large amount of money was at stake, aimed to prevent some of the misunderstandings and fraudulent activity that can occur when relying on [oral contracts](https://www.investopedia.com/terms/o/oral-contract.asp). Indeed, the English legal system of the time suffered from a lack of written evidence. The courts were clogged with lawsuits, and cases were often settled by using professional witnesses who were paid for their testimony. Perjury and corruption became the norm. As the founders shaped the U.S. government, they drew on the 1677 Act to help shape how business transactions, and disputes over them, should be handled in the new world. Like their 17th-century British forebears, the founders decided that written and signed contracts minimized ambiguity by providing a clear record of the agreement. That [reduced](https://www.investopedia.com/terms/c/contra-proferentem-rule.asp) the opportunity for later litigation and simplified the settlement of such suits when they occurred. ## Contracts Covered by the Statute of Frauds As applied in the United States, the statute of frauds generally requires the following types of contracts to be written to be legally binding. * Any promises made in connection with marriage, including such gifts as an engagement ring. * Contracts that cannot be completed in less than one year. * Contracts for the sale of land—leases need not be covered unless they are for a year or more. * Promises to pay an estate’s debt from the personal funds of the executor. However, promises to pay such debt from the estate's funds are not subject to the statute of frauds. * Contracts for the sale of goods above a specific dollar amount, typically $500. * A contract in which one person promises to pay the debt of another person is considered a [surety](https://www.investopedia.com/terms/s/surety.asp) and is subject to the statute of frauds. ### Various legislative bodies outline statute of frauds requirements. For example, the Restatement (Second) of the Law of Contracts is a legal treatise that oversees general principles of contract common law. In addition, Uniform Commercial Code (UCC) Article 2 outlines rules over the sale of goods. ## Requirements of the Statute of Frauds Not every written document is necessarily protected under a statute of frauds. Examples of some requirements the statute of frauds includes are: * Both parties must sign the agreement; otherwise, the agreement is not enforceable. * If the quantity of goods shown in the written agreement is different than what is shown in writing. * Written rejection of the agreement must be given within a specified time. * Written correspondence must be properly dispatched; improper address or other failures to ensure safe transmission yield the correspondence invalid. * A contract is invalid if a mistake by one party at the time the contract was made leads to a material effect on the agreed exchange. ### Emails and invoices can sometimes satisfy statute-of-fraud requirements for an enforceable contract. ## Exceptions to the Statute of Frauds In some situations, agreements that would ordinarily require a written contract under the statute of frauds may be enforceable without them. Several exceptions relate to situations in which oral agreements result in work beginning or financial outlays. Take a case in which steps are taken to create a series of specially manufactured items, such as monogrammed shirts. If the customer who commissioned them over the phone subsequently decides to cancel the order, they will likely still be responsible for at least partial payment. The same will usually apply if improvements or modifications to a customer's possessions, based on oral agreements, are begun and then canceled. For example, take a situation in which a house painter purchases materials based on a homeowner’s request and begins to redecorate a house. If the homeowner reverses course and claims no firm painting agreement was in place, the contractor would likely prevail. That's because of what's known as promissory estoppel. [Promissory estoppel](https://www.investopedia.com/terms/p/promissory_estoppel.asp) is defined as a principle of "fundamental fairness" intended to remedy a substantial injustice. There are also cases of partial performance. The fact that one party has already performed its responsibilities under the agreement may serve to confirm that a contract existed. ## Examples of the Statute of Frauds Provisions for the statute of frauds are enforced by states, based on federal codes. The Universal Commercial Code ([UCC](https://www.investopedia.com/terms/u/uniform-commercial-code.asp)) in the U.S. provides a good example. It is the standardized set of business laws that regulate financial contracts. Most states have fully adopted the UCC. In cases where articles of the UCC that affect the statute of frauds change, it may take time for those alterations to be reflected in every state's laws. Some states, like Louisiana, also have some long-standing variations from the norm in their statute of frauds and related regulations. ### Before relying on the statute of frauds in any given situation, it is wise to research the statute of frauds provisions in your state or territory and seek legal advice as needed. ## What Is the Meaning of Statute of Frauds? The statute of frauds is written legislation or common law that requires that certain contracts be written to be valid. In addition, that written agreement often has stipulations such as delivery conditions or what must be included in that written agreement. The idea behind the statute of frauds is to protect parties entering into a contract from a future dispute or disagreement on the terms of the deal. ## What Is an Example of Statute of Frauds? Real estate such as the sale of land falls under the statue of frauds. In order to acquire land, you must enter into a written agreement. This is to ensure both parties agree to the exact area of land being sold, the exact terms of the agreement, and other relevant terms to the contract. ## What Are Exceptions to the Statute of Frauds? Some contracts, even when not written, may still be enforceable to protect one party that has been at a disadvantage. For example, one exception is when a seller makes specially manufactured goods for a buyer. If the seller can't easily sell the goods to others in the normal course of business, they are protected by different rules. Another exception is when payment has already been made and received by the seller. In this case, the seller is obligated to furnish the agreed terms to the buyer since they have already received payment. ## The Bottom Line The statute of frauds is a law that deems certain types of verbal contracts non-binding and unenforceable without written evidence to support them. As was the case when this concept was brought alive back in seventeenth-century England, its job is to make sure both parties in a contract are protected from fraudulent behavior. Variations can exist, though, depending on where you live in the world. In the U.S., certain states have different rules regarding the statute of frauds. And there are situations when a written agreement can become void or an oral agreement enforceable, such as after payment is made or work commences. *Correction*—*May 14, 2023:* A previous version of this article mistakenly stated the statute of frauds applied to goods worth more than $500. The statute applies to goods equal to $500 or more.

What Is the Statute of Frauds? The statute of frauds is a legal doctrine requiring that certain types of contracts be in written form. The most common contracts covered by the statute of frauds include the sale of land, agreements involving goods worth $500 or more, and contracts lasting one year or more. The purpose of the statute of frauds is to prevent fraud or other injury. These purposes are often described as being evidentiary and cautionary. The evidentiary function of the statute of frauds is to provide documentation that a legal, binding agreement exists. The cautionary function of the statute of frauds is meant to make each party more intent, serious, and deliberate in their transacting. Statutes of fraud were adopted in the U.S. primarily as a common law concept—that is, as unwritten law. However, many states have formalized the concept by creating statutes. In a breach of contract case where the statute of frauds applies, the defendant may raise it as a defense where the burden of proof is on the plaintiff. The plaintiff must establish that a valid contract was indeed in existence. Key Takeaways The statute of frauds is a common law concept that requires written contracts for certain agreements to be binding.The statute applies to land sales and most purchases of goods of $500 or more.There are significant exceptions, such as oral contracts where work has already started.The statute of frauds varies somewhat between states in the United States.Many aspects of the statute of frauds are included in the Restatement (Second) of the Law of Contracts. History of the Statute of Frauds The statute of frauds has its roots in the Act for Prevention of Frauds and Perjuryes, which was passed by the English Parliament in 1677. The legislation, which stipulated that a written contract be used for transactions where a large amount of money was at stake, aimed to prevent some of the misunderstandings and fraudulent activity that can occur when relying on oral contracts. Indeed, the English legal system of the time suffered from a lack of written evidence. The courts were clogged with lawsuits, and cases were often settled by using professional witnesses who were paid for their testimony. Perjury and corruption became the norm. As the founders shaped the U.S. government, they drew on the 1677 Act to help shape how business transactions, and disputes over them, should be handled in the new world. Like their 17th-century British forebears, the founders decided that written and signed contracts minimized ambiguity by providing a clear record of the agreement. That reduced the opportunity for later litigation and simplified the settlement of such suits when they occurred. Contracts Covered by the Statute of Frauds As applied in the United States, the statute of frauds generally requires the following types of contracts to be written to be legally binding. Any promises made in connection with marriage, including such gifts as an engagement ring. Contracts that cannot be completed in less than one year. Contracts for the sale of land—leases need not be covered unless they are for a year or more. Promises to pay an estate’s debt from the personal funds of the executor. However, promises to pay such debt from the estate's funds are not subject to the statute of frauds. Contracts for the sale of goods above a specific dollar amount, typically $500. A contract in which one person promises to pay the debt of another person is considered a surety and is subject to the statute of frauds. Various legislative bodies outline statute of frauds requirements. For example, the Restatement (Second) of the Law of Contracts is a legal treatise that oversees general principles of contract common law. In addition, Uniform Commercial Code (UCC) Article 2 outlines rules over the sale of goods. Requirements of the Statute of Frauds Not every written document is necessarily protected under a statute of frauds. Examples of some requirements the statute of frauds includes are: Both parties must sign the agreement; otherwise, the agreement is not enforceable.If the quantity of goods shown in the written agreement is different than what is shown in writing.Written rejection of the agreement must be given within a specified time.Written correspondence must be properly dispatched; improper address or other failures to ensure safe transmission yield the correspondence invalid.A contract is invalid if a mistake by one party at the time the contract was made leads to a material effect on the agreed exchange. Emails and invoices can sometimes satisfy statute-of-fraud requirements for an enforceable contract. Exceptions to the Statute of Frauds In some situations, agreements that would ordinarily require a written contract under the statute of frauds may be enforceable without them. Several exceptions relate to situations in which oral agreements result in work beginning or financial outlays. Take a case in which steps are taken to create a series of specially manufactured items, such as monogrammed shirts. If the customer who commissioned them over the phone subsequently decides to cancel the order, they will likely still be responsible for at least partial payment. The same will usually apply if improvements or modifications to a customer's possessions, based on oral agreements, are begun and then canceled. For example, take a situation in which a house painter purchases materials based on a homeowner’s request and begins to redecorate a house. If the homeowner reverses course and claims no firm painting agreement was in place, the contractor would likely prevail. That's because of what's known as promissory estoppel. Promissory estoppel is defined as a principle of "fundamental fairness" intended to remedy a substantial injustice. There are also cases of partial performance. The fact that one party has already performed its responsibilities under the agreement may serve to confirm that a contract existed. Examples of the Statute of Frauds Provisions for the statute of frauds are enforced by states, based on federal codes. The Universal Commercial Code (UCC) in the U.S. provides a good example. It is the standardized set of business laws that regulate financial contracts. Most states have fully adopted the UCC. In cases where articles of the UCC that affect the statute of frauds change, it may take time for those alterations to be reflected in every state's laws. Some states, like Louisiana, also have some long-standing variations from the norm in their statute of frauds and related regulations. Before relying on the statute of frauds in any given situation, it is wise to research the statute of frauds provisions in your state or territory and seek legal advice as needed. What Is the Meaning of Statute of Frauds? The statute of frauds is written legislation or common law that requires that certain contracts be written to be valid. In addition, that written agreement often has stipulations such as delivery conditions or what must be included in that written agreement. The idea behind the statute of frauds is to protect parties entering into a contract from a future dispute or disagreement on the terms of the deal. What Is an Example of Statute of Frauds? Real estate such as the sale of land falls under the statue of frauds. In order to acquire land, you must enter into a written agreement. This is to ensure both parties agree to the exact area of land being sold, the exact terms of the agreement, and other relevant terms to the contract. What Are Exceptions to the Statute of Frauds? Some contracts, even when not written, may still be enforceable to protect one party that has been at a disadvantage. For example, one exception is when a seller makes specially manufactured goods for a buyer. If the seller can't easily sell the goods to others in the normal course of business, they are protected by different rules. Another exception is when payment has already been made and received by the seller. In this case, the seller is obligated to furnish the agreed terms to the buyer since they have already received payment. The Bottom Line The statute of frauds is a law that deems certain types of verbal contracts non-binding and unenforceable without written evidence to support them. As was the case when this concept was brought alive back in seventeenth-century England, its job is to make sure both parties in a contract are protected from fraudulent behavior. Variations can exist, though, depending on where you live in the world. In the U.S., certain states have different rules regarding the statute of frauds. And there are situations when a written agreement can become void or an oral agreement enforceable, such as after payment is made or work commences. Correction—May 14, 2023: A previous version of this article mistakenly stated the statute of frauds applied to goods worth more than $500. The statute applies to goods equal to $500 or more.

https://www.investopedia.com/how-long-are-boat-loans-7975687

How Long Are Boat Loans?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Boat loan terms can be as short as five years, but, typically, they are between 10 to 20 years.<span class="ql-inline-citation" data-cite="1"></span> The exact length of a boat loan depends on a number of factors including the loan amount, the age of the boat, and the type of boat. Learn more about how to determine the right boat loan term for you. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways </h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Boat loans typically range between 10 and 20 years. </li><li>Boat loan lenders usually want a minimum credit score of 700 before approving a boat loan. </li><li>Boat loans are available from a variety of lending sources. </li></ul></div></div></div> <span class="heading-toc" id="toc-factors-that-affect-boat-financing-terms"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Factors that Affect Boat Financing Terms </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> As with other types of loans, a number of factors can affect the financing terms on boat loans.<span class="ql-inline-citation" data-cite="4"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li><strong>Age of the boat</strong>: Generally, the newer the boat, the better the financing terms because lenders can more easily recoup their money if the borrower defaults and the lender needs to sell the boat. Loans for older boats tend to have higher interest rates and may have shorter terms. Lenders typically will not finance a boat older than 20 years. </li><li><strong>Loan amount</strong>: The amount of money you need to borrow could help dictate how long you can finance it. Generally speaking, the more money you borrow, the longer you can finance it. </li><li><strong>Type of boat</strong>: While loans for most modern powerboats are treated similarly, loans for some types of boats may have more unique terms. These include sailboats, boats with wooden hulls, high performance or racing boats, and boats you can live on, such as houseboats and yachts. </li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-how-boat-loans-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> How Boat Loans Work  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Boat loans include many of the same terms you’ll find with other loans. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <li><strong>APR range</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-good-interest-rate-for-a-boat-loan-8303037">For boat loans</a>, interest rates typically start at between 6% and 7%, but depend on the lender, how much the down payment is, and the borrower’s credit score and history. </li> <li><strong>Amount range</strong>: Boat loans can vary greatly, depending on the type and age of the boat. Lenders could finance anywhere from $5,000 to $5 million. </li> <li><strong>Requirements</strong>: These vary by lender, but include a minimum <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a>, income requirements, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loantovalue.asp">loan-to-value ratio</a> (how much the loan amount is compared to the boat’s market price). </li> <li><strong>Boat requirements</strong>: The lender may limit how much it will loan, if any, based on the boat’s age. </li> <li><strong>Fees</strong>: These include application and origination fees, processing fees, and closing costs. In addition, lenders may charge you late fees for overdue payments and prepayment penalties if you want to pay off the loan early. <br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-other-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Other Considerations  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The interest rate and type of loan could also affect the loan terms. <br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> For a boat loan with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedinterestrate.asp">fixed interest rate</a>, the monthly loan payments will remain the same for the entire term of the loan. For a boat loan with a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variableinterestrate.asp">variable interest rate</a>, the rate could change frequently, meaning the monthly payment could increase or decrease throughout the loan term. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> With a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secured-loans-5076025">secured loan</a>, the lender uses the boat as collateral, meaning if you miss payments and default on the loan, the lender has the right to repossess the boat and sell it to pay off the loan. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>With an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecuredloan.asp">unsecured loan</a>, you won’t risk losing your boat if you miss payments. However, unsecured loans could require a higher down payment and/or higher interest rate since the lender bears higher risk.</p></div></div></div> <span class="heading-toc" id="toc-where-to-find-a-boat-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Where to Find a Boat Loan  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Boat loans are available through numerous lenders ranging from your local financial institution to qualified marine brokers. So, like other types of personal loans, boat loans can be found online and through brick-and-mortar providers.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-subheading__text"> Banks and Credit Unions  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Many banks and credit unions offer boat loans, so when shopping for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-boat-loans-5085089">boat loan</a>, talk with a banking professional at your current bank or credit union. You may receive more favorable loan terms such as lower interest rates if you are a current customer. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-subheading__text"> Online Lenders </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Because they don’t have the same operating costs as brick-and-mortar financial institutions, online lenders often offer lower interest rates on loans, including boat loans. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-boat-loan-7975515">When shopping for a boat loan</a>, check with a variety of online lenders to see how they compare on loan terms. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-subheading__text"> Dealer Financing  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Just as car dealers offer financing when you purchase a vehicle, boat dealers can also offer financing. However, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dealer-financing.asp">dealer financing</a> could have higher interest rates or include additional fees compared to other lenders like your bank or credit union. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-boat-lender-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Boat Lender Options </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_37-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="5">Boat Loan Lenders With Varying Loan Limits</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b> Lender</b></td> <td><b>Starting Interest Rate</b></td> <td><b>Minimum Credit Score Required</b></td> <td><b>Loan Amount</b></td> <td><b>Loan Terms</b></td> </tr> <tr> <td>Lightstream<span data-cite="6"></span></td> <td>6.99% w/autopay</td> <td>None, but good credit recommended</td> <td>$100,000 maximum</td> <td>24 to 144 months</td> </tr> <tr> <td>BMO<span data-cite="7"></span></td> <td>9.29%</td> <td>700</td> <td>$5 million maximum</td> <td>5 to 20 years</td> </tr> <tr> <td>Southeast Financial<span data-cite="8"></span></td> <td>6.99%</td> <td>550</td> <td>$10,000 to $4 million</td> <td>Up to 20 years</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mountain-america-credit-union-personal-loans-review-8391160" rel="noopener noreferrer">Mountain America Credit Union</a><span data-cite="9"></span></td> <td>8.99%</td> <td>None</td> <td>Unknown</td> <td>Up to 15 years</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <span class="heading-toc" id="toc-alternatives-to-boat-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-heading__text"> Alternatives to Boat Loans  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Other ways to finance a boat purchase aside from a boat loan include a home equity loan or a personal loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_42-0"> <span class="mntl-sc-block-subheading__text"> Home Equity Loans or Home Equity Lines of Credit </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> If you own a home and have established equity, you may be able to use that equity as collateral for a secured loan. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/homeequityloan.asp">home equity loan</a> is an installment loan in which you receive money in a lump sum that you repay over time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> A home equity line of credit (HELOC) also uses your home as collateral, but instead of a lump sum of money, you receive a credit line that works similarly to a credit card. You can use as much of the credit line as you need and only pay interest on those borrowed funds. When you repay what you borrowed, you can borrow it again.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_47-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_48-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Home equity loans and home equity lines of credit can provide a larger sum of money for a lower interest rate because the loan is backed by collateral, making it lower risk for lenders. However, if you cannot repay these loans, you risk losing your house to foreclosure.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-subheading__text"> Personal Loans  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> If you have good credit, you may qualify for an unsecured <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-5076027">personal loan</a> to purchase a boat. Personal loans are approved based on your credit score and financial information like your income. But they are not backed by collateral. Interest rates on personal loans tend to be higher than on secured boat loans, but you can use personal loans for a range of purposes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> With a personal loan, you receive a lump sum of money to use toward your expenses. Then, you repay that loan over a set amount of time. Terms of personal loans generally range for two to five years. Many lenders offer a maximum of $30,000 to $50,000, but some lenders may provide as much as $100,000.<span class="ql-inline-citation" data-cite="5"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-how-old-can-a-boat-be-to-get-financing"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Old Can a Boat Be to Get Financing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Lenders typically will not finance boat loans for boats older than 20 years. If you want to purchase an older boat you may need to get an unsecured personal loan that can be used for a broad range of purposes, including buying a boat.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_56-0"><span class="heading-toc" id="toc-what-credit-score-do-i-need-to-get-a-boat-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Credit Score Do I Need to Get a Boat Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Credit score requirements vary by lender, but could be as low as 550 for some lenders. The lower your credit score, the higher you will likely be charged in interest.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_58-0"><span class="heading-toc" id="toc-what-is-the-average-interest-rate-on-a-boat-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Average Interest Rate on a Boat Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Interest rates depend on a number of factors, but typically start between 6% and 7%. This varies by lender, but your local bank or credit union is a good place to start.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_60-0"><span class="heading-toc" id="toc-what-time-of-the-year-are-boats-the-cheapest"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Time of the Year Are Boats the Cheapest?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Fall is usually the slow season for buying boats, so you could potentially find a great deal on a boat, including good loan terms. You may be able to get a good deal on a boat when newer boat models are introduced or when your local boat show is held.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_62-0"><span class="heading-toc" id="toc-do-boats-hold-their-value"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Boats Hold Their Value?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As with other types of vehicles, boat values depreciate over time, so the older the boat is, the lower its value. Boats rarely increase in value like other assets such as homes.<span class="ql-inline-citation" data-cite="3"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_64-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Boat loans typically range between 10 and 20 years, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/is-there-a-boat-loan-calculator-7976199">depending on how much the loan amount is</a>, the age of the boat, and the type of boat. Boat loans are available from a number of lenders, including banks, credit. unions, online lenders, the boat dealer, and marine brokers. The right length of boat loan will depend on your budget and funding needs. </p></div>

Boat loan terms can be as short as five years, but, typically, they are between 10 to 20 years. The exact length of a boat loan depends on a number of factors including the loan amount, the age of the boat, and the type of boat. Learn more about how to determine the right boat loan term for you.  ### Key Takeaways * Boat loans typically range between 10 and 20 years. * Boat loan lenders usually want a minimum credit score of 700 before approving a boat loan. * Boat loans are available from a variety of lending sources. ## Factors that Affect Boat Financing Terms As with other types of loans, a number of factors can affect the financing terms on boat loans. * **Age of the boat**: Generally, the newer the boat, the better the financing terms because lenders can more easily recoup their money if the borrower defaults and the lender needs to sell the boat. Loans for older boats tend to have higher interest rates and may have shorter terms. Lenders typically will not finance a boat older than 20 years. * **Loan amount**: The amount of money you need to borrow could help dictate how long you can finance it. Generally speaking, the more money you borrow, the longer you can finance it. * **Type of boat**: While loans for most modern powerboats are treated similarly, loans for some types of boats may have more unique terms. These include sailboats, boats with wooden hulls, high performance or racing boats, and boats you can live on, such as houseboats and yachts. ## How Boat Loans Work Boat loans include many of the same terms you’ll find with other loans.  * **APR range**: [For boat loans](https://www.investopedia.com/what-is-a-good-interest-rate-for-a-boat-loan-8303037), interest rates typically start at between 6% and 7%, but depend on the lender, how much the down payment is, and the borrower’s credit score and history. * **Amount range**: Boat loans can vary greatly, depending on the type and age of the boat. Lenders could finance anywhere from $5,000 to $5 million. * **Requirements**: These vary by lender, but include a minimum [credit score](https://www.investopedia.com/terms/c/credit_score.asp), income requirements, and [loan-to-value ratio](https://www.investopedia.com/terms/l/loantovalue.asp) (how much the loan amount is compared to the boat’s market price). * **Boat requirements**: The lender may limit how much it will loan, if any, based on the boat’s age. * **Fees**: These include application and origination fees, processing fees, and closing costs. In addition, lenders may charge you late fees for overdue payments and prepayment penalties if you want to pay off the loan early. ## Other Considerations The interest rate and type of loan could also affect the loan terms.  For a boat loan with a [fixed interest rate](https://www.investopedia.com/terms/f/fixedinterestrate.asp), the monthly loan payments will remain the same for the entire term of the loan. For a boat loan with a [variable interest rate](https://www.investopedia.com/terms/v/variableinterestrate.asp), the rate could change frequently, meaning the monthly payment could increase or decrease throughout the loan term.  With a [secured loan](https://www.investopedia.com/secured-loans-5076025), the lender uses the boat as collateral, meaning if you miss payments and default on the loan, the lender has the right to repossess the boat and sell it to pay off the loan.  ### With an [unsecured loan](https://www.investopedia.com/terms/u/unsecuredloan.asp), you won’t risk losing your boat if you miss payments. However, unsecured loans could require a higher down payment and/or higher interest rate since the lender bears higher risk. ## Where to Find a Boat Loan Boat loans are available through numerous lenders ranging from your local financial institution to qualified marine brokers. So, like other types of personal loans, boat loans can be found online and through brick-and-mortar providers. ### Banks and Credit Unions Many banks and credit unions offer boat loans, so when shopping for a [boat loan](https://www.investopedia.com/best-boat-loans-5085089), talk with a banking professional at your current bank or credit union. You may receive more favorable loan terms such as lower interest rates if you are a current customer.  ### Online Lenders Because they don’t have the same operating costs as brick-and-mortar financial institutions, online lenders often offer lower interest rates on loans, including boat loans. [When shopping for a boat loan](https://www.investopedia.com/what-is-a-boat-loan-7975515), check with a variety of online lenders to see how they compare on loan terms.  ### Dealer Financing Just as car dealers offer financing when you purchase a vehicle, boat dealers can also offer financing. However, [dealer financing](https://www.investopedia.com/terms/d/dealer-financing.asp) could have higher interest rates or include additional fees compared to other lenders like your bank or credit union. ## Boat Lender Options | Boat Loan Lenders With Varying Loan Limits | | | | | | --- | --- | --- | --- | --- | | **Lender** | **Starting Interest Rate** | **Minimum Credit Score Required** | **Loan Amount** | **Loan Terms** | | Lightstream | 6.99% w/autopay | None, but good credit recommended | $100,000 maximum | 24 to 144 months | | BMO | 9.29% | 700 | $5 million maximum | 5 to 20 years | | Southeast Financial | 6.99% | 550 | $10,000 to $4 million | Up to 20 years | | [Mountain America Credit Union](https://www.investopedia.com/mountain-america-credit-union-personal-loans-review-8391160) | 8.99% | None | Unknown | Up to 15 years | ## Alternatives to Boat Loans Other ways to finance a boat purchase aside from a boat loan include a home equity loan or a personal loan. ### Home Equity Loans or Home Equity Lines of Credit If you own a home and have established equity, you may be able to use that equity as collateral for a secured loan. A [home equity loan](https://www.investopedia.com/terms/h/homeequityloan.asp) is an installment loan in which you receive money in a lump sum that you repay over time. A home equity line of credit (HELOC) also uses your home as collateral, but instead of a lump sum of money, you receive a credit line that works similarly to a credit card. You can use as much of the credit line as you need and only pay interest on those borrowed funds. When you repay what you borrowed, you can borrow it again. ### Home equity loans and home equity lines of credit can provide a larger sum of money for a lower interest rate because the loan is backed by collateral, making it lower risk for lenders. However, if you cannot repay these loans, you risk losing your house to foreclosure. ### Personal Loans If you have good credit, you may qualify for an unsecured [personal loan](https://www.investopedia.com/personal-loan-5076027) to purchase a boat. Personal loans are approved based on your credit score and financial information like your income. But they are not backed by collateral. Interest rates on personal loans tend to be higher than on secured boat loans, but you can use personal loans for a range of purposes. With a personal loan, you receive a lump sum of money to use toward your expenses. Then, you repay that loan over a set amount of time. Terms of personal loans generally range for two to five years. Many lenders offer a maximum of $30,000 to $50,000, but some lenders may provide as much as $100,000. ## How Old Can a Boat Be to Get Financing? Lenders typically will not finance boat loans for boats older than 20 years. If you want to purchase an older boat you may need to get an unsecured personal loan that can be used for a broad range of purposes, including buying a boat. ## What Credit Score Do I Need to Get a Boat Loan? Credit score requirements vary by lender, but could be as low as 550 for some lenders. The lower your credit score, the higher you will likely be charged in interest. ## What Is the Average Interest Rate on a Boat Loan? Interest rates depend on a number of factors, but typically start between 6% and 7%. This varies by lender, but your local bank or credit union is a good place to start. ## What Time of the Year Are Boats the Cheapest? Fall is usually the slow season for buying boats, so you could potentially find a great deal on a boat, including good loan terms. You may be able to get a good deal on a boat when newer boat models are introduced or when your local boat show is held. ## Do Boats Hold Their Value? As with other types of vehicles, boat values depreciate over time, so the older the boat is, the lower its value. Boats rarely increase in value like other assets such as homes. ## The Bottom Line Boat loans typically range between 10 and 20 years, [depending on how much the loan amount is](https://www.investopedia.com/is-there-a-boat-loan-calculator-7976199), the age of the boat, and the type of boat. Boat loans are available from a number of lenders, including banks, credit. unions, online lenders, the boat dealer, and marine brokers. The right length of boat loan will depend on your budget and funding needs.

Boat loan terms can be as short as five years, but, typically, they are between 10 to 20 years. The exact length of a boat loan depends on a number of factors including the loan amount, the age of the boat, and the type of boat. Learn more about how to determine the right boat loan term for you.  Key Takeaways Boat loans typically range between 10 and 20 years. Boat loan lenders usually want a minimum credit score of 700 before approving a boat loan. Boat loans are available from a variety of lending sources.  Factors that Affect Boat Financing Terms As with other types of loans, a number of factors can affect the financing terms on boat loans. Age of the boat: Generally, the newer the boat, the better the financing terms because lenders can more easily recoup their money if the borrower defaults and the lender needs to sell the boat. Loans for older boats tend to have higher interest rates and may have shorter terms. Lenders typically will not finance a boat older than 20 years. Loan amount: The amount of money you need to borrow could help dictate how long you can finance it. Generally speaking, the more money you borrow, the longer you can finance it. Type of boat: While loans for most modern powerboats are treated similarly, loans for some types of boats may have more unique terms. These include sailboats, boats with wooden hulls, high performance or racing boats, and boats you can live on, such as houseboats and yachts.  How Boat Loans Work  Boat loans include many of the same terms you’ll find with other loans.  APR range: For boat loans, interest rates typically start at between 6% and 7%, but depend on the lender, how much the down payment is, and the borrower’s credit score and history.  Amount range: Boat loans can vary greatly, depending on the type and age of the boat. Lenders could finance anywhere from $5,000 to $5 million.  Requirements: These vary by lender, but include a minimum credit score, income requirements, and loan-to-value ratio (how much the loan amount is compared to the boat’s market price).  Boat requirements: The lender may limit how much it will loan, if any, based on the boat’s age.  Fees: These include application and origination fees, processing fees, and closing costs. In addition, lenders may charge you late fees for overdue payments and prepayment penalties if you want to pay off the loan early.  Other Considerations  The interest rate and type of loan could also affect the loan terms.  For a boat loan with a fixed interest rate, the monthly loan payments will remain the same for the entire term of the loan. For a boat loan with a variable interest rate, the rate could change frequently, meaning the monthly payment could increase or decrease throughout the loan term.  With a secured loan, the lender uses the boat as collateral, meaning if you miss payments and default on the loan, the lender has the right to repossess the boat and sell it to pay off the loan.  With an unsecured loan, you won’t risk losing your boat if you miss payments. However, unsecured loans could require a higher down payment and/or higher interest rate since the lender bears higher risk. Where to Find a Boat Loan  Boat loans are available through numerous lenders ranging from your local financial institution to qualified marine brokers. So, like other types of personal loans, boat loans can be found online and through brick-and-mortar providers. Banks and Credit Unions  Many banks and credit unions offer boat loans, so when shopping for a boat loan, talk with a banking professional at your current bank or credit union. You may receive more favorable loan terms such as lower interest rates if you are a current customer.  Online Lenders Because they don’t have the same operating costs as brick-and-mortar financial institutions, online lenders often offer lower interest rates on loans, including boat loans. When shopping for a boat loan, check with a variety of online lenders to see how they compare on loan terms.  Dealer Financing  Just as car dealers offer financing when you purchase a vehicle, boat dealers can also offer financing. However, dealer financing could have higher interest rates or include additional fees compared to other lenders like your bank or credit union. Boat Lender Options Boat Loan Lenders With Varying Loan Limits  Lender Starting Interest Rate Minimum Credit Score Required Loan Amount Loan Terms Lightstream 6.99% w/autopay None, but good credit recommended $100,000 maximum 24 to 144 months BMO 9.29% 700 $5 million maximum 5 to 20 years Southeast Financial 6.99% 550 $10,000 to $4 million Up to 20 years Mountain America Credit Union 8.99% None Unknown Up to 15 years Alternatives to Boat Loans  Other ways to finance a boat purchase aside from a boat loan include a home equity loan or a personal loan. Home Equity Loans or Home Equity Lines of Credit If you own a home and have established equity, you may be able to use that equity as collateral for a secured loan. A home equity loan is an installment loan in which you receive money in a lump sum that you repay over time. A home equity line of credit (HELOC) also uses your home as collateral, but instead of a lump sum of money, you receive a credit line that works similarly to a credit card. You can use as much of the credit line as you need and only pay interest on those borrowed funds. When you repay what you borrowed, you can borrow it again. Home equity loans and home equity lines of credit can provide a larger sum of money for a lower interest rate because the loan is backed by collateral, making it lower risk for lenders. However, if you cannot repay these loans, you risk losing your house to foreclosure. Personal Loans  If you have good credit, you may qualify for an unsecured personal loan to purchase a boat. Personal loans are approved based on your credit score and financial information like your income. But they are not backed by collateral. Interest rates on personal loans tend to be higher than on secured boat loans, but you can use personal loans for a range of purposes. With a personal loan, you receive a lump sum of money to use toward your expenses. Then, you repay that loan over a set amount of time. Terms of personal loans generally range for two to five years. Many lenders offer a maximum of $30,000 to $50,000, but some lenders may provide as much as $100,000. How Old Can a Boat Be to Get Financing? Lenders typically will not finance boat loans for boats older than 20 years. If you want to purchase an older boat you may need to get an unsecured personal loan that can be used for a broad range of purposes, including buying a boat. What Credit Score Do I Need to Get a Boat Loan? Credit score requirements vary by lender, but could be as low as 550 for some lenders. The lower your credit score, the higher you will likely be charged in interest. What Is the Average Interest Rate on a Boat Loan? Interest rates depend on a number of factors, but typically start between 6% and 7%. This varies by lender, but your local bank or credit union is a good place to start. What Time of the Year Are Boats the Cheapest? Fall is usually the slow season for buying boats, so you could potentially find a great deal on a boat, including good loan terms. You may be able to get a good deal on a boat when newer boat models are introduced or when your local boat show is held. Do Boats Hold Their Value? As with other types of vehicles, boat values depreciate over time, so the older the boat is, the lower its value. Boats rarely increase in value like other assets such as homes. The Bottom Line Boat loans typically range between 10 and 20 years, depending on how much the loan amount is, the age of the boat, and the type of boat. Boat loans are available from a number of lenders, including banks, credit. unions, online lenders, the boat dealer, and marine brokers. The right length of boat loan will depend on your budget and funding needs.

https://www.investopedia.com/best-finance-books-5093331

The 12 Best Finance Books in 2024

<div class="loc article-content"> <svg class="mntl-svg-resource is-hidden"> <defs> <symbol id="light-box-arrow"><svg viewbox="2575 18840 48 48" xmlns="http://www.w3.org/2000/svg"><g transform="translate(1355 18464)"><circle cx="24" cy="24" fill="#fff" r="24" transform="translate(1220 376)"></circle><path d="M1248.675 390l9.38 9.38M1258.055 399.38l-9.38 9.553M1232 399.38h25.186" fill="none" stroke="#000" stroke-linecap="round" stroke-miterlimit="10" stroke-width="3"></path></g></svg></symbol> </defs> </svg> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="comp round-up-content round-up-content--finance round-up-content-base mntl-block" id="round-up-content--finance_1-0"> <div class="comp mntl-sc-page--commerce article-content__description article-intro litho-sc-page mntl-sc-page mntl-block" id="article-intro_1-0"> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> There is no shortage of interest in finance books. Sales of business and economics print books reached a 10-year high in 2022, accounting for a quarter of all nonfiction unit volume and realized a 10% raise from 2021, according to market research firm The NPD Group. Business is the second-highest category in print publishing after books about religion. This large, complex print category has more than 100 categories and over 200 subcategories.<span class="ql-inline-citation" data-cite="1"></span> </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0-1"> To help you sort through these offerings, we’ve put together a list of the best—everything from a biography; how-tos on managing money and investments; a lively reference book about cryptocurrency; policies that impact economics; scandals and personalities laid bare; and the thinking behind decision making in the stock market and other areas, as well as the all-time best book on negotiating. These books, written by authors of diverse backgrounds, offer the most comprehensive picture and the freshest insights to provide a broad <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-economics-books-5186983">perspective on the economy</a> in these complicated and high-risk times and will help you make better financial choices. </p> </div> <span class="heading-toc" id="toc-our-top-picks"></span> <span class="heading-toc" id="toc-reviews"></span> <div class="comp js-extended-commerce__section list-sc__commerce-wrapper mntl-block" data-click-category="commerce-widget Click" data-retailer-limit="3" id="list-sc__commerce-wrapper_1-0"> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0"> <span class="heading-toc" id="toc-best-overall-no-filter-the-inside-story-of-instagram"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0"> <span class="mntl-sc-block-heading__text"> Best Overall: <em>No Filter: The Inside Story of Instagram</em> </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-1"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:149.8%;"> <img alt="Cover of the book “No Filter: The Inside Story of Instagram” by Sarah Frier" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/tFIlLv_zmps4TF9JSO0ts0U6Mb8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg" data-srcset="https://www.investopedia.com/thmb/RD6xsJGbw2G23emu5E17t6jwo_E=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 300w, https://www.investopedia.com/thmb/5h6EgsSvY0Fv9jfHysEH2HVxcew=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 500w, https://www.investopedia.com/thmb/GsRfDUsoyDdeR-vfJqy5gvwJncw=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 700w, https://www.investopedia.com/thmb/N22eZcwRUf9SmaoCBgONcKc2XxI=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 900w, https://www.investopedia.com/thmb/fDkFkiF7hbSllxMi2ljAsIWeEQ8=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 1100w, https://www.investopedia.com/thmb/HEfHNAXSgWZntDiUgm_ZgpWDyw4=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 1300w, https://www.investopedia.com/thmb/tFIlLv_zmps4TF9JSO0ts0U6Mb8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 1500w" data-tracking-container="true" height="1040" id="mntl-sc-block-image_1-0" width="694"/> <noscript> <img alt="Cover of the book “No Filter: The Inside Story of Instagram” by Sarah Frier" class="img--noscript universal-image__image" height="1040" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/tFIlLv_zmps4TF9JSO0ts0U6Mb8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg" srcset="https://www.investopedia.com/thmb/RD6xsJGbw2G23emu5E17t6jwo_E=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 300w, https://www.investopedia.com/thmb/5h6EgsSvY0Fv9jfHysEH2HVxcew=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 500w, https://www.investopedia.com/thmb/GsRfDUsoyDdeR-vfJqy5gvwJncw=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 700w, https://www.investopedia.com/thmb/N22eZcwRUf9SmaoCBgONcKc2XxI=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 900w, https://www.investopedia.com/thmb/fDkFkiF7hbSllxMi2ljAsIWeEQ8=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 1100w, https://www.investopedia.com/thmb/HEfHNAXSgWZntDiUgm_ZgpWDyw4=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 1300w, https://www.investopedia.com/thmb/tFIlLv_zmps4TF9JSO0ts0U6Mb8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg 1500w" width="694"/> </noscript> </div> </div> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-2"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/No-Filter-Inside-Story-Instagram/dp/1982126809/?tag=investopedia-onsite-backup-20" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-3"> Sarah Frier’s <em>No Filter: The Inside Story of Instagram </em>ranks as the best overall book on our list of fine finance books. The title doesn’t do the book justice, because it’s so much more than a book about two smart tech guys creating a novel app and then selling it to Facebook. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-4"> Through her well-written and -reported prose, Frier, the Bloomberg editor in charge of Big Tech coverage, tackles the significance of social media—how it can alter the outcomes of elections, impact the self-esteem and behavior of followers who don’t have the seemingly perfect lives of celebrities and influencers, and generally hurt society when it professes to do the opposite. She also takes us inside Facebook, especially profiling its co-founder Mark Zuckerberg, who Instagram co-founder Kevin Systrom called the most strategic thinker he has ever met. It’s a gripping read.  </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-5"> “If Facebook was about friendships, and Twitter was about opinions, then Instagram was about experiences—<em>anyone</em> could be interested in anyone’s visual experiences, anywhere in the world,” Frier writes in her tale of app envy among Silicon Valley leaders. In 2010, Instagram co-founders Mike Krieger and Systrom were coming to terms with the scope of their online creation, a social media app for photos and video that led Facebook co-founder Mark Zuckerberg to acquire it for $1 billion two years later. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-6"> Systrom stayed on after the sale and tried to preserve the app’s initial intent of a way station for beautiful images, but he clashed with Zuckerberg, who wanted to grow Instagram while keeping it from overshadowing the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/parentcompany.asp">parent</a>. “Facebook was like the big sister that wants to dress you up for a party, but does not want you to be prettier than she is,” an unnamed former Instagram executive is quoted in the book as saying. Instagram comes out poorly, too, as its images of “perfect-looking” women caused some its followers to seek out cosmetic surgery, and opioids were sold through its site for several years. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-7"> Silicon Valley’s workings are thoroughly reported, thanks to Frier’s extensive interviews with venture capitalists and tech executives and Instagram influencers and celebrities. Accolades poured in for <em>No Filter</em>: It was named the best business book in 2020 by the <em>Financial Times</em> and McKinsey Business Book, and it received equally effusive attention from <em>Fortune, The Economist</em>, <em>Inc.</em>, and NPR. <br/> </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="1" id="mntl-sc-block-adslot_1-0"></div> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-1"> <span class="heading-toc" id="toc-best-on-personal-finance-rich-dad-poor-dad"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-8"> <span class="mntl-sc-block-heading__text"> Best on Personal Finance: <em>Rich Dad Poor Dad</em> </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-9"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:150.2%;"> <img alt="Cover of “Rich Dad Poor Dad” by Robert T. Kiyosaki" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/poAPmCJ163yGdCAJmjsGYzY6uZ8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg" data-srcset="https://www.investopedia.com/thmb/MBcxTiNZQ-TDdrp4vGj3Bwg-ksc=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 300w, https://www.investopedia.com/thmb/wOXq6pPUj3aKzs1_Q4bAk0VAhcc=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 500w, https://www.investopedia.com/thmb/LQfTj2SmuGLVXiqdx3n0YwYbzco=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 700w, https://www.investopedia.com/thmb/KW3MVifzCSSKKYgMjWxpNzzSq1Q=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 900w, https://www.investopedia.com/thmb/Q_Xv13H11HNgjesqX2OCGJO1PlY=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 1100w, https://www.investopedia.com/thmb/qs81XcJBZUUowicV9saizuCWoNw=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 1300w, https://www.investopedia.com/thmb/poAPmCJ163yGdCAJmjsGYzY6uZ8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 1500w" data-tracking-container="true" height="1040" id="mntl-sc-block-image_1-0-1" width="692"/> <noscript> <img alt="Cover of “Rich Dad Poor Dad” by Robert T. Kiyosaki" class="img--noscript universal-image__image" height="1040" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/poAPmCJ163yGdCAJmjsGYzY6uZ8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg" srcset="https://www.investopedia.com/thmb/MBcxTiNZQ-TDdrp4vGj3Bwg-ksc=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 300w, https://www.investopedia.com/thmb/wOXq6pPUj3aKzs1_Q4bAk0VAhcc=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 500w, https://www.investopedia.com/thmb/LQfTj2SmuGLVXiqdx3n0YwYbzco=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 700w, https://www.investopedia.com/thmb/KW3MVifzCSSKKYgMjWxpNzzSq1Q=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 900w, https://www.investopedia.com/thmb/Q_Xv13H11HNgjesqX2OCGJO1PlY=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 1100w, https://www.investopedia.com/thmb/qs81XcJBZUUowicV9saizuCWoNw=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 1300w, https://www.investopedia.com/thmb/poAPmCJ163yGdCAJmjsGYzY6uZ8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg 1500w" width="692"/> </noscript> </div> </div> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-10"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-1"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Rich-Dad-Poor-Anniversary-Middle/dp/B07QPQ8WBL/?tag=investopedia-onsite-backup-20" id="button_1-0-1" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-11"> As any investor knows, it’s not how much money you make, but how much you keep—a main premise of <em>Rich Dad Poor Dad</em>, now published in a 20th anniversary edition. This conversational book—which considers being financially literate crucial to acquiring wealth—cites the lessons from a “rich dad,” a friend’s father who rises from humble beginnings to create a lucrative business and a capitalist, and a “poor dad,” author <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/robert-kiyosaki-7832587">Robert T. Kiyosaki’s</a> own father, who was a highly educated government employee his entire working life and a socialist. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-12"> Kiyosaki obviously took the “rich dad” lessons to heart in co-writing what’s still considered, after 25 years, a top personal finance book. Chapter 2 questions the “American dream” of homeownership by spelling out Kiyosaki’s controversial argument that owning a house is a financial liability, not an asset, because paying for and maintaining it is a drain on finances, while Chapter 4 delves into the history of taxes and the power of corporations. He says that having financial literacy means a broad understanding of accounting and investing and knowing the markets and the law. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-13"> Each chapter ends with a “Study Session,” which reviews the material and poses questions. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-14"> <em>Rich Dad </em>spent nearly seven years on the<em> New York Times</em> bestseller list, one of the first self-published books to land there. “It [offers] useful information for a generation on the brink of making important financial decisions,” says Eric Estevez, a member of Investopedia’s Financial Review Board and an independent insurance broker. “Robert has a track record of breaking down complex financial concepts into simple explanations.” </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="2" id="mntl-sc-block-adslot_1-0-1"></div> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-2"> <span class="heading-toc" id="toc-best-cryptocurrency-reference-the-basics-of-bitcoins-and-blockchains"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-15"> <span class="mntl-sc-block-heading__text"> Best Cryptocurrency Reference: <em>The Basics of Bitcoins and Blockchains</em> </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-16"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:154.5%;"> <img alt="Cover of “The Basics of Bitcoins and Blockchains” by Antony Lewis" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/WeV6r7Jah6_xQNTD436iQpKSu30=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg" data-srcset="https://www.investopedia.com/thmb/mm80DSVC5-DGBWnIeIoF_oqXLiA=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 300w, https://www.investopedia.com/thmb/kjKhOGrhz0rP0j3HHrsX8gJX3bc=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 500w, https://www.investopedia.com/thmb/PEOR0JU0GET55rhzmeKcaY8Qvw4=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 700w, https://www.investopedia.com/thmb/MpYv3PrYE22JvxfL-6aPWOgUPVI=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 900w, https://www.investopedia.com/thmb/YHWrpaJuw9OIt8OtBIbXXQR8yzs=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 1100w, https://www.investopedia.com/thmb/y0r6zess1qHGXMvtWDYzp6fFNsE=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 1300w, https://www.investopedia.com/thmb/WeV6r7Jah6_xQNTD436iQpKSu30=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 1500w" data-tracking-container="true" height="1040" id="mntl-sc-block-image_1-0-2" width="673"/> <noscript> <img alt="Cover of “The Basics of Bitcoins and Blockchains” by Antony Lewis" class="img--noscript universal-image__image" height="1040" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/WeV6r7Jah6_xQNTD436iQpKSu30=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg" srcset="https://www.investopedia.com/thmb/mm80DSVC5-DGBWnIeIoF_oqXLiA=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 300w, https://www.investopedia.com/thmb/kjKhOGrhz0rP0j3HHrsX8gJX3bc=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 500w, https://www.investopedia.com/thmb/PEOR0JU0GET55rhzmeKcaY8Qvw4=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 700w, https://www.investopedia.com/thmb/MpYv3PrYE22JvxfL-6aPWOgUPVI=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 900w, https://www.investopedia.com/thmb/YHWrpaJuw9OIt8OtBIbXXQR8yzs=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 1100w, https://www.investopedia.com/thmb/y0r6zess1qHGXMvtWDYzp6fFNsE=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 1300w, https://www.investopedia.com/thmb/WeV6r7Jah6_xQNTD436iQpKSu30=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg 1500w" width="673"/> </noscript> </div> </div> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-17"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-2"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Basics-Bitcoins-Blockchains-Introduction-Cryptocurrencies/dp/1633538001/?tag=investopedia-onsite-backup-20" id="button_1-0-2" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-18"> You <em>can</em> judge this book by its cover because it delivers on its title, resulting in a comprehensive, lively must-have reference book on cryptocurrencies. Antony Lewis, a former technologist at Credit Suisse in Singapore and London, left banking to join the startup iBit, where clients buy and sell Bitcoins, and has never looked back. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-19"> His nine-chapter book starts with defining money—followed by definitions of digital money, cryptography, cryptocurrencies, digital tokens, and blockchains—and illustrates points with pictures, graphs, tables, pie charts, and infographics. He suggests, for example, that Bitcoin be called an “electronic asset” because “the word <em>currency </em>often sidetracks people when they are trying to understand Bitcoin. They get caught up trying to understand aspects of conventional currencies which do not apply to Bitcoin, what backs it (nothing) and who sets the interest rates (there is none).” </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-20"> Investopedia’s Vinamrata Chaturvedi, senior editor overseeing blockchain and cryptocurrency, says this about the book: “There are many questions we have when thinking about blockchain. This book answers all of them. It explains how blockchain technology works and why cryptocurrencies are the future of money.” </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-21"> Lewis freely admits that he “loves the industry” of crypto assets, Bitcoins, and blockchains, yet he also cautions about the very real dangers to investors. In a section called “Scams,” he lays out the swindles of Ponzi schemes, exit and fake scams, pump-and-dumps, scam initial coin offerings (ICOs), spoof ICOs, scam mining schemes, and fake (digital) wallets. “People have made and lost fortunes trading cryptocurrencies and investing in ICOs, but there are many risks,” he writes. “If you do decide to get involved, be careful and do a lot of research before committing your money.” </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="3" id="mntl-sc-block-adslot_1-0-2"></div> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-3"> <span class="heading-toc" id="toc-best-for-investing-a-random-walk-down-wall-street"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-22"> <span class="mntl-sc-block-heading__text"> Best for Investing: <em>A Random Walk Down Wall Street</em> </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-23"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:151.8%;"> <img alt="Cover of “A Random Walk Down Wall Street” by Burton G. Malkiel" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/VNXD11hyiSDZbipgnF29k_AtMBI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg" data-srcset="https://www.investopedia.com/thmb/upy8YnQ_w2lBjudWnfv9zzZTDFs=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 300w, https://www.investopedia.com/thmb/fO6qjKgJJXSqaEUt52Yfzp18Z_Y=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 500w, https://www.investopedia.com/thmb/mslHrrsyAwg8CMqgqHj3QqtD1I4=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 700w, https://www.investopedia.com/thmb/brjI5kn4v5BWeo8Xhovd2xkNbC8=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 900w, https://www.investopedia.com/thmb/J93-CoM1HcmUIa0VyEWiyPOs7xU=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 1100w, https://www.investopedia.com/thmb/bDYnGIt1R7Rb73ZwHtlSzLdazSA=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 1300w, https://www.investopedia.com/thmb/VNXD11hyiSDZbipgnF29k_AtMBI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 1500w" data-tracking-container="true" height="1040" id="mntl-sc-block-image_1-0-3" width="685"/> <noscript> <img alt="Cover of “A Random Walk Down Wall Street” by Burton G. Malkiel" class="img--noscript universal-image__image" height="1040" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/VNXD11hyiSDZbipgnF29k_AtMBI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg" srcset="https://www.investopedia.com/thmb/upy8YnQ_w2lBjudWnfv9zzZTDFs=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 300w, https://www.investopedia.com/thmb/fO6qjKgJJXSqaEUt52Yfzp18Z_Y=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 500w, https://www.investopedia.com/thmb/mslHrrsyAwg8CMqgqHj3QqtD1I4=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 700w, https://www.investopedia.com/thmb/brjI5kn4v5BWeo8Xhovd2xkNbC8=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 900w, https://www.investopedia.com/thmb/J93-CoM1HcmUIa0VyEWiyPOs7xU=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 1100w, https://www.investopedia.com/thmb/bDYnGIt1R7Rb73ZwHtlSzLdazSA=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 1300w, https://www.investopedia.com/thmb/VNXD11hyiSDZbipgnF29k_AtMBI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg 1500w" width="685"/> </noscript> </div> </div> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-24"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-3"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Random-Walk-down-Wall-Street/dp/0393352242/?tag=investopedia-onsite-backup-20" id="button_1-0-3" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-25"> Burton G. Malkiel is an economics professor, a former director at Vanguard, and a former dean of the Yale School of Management, yet his most recognizable contribution to finance is his <em>Random Walk</em> book, originally published in 1973 and, as of 2019, in its 12th edition. If you wait for Jan. 3, 2023, you can get the 50th anniversary edition in a green, not yellow, cover—the one pictured above. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-26"> “A random walk is one in which future steps or directions cannot be predicted on the basis of past history,” writes Malkiel. “When the term is applied to the stock market, it means that short-run changes in stock prices are unpredictable.” Sound familiar? </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-27"> Amy Drury, a member of<em> </em>Investopedia’s Financial Review Board, and CEO and founder of the financial training company OnPoint Learning, who recommended the book, had this to say: “I reread this recently and found that it was a pretty comprehensive overview about finance and investing. It is very dense, so maybe not one to take to the beach, but it is great as a reference book to dip into on specific topics.” </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="4" id="mntl-sc-block-adslot_1-0-3"></div> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-4"> <span class="heading-toc" id="toc-best-personal-finance-disaster-management-what-to-do-with-your-money-when-crisis-hits-a-survival-guide"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-28"> <span class="mntl-sc-block-heading__text"> Best Personal Finance Disaster Management: <em>What to Do with Your Money When Crisis Hits: A Survival Guide</em> </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-29"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:150.5%;"> <img alt="Cover of “What to Do with Your Money When Crisis Hits: A Survival Guide” by Michelle Singletary" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/KwTmItr4uyKgjcqjRDEHkmkNl9k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg" data-srcset="https://www.investopedia.com/thmb/k3Itnxj9u7upR2cccG6XoUB5vcE=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 300w, https://www.investopedia.com/thmb/cFWMSOKjKa6pXczTZFZf2DxNSyU=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 500w, https://www.investopedia.com/thmb/dXYfGoz4YGD9v83r_K06QgFGvFs=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 700w, https://www.investopedia.com/thmb/nsqUtveRTb_NTkSUAMA-J8sM7_0=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 900w, https://www.investopedia.com/thmb/mLcybAlE5sb2Kpj19Vu-Y4lx08Q=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 1100w, https://www.investopedia.com/thmb/ndnxSNWRLGmEwFaxZpIwif3mJbc=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 1300w, https://www.investopedia.com/thmb/KwTmItr4uyKgjcqjRDEHkmkNl9k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 1500w" data-tracking-container="true" height="1042" id="mntl-sc-block-image_1-0-4" width="692"/> <noscript> <img alt="Cover of “What to Do with Your Money When Crisis Hits: A Survival Guide” by Michelle Singletary" class="img--noscript universal-image__image" height="1042" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/KwTmItr4uyKgjcqjRDEHkmkNl9k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg" srcset="https://www.investopedia.com/thmb/k3Itnxj9u7upR2cccG6XoUB5vcE=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 300w, https://www.investopedia.com/thmb/cFWMSOKjKa6pXczTZFZf2DxNSyU=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 500w, https://www.investopedia.com/thmb/dXYfGoz4YGD9v83r_K06QgFGvFs=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 700w, https://www.investopedia.com/thmb/nsqUtveRTb_NTkSUAMA-J8sM7_0=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 900w, https://www.investopedia.com/thmb/mLcybAlE5sb2Kpj19Vu-Y4lx08Q=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 1100w, https://www.investopedia.com/thmb/ndnxSNWRLGmEwFaxZpIwif3mJbc=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 1300w, https://www.investopedia.com/thmb/KwTmItr4uyKgjcqjRDEHkmkNl9k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg 1500w" width="692"/> </noscript> </div> </div> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-30"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-4"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/What-Your-Money-When-Crisis/dp/0358719216/ref=tmm_pap_swatch_0?_encoding=UTF8&amp;tag=investopedia-onsite-backup-20&amp;qid=&amp;sr=/?tag=investopedia00-20" id="button_1-0-4" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-31"> There are two ways to read Michelle Singletary’s personal finance book, and both are right: You can tackle it from start to finish or dive into the topics that are the most pressing first and then read the rest. In her <em>Survival Guide</em>—an outgrowth of her nationally syndicated personal finance column, “The Color of Money,” for <em>The</em> <em>Washington Post</em>—Singletary covers how to manage money and deal with crises, using a question-and-answer format, which delivers authoritative, straightforward, and actionable answers. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-32"> When money is tight, Singletary advises triaging: assessing what must be paid for, such as having food on the table, and dealing with remaining creditors directly by working out payment plans. What’s especially impressive about her book is that it serves a wide range of readers—those who enjoy hefty incomes and live beyond their means, rank newcomers to financial self-care, and everyone in between. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-33"> Its “Resources” chapter lists organizations, companies, and government agencies that offer information and, as needed, possible relief for the consumer. “Very timely, relevant, practical, and helpful” is how Marguerita M. Cheng, CEO of Blue Ocean Global Wealth and an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investopedia-financial-review-board-5076269">Investopedia Financial Review Board member</a>, describes the book.<br/> </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="5" id="mntl-sc-block-adslot_1-0-4"></div> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-5"> <span class="heading-toc" id="toc-best-global-perspective-the-silk-roads-a-new-history-of-the-world"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-34"> <span class="mntl-sc-block-heading__text"> Best Global Perspective: <em>The Silk Roads: A New History of the World</em> </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-high-res" id="mntl-sc-block_2-0-35"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:151.1%;"> <img alt="Cover of “The Silk Roads: A New History of the World” by Peter Frankopan" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/xUoZce3poeyUl4d_9WSkDLHf_Tk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg" data-srcset="https://www.investopedia.com/thmb/8_h0YwsfZFcLOc1VV0iuhmwjEdc=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 300w, https://www.investopedia.com/thmb/-lRs7yzuD3zxbCg2U9QcQXOW4-Y=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 500w, https://www.investopedia.com/thmb/9sD0BE6xnOWNAXs8eauCZ5qqZR8=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 700w, https://www.investopedia.com/thmb/ihfP5obXcSy35yOhiGtosBdxQC8=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 900w, https://www.investopedia.com/thmb/wZf-tVzGc_PWpNRLmFO77-Y3Lag=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 1100w, https://www.investopedia.com/thmb/c6y6j7iXXLr4i9o7F6CQqZVh0AM=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 1300w, https://www.investopedia.com/thmb/xUoZce3poeyUl4d_9WSkDLHf_Tk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 1500w" data-tracking-container="true" height="1442" id="mntl-sc-block-image_1-0-5" width="954"/> <noscript> <img alt="Cover of “The Silk Roads: A New History of the World” by Peter Frankopan" class="img--noscript universal-image__image" height="1442" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/xUoZce3poeyUl4d_9WSkDLHf_Tk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg" srcset="https://www.investopedia.com/thmb/8_h0YwsfZFcLOc1VV0iuhmwjEdc=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 300w, https://www.investopedia.com/thmb/-lRs7yzuD3zxbCg2U9QcQXOW4-Y=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 500w, https://www.investopedia.com/thmb/9sD0BE6xnOWNAXs8eauCZ5qqZR8=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 700w, https://www.investopedia.com/thmb/ihfP5obXcSy35yOhiGtosBdxQC8=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 900w, https://www.investopedia.com/thmb/wZf-tVzGc_PWpNRLmFO77-Y3Lag=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 1100w, https://www.investopedia.com/thmb/c6y6j7iXXLr4i9o7F6CQqZVh0AM=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 1300w, https://www.investopedia.com/thmb/xUoZce3poeyUl4d_9WSkDLHf_Tk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg 1500w" width="954"/> </noscript> </div> </div> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-36"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-5"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Silk-Roads-New-History-World/dp/1101912375//?tag=investopedia-onsite-backup-20" id="button_1-0-5" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-37"> To the uninitiated,<em> </em>the<em> </em>words “silk roads” may conjure up the deep beauty of shimmering silk fabric in exotic locales. The reality is quite different. In his 2015 book, Oxford University global history professor Peter Frankopan weaves a complex tale across centuries about fearless merchants, middlemen, soldiers, and leaders—many of whom traveled on life-challenging passages across treacherous terrain throughout the Middle East, China, the Balkans, and South Asia with the added provocations of unpredictable weather and peoples, crime and life-threatening disease, and even the proselytizing by clergy of religions old and brand-new, which led to deadly power grabs and wars. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-38"> So valued was silk that it became an international currency when others, such as grain, failed. Through the centuries, new cities sprouted and others faltered. The simple purpose, of course, was commerce. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-39"> “<em>The</em> <em>Silk Roads</em> refocuses our attention on a region that has always and will always play a critical (and defining) role in the global economy,” says David M. Roth, CEO of Wakaya Group, a former director of FIJI Water in Fiji, and an entrepreneur-in-residence at INSEAD. “Frankopan also helps us contextualize and make sense of current events within the long arc of human history. To paraphrase [Democratic political operative] James Carville, it is and always has been about the economy.” </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-40"> A follow-up from Frankopan is <em>The New Silk Roads: The New Asia and the Remaking of the World Order </em>(Vintage, 2018). <br> </br></p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="6" id="mntl-sc-block-adslot_1-0-5"></div> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-6"> <span class="heading-toc" id="toc-best-on-the-dangers-of-the-gender-data-gap-invisible-women-data-bias-in-a-world-designed-for-men"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-41"> <span class="mntl-sc-block-heading__text"> Best on the Dangers of the Gender Data Gap: <em>Invisible Women: Data Bias in a World Designed for Men</em> </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-42"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:150.2%;"> <img alt="Cover of “Invisible Women: Data Bias in a World Designed for Men” by Caroline Criado Perez" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/_KRYMg4QOo2eoM9qBHin69an750=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg" data-srcset="https://www.investopedia.com/thmb/2_PSF0_qOHfdk8hs4MNP1iyz3dY=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 300w, https://www.investopedia.com/thmb/AA_uxNBFxFjBEB0mZLKJxzggmgg=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 500w, https://www.investopedia.com/thmb/jo8DIxj7fB_XPCuflR8MGY-Yrlc=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 700w, https://www.investopedia.com/thmb/tDw6B1upW9lukypQby84la34wz4=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 900w, https://www.investopedia.com/thmb/X2DcklR9ES_sz6wSCZHL-iMkz6Y=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 1100w, https://www.investopedia.com/thmb/qGAbJOS2tmU2hPaiO2rnino93aM=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 1300w, https://www.investopedia.com/thmb/_KRYMg4QOo2eoM9qBHin69an750=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 1500w" data-tracking-container="true" height="1040" id="mntl-sc-block-image_1-0-6" width="692"/> <noscript> <img alt="Cover of “Invisible Women: Data Bias in a World Designed for Men” by Caroline Criado Perez" class="img--noscript universal-image__image" height="1040" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/_KRYMg4QOo2eoM9qBHin69an750=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg" srcset="https://www.investopedia.com/thmb/2_PSF0_qOHfdk8hs4MNP1iyz3dY=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 300w, https://www.investopedia.com/thmb/AA_uxNBFxFjBEB0mZLKJxzggmgg=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 500w, https://www.investopedia.com/thmb/jo8DIxj7fB_XPCuflR8MGY-Yrlc=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 700w, https://www.investopedia.com/thmb/tDw6B1upW9lukypQby84la34wz4=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 900w, https://www.investopedia.com/thmb/X2DcklR9ES_sz6wSCZHL-iMkz6Y=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 1100w, https://www.investopedia.com/thmb/qGAbJOS2tmU2hPaiO2rnino93aM=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 1300w, https://www.investopedia.com/thmb/_KRYMg4QOo2eoM9qBHin69an750=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg 1500w" width="692"/> </noscript> </div> </div> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-43"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-6"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Invisible-Women-Data-World-Designed/dp/1419735217/?tag=investopedia-onsite-backup-20" id="button_1-0-6" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-44"> In this absorbing book—named 2019’s <em>Financial Times</em> and McKinsey Business Book of the Year and a London <em>Times </em>bestseller, British journalist and activist Caroline Criado Perez spells out how the data gender gap accounts for disadvantages for women worldwide, costing companies and governments plenty in missed opportunities and productivity. It shows how this bias can yield an unhappy workforce and populace and result in unnecessary illnesses—and even deaths—among women. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-45"> “The stories we tell ourselves about our past, present, and future. They are all marked—disfigured—by a female-shaped ‘absent presence,’” writes Criado Perez, who draws on numerous research studies. “This is the gender data gap.” Practically speaking, this means that medical studies—which often include miners and construction workers, mostly male, and leave out cleaning staff and nail-salon workers, mostly female—still largely focus on men as the default, leaving doctors to estimate drug dosages and treatments for women. In addition, car safety systems are designed for the larger male body, causing additional injuries for female drivers in the event of an accident. The same is true of personal protective equipment (PPE), which leaves female police officers, for example, unprotected on duty as bulletproof vests often don’t fit them. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-46"> Even transportation systems are geared toward the male breadwinner driving a car. Meanwhile, women, who are often responsible for primarily caring for children and aging adults and grocery shopping, are left to rely on usually time-consuming and inefficient public transportation and walking. One success story was a change in the order of snow-clearing practices in the Swedish town of Karlskoga. The governing body decided to clear snow from sidewalks before roadways. That’s because pedestrians, two-thirds of whom were women, sustained injuries, mostly through falls, three times more often in the winter. The estimated cost of all these falls in a single winter season was some $4 million. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-47"> Criado Perez maintains that using the male default isn’t intentional, but ingrained. However, the next time you see a female colleague wrapped in a blanket in the office, while male workers simply wear their regular clothes, know that the data gender gap is partly to blame.<br/> </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="7" id="mntl-sc-block-adslot_1-0-6"></div> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-7"> <span class="heading-toc" id="toc-best-biography-the-snowball-warren-buffett-and-the-business-of-life"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-48"> <span class="mntl-sc-block-heading__text"> Best Biography: <em>The Snowball: Warren Buffett and the Business of Life</em> </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-49"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:151.1%;"> <img alt="Cover of “The Snowball: Warren Buffett and the Business of Life” by Alice Schroeder" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/EtTWAzZrduowHZhIOYotxncqhS8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg" data-srcset="https://www.investopedia.com/thmb/AK5oRICCCMGwTo7WFjRMjVSJF2E=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 300w, https://www.investopedia.com/thmb/DZk-kQk7WSFjmmcSh2yBwzaclA4=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 500w, https://www.investopedia.com/thmb/oSUtI2eolWP9Sv9lAXmJu3AsImU=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 700w, https://www.investopedia.com/thmb/JLqh6w97BwL_M6ZQ3rRSnbmZmPo=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 900w, https://www.investopedia.com/thmb/6Xgd7NX2B7VvHFF55-tKnKKSFnk=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 1100w, https://www.investopedia.com/thmb/9pt5Tts5BjV1UG1RxAP1SPacXZU=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 1300w, https://www.investopedia.com/thmb/EtTWAzZrduowHZhIOYotxncqhS8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 1500w" data-tracking-container="true" height="1040" id="mntl-sc-block-image_1-0-7" width="688"/> <noscript> <img alt="Cover of “The Snowball: Warren Buffett and the Business of Life” by Alice Schroeder" class="img--noscript universal-image__image" height="1040" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/EtTWAzZrduowHZhIOYotxncqhS8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg" srcset="https://www.investopedia.com/thmb/AK5oRICCCMGwTo7WFjRMjVSJF2E=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 300w, https://www.investopedia.com/thmb/DZk-kQk7WSFjmmcSh2yBwzaclA4=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 500w, https://www.investopedia.com/thmb/oSUtI2eolWP9Sv9lAXmJu3AsImU=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 700w, https://www.investopedia.com/thmb/JLqh6w97BwL_M6ZQ3rRSnbmZmPo=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 900w, https://www.investopedia.com/thmb/6Xgd7NX2B7VvHFF55-tKnKKSFnk=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 1100w, https://www.investopedia.com/thmb/9pt5Tts5BjV1UG1RxAP1SPacXZU=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 1300w, https://www.investopedia.com/thmb/EtTWAzZrduowHZhIOYotxncqhS8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg 1500w" width="688"/> </noscript> </div> </div> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-50"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-7"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Snowball-Warren-Buffett-Business-Life/dp/0553805096/ref=tmm_hrd_swatch_0?_encoding=UTF8&amp;tag=investopedia-onsite-backup-20&amp;qid=1659548267&amp;sr=1-1%2F/?tag=investopedia00-20" id="button_1-0-7" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-51"> Berkshire Hathaway Chairman and CEO Warren Buffett, the so-called “Oracle of Omaha,” has had volumes in many languages written about him. Yet his personal life from the earliest days and beyond remained a mystery until Alice Schroeder penned this eloquent biography at Buffett’s invitation. “Whenever my version is different from somebody else’s, Alice, use the less flattering version,” Buffett advised Schroeder. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-52"> This<em> New York Times</em> bestseller traces Buffett’s<strong> </strong>French Huguenot and German<strong> </strong>heritage, whose family motto was likely “spend less than you make,” with the addendum of “don’t go into debt.” She goes from his birth 10 months after the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock-market-crash-1929.asp">1929 stock market crash</a> to his unconventional marriage and fatherhood, to his many deals and the circus-like atmosphere surrounding Berkshire Hathaway’s popular shareholders meetings. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-53"> Buffett credits his success to “intelligent parents” and having “luck.” Yet the numbers-loving Buffett had, by age 10, figured out that having money meant coveted independence, the basics of buying and selling stocks, and how equity’s volatility can impact an investor. His metaphor for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compounding.asp">compounding</a> is a snowball in wet snow that gathers strength and heft as it rolls down the hill. Still working 82 years later, Buffett is one of the world’s richest men, with an estimated net worth of $99.7 billion as of this writing.<br/> </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="8" id="mntl-sc-block-adslot_1-0-7"></div> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-8"> <span class="heading-toc" id="toc-best-origin-story-trillions"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-54"> <span class="mntl-sc-block-heading__text"> Best Origin Story: <em>Trillions</em> </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-55"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:150.7%;"> <img alt="Cover of “Trillions” by Robin Wigglesworth" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/xjO_o2zwkp2TQemy3_Rs2sDKSdM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg" data-srcset="https://www.investopedia.com/thmb/np0CKOfxSQkRi2iLjYg0d5p_iIY=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 300w, https://www.investopedia.com/thmb/Va9ACgxW-7bHhSmmAfTmGFVErho=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 500w, https://www.investopedia.com/thmb/pbFQ3Vtuw1bAtNhMgMJNAcE28y4=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 700w, https://www.investopedia.com/thmb/e6j_a-OjjcFhjmqAF20CrNews0Y=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 900w, https://www.investopedia.com/thmb/oTb0Dahu1sEDIh7S4UtMAGCG_6o=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 1100w, https://www.investopedia.com/thmb/nDaGCUxaw3EZORNQGfrOvwYwl5g=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 1300w, https://www.investopedia.com/thmb/xjO_o2zwkp2TQemy3_Rs2sDKSdM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 1500w" data-tracking-container="true" height="1040" id="mntl-sc-block-image_1-0-8" width="690"/> <noscript> <img alt="Cover of “Trillions” by Robin Wigglesworth" class="img--noscript universal-image__image" height="1040" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/xjO_o2zwkp2TQemy3_Rs2sDKSdM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg" srcset="https://www.investopedia.com/thmb/np0CKOfxSQkRi2iLjYg0d5p_iIY=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 300w, https://www.investopedia.com/thmb/Va9ACgxW-7bHhSmmAfTmGFVErho=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 500w, https://www.investopedia.com/thmb/pbFQ3Vtuw1bAtNhMgMJNAcE28y4=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 700w, https://www.investopedia.com/thmb/e6j_a-OjjcFhjmqAF20CrNews0Y=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 900w, https://www.investopedia.com/thmb/oTb0Dahu1sEDIh7S4UtMAGCG_6o=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 1100w, https://www.investopedia.com/thmb/nDaGCUxaw3EZORNQGfrOvwYwl5g=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 1300w, https://www.investopedia.com/thmb/xjO_o2zwkp2TQemy3_Rs2sDKSdM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg 1500w" width="690"/> </noscript> </div> </div> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-56"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-8"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Trillions-Renegades-Invented-Changed-Finance/dp/0593087682/?tag=investopedia-onsite-backup-20" id="button_1-0-8" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-57"> “Over the past decade, 80 cents of every dollar that has gone into the U.S. investment industry has ended up at Vanguard, State Street, and BlackRock,” writes Robin Wigglesworth, editor of the <em>Financial Times</em>’ Alphaville, a news and commentary service for financial professionals. Wigglesworth’s compelling book tracks the beginning of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indexfund.asp">index funds</a> to the current day and ponders what their dominance means. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-58"> Wigglesworth begins by introducing a cast of 32 characters—among them, only two women: Jeanne Sinquefield, who designed derivatives, and former Barclays Global Investors CEO Pattie Dunn. Other key players: </p> <ul class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-59"> <li>“Early-twentieth-century French mathematician Louis Bachelier, whose work on the ‘random walk’ of stocks would make him the intellectual godfather of passive investing”</li><li>Berkshire Hathaway Chairman and CEO Warren Buffett, who won a 10-year-old bet with Ted Seides of Protege Partners in 2017<strong> </strong>that the returns of index funds would outstrip those of a basket of hedge funds</li><li>Jack Bogle, the founder of Vanguard, often called “Saint Jack” because his company offered index funds to the public en masse. At the end of his life, Bogle questioned the value of index funds but also defended them. “It’s hard to know how big we can get, and the consequences...,” he said. “But to solve this, we should not destroy the greatest invention in the history of finance.”</li> </ul> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="9" id="mntl-sc-block-adslot_1-0-8"></div> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-9"> <span class="heading-toc" id="toc-best-for-decision-making-skills-thinking-fast-and-slow"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-60"> <span class="mntl-sc-block-heading__text"> Best for Decision-Making Skills: <em>Thinking, Fast and Slow</em> </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-61"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:148.1%;"> <img alt="Cover of “Thinking, Fast and Slow” by Daniel Kahneman" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/VX5hCX6Fa8wJ0exqLkzvglNDIrA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg" data-srcset="https://www.investopedia.com/thmb/4ejYRnUEhWQQvb6E1d0AWkRGvDU=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 300w, https://www.investopedia.com/thmb/zLIuPxDc1gqnFGZMdk_P58Ylr-E=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 500w, https://www.investopedia.com/thmb/d90GOdXaP_iGdmxB4B-usGFHrUU=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 700w, https://www.investopedia.com/thmb/yC73-6DjLw96uEoJtuPsMDhKl5g=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 900w, https://www.investopedia.com/thmb/R8dTO9ahTrvYUJ-oHYUiBnd2UcE=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 1100w, https://www.investopedia.com/thmb/eQ-dLHhs6htrwBvEjkBmOERxYfA=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 1300w, https://www.investopedia.com/thmb/VX5hCX6Fa8wJ0exqLkzvglNDIrA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 1500w" data-tracking-container="true" height="1040" id="mntl-sc-block-image_1-0-9" width="702"/> <noscript> <img alt="Cover of “Thinking, Fast and Slow” by Daniel Kahneman" class="img--noscript universal-image__image" height="1040" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/VX5hCX6Fa8wJ0exqLkzvglNDIrA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg" srcset="https://www.investopedia.com/thmb/4ejYRnUEhWQQvb6E1d0AWkRGvDU=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 300w, https://www.investopedia.com/thmb/zLIuPxDc1gqnFGZMdk_P58Ylr-E=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 500w, https://www.investopedia.com/thmb/d90GOdXaP_iGdmxB4B-usGFHrUU=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 700w, https://www.investopedia.com/thmb/yC73-6DjLw96uEoJtuPsMDhKl5g=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 900w, https://www.investopedia.com/thmb/R8dTO9ahTrvYUJ-oHYUiBnd2UcE=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 1100w, https://www.investopedia.com/thmb/eQ-dLHhs6htrwBvEjkBmOERxYfA=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 1300w, https://www.investopedia.com/thmb/VX5hCX6Fa8wJ0exqLkzvglNDIrA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg 1500w" width="702"/> </noscript> </div> </div> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-62"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-9"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/0374533555/?tag=investopedia-onsite-backup-20" id="button_1-0-9" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-63"> Daniel Kahneman is a psychologist by training. However, his work on prospect theory earned him a Nobel Prize in Economics in 2002, an award he acknowledges he would have shared with collaborator Amos Tversky, had Tversky lived, and with whom he also explored heuristics in judgment and decision making. Prospect theory means that investors value gains and losses differently, placing more weight on perceived gains than perceived losses. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-64"> His research also led him to conclude that women make better investors than men because they hold on to their investments, whereas men panic and sell when the market dips, thereby missing out on upswings. Kahneman estimates that the average person makes 35,000 decisions a day—the fast kind, such as when to get up, what to eat for breakfast, what to wear, and the slow kind that involve deliberative thinking, such as whether and whom to marry, which career to pursue, or where to live. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-65"> This data-heavy book, thoughtful and cerebral, is also full of anecdotes about Kahneman’s life of research and experiences. In 2016, Michael Lewis published <em>The Undoing Project: A Friendship That Changed Our Minds</em>, on the close partnership of Kahneman and Tversky.   </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="10" id="mntl-sc-block-adslot_1-0-9"></div> <div class="comp mntl-sc-list-item list-sc-item mntl-block" id="list-sc-item_1-0-10"> <span class="heading-toc" id="toc-best-read-on-scoundrels-and-saviors-the-predators-ball"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-66"> <span class="mntl-sc-block-heading__text"> Best Read on Scoundrels and Saviors: <em>The Predators’ Ball</em> </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-67"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:152.2%;"> <img alt="Cover of “The Predators’ Ball” by Connie Bruck" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/fyh92EhbGmsrRQYtfV45IFDaCNw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg" data-srcset="https://www.investopedia.com/thmb/fqIpJiY8O5xSJyPPrLFts-vgivE=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 300w, https://www.investopedia.com/thmb/MVT3eUOHSH_Oe5KVfaJlKdqf13E=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 500w, https://www.investopedia.com/thmb/6L6Gx-ber7wvCIdffEngrA-XJew=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 700w, https://www.investopedia.com/thmb/I2tD5FyXRvmNNT-CM7UXd5Wvwf4=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 900w, https://www.investopedia.com/thmb/Bn1wdOpGJEq_doLl5_UdFvnjOcA=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 1100w, https://www.investopedia.com/thmb/gJIS1dfljBhBhLSNOx8Vrex9F7g=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 1300w, https://www.investopedia.com/thmb/fyh92EhbGmsrRQYtfV45IFDaCNw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 1500w" data-tracking-container="true" height="1040" id="mntl-sc-block-image_1-0-10" width="683"/> <noscript> <img alt="Cover of “The Predators’ Ball” by Connie Bruck" class="img--noscript universal-image__image" height="1040" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/fyh92EhbGmsrRQYtfV45IFDaCNw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg" srcset="https://www.investopedia.com/thmb/fqIpJiY8O5xSJyPPrLFts-vgivE=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 300w, https://www.investopedia.com/thmb/MVT3eUOHSH_Oe5KVfaJlKdqf13E=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 500w, https://www.investopedia.com/thmb/6L6Gx-ber7wvCIdffEngrA-XJew=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 700w, https://www.investopedia.com/thmb/I2tD5FyXRvmNNT-CM7UXd5Wvwf4=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 900w, https://www.investopedia.com/thmb/Bn1wdOpGJEq_doLl5_UdFvnjOcA=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 1100w, https://www.investopedia.com/thmb/gJIS1dfljBhBhLSNOx8Vrex9F7g=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 1300w, https://www.investopedia.com/thmb/fyh92EhbGmsrRQYtfV45IFDaCNw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg 1500w" width="683"/> </noscript> </div> </div> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-68"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-10"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Predators-Ball-Inside-Burnham-Raiders/dp/1982144262/?tag=investopedia-onsite-backup-20" id="button_1-0-10" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-69"> Today’s younger readers may only know Michael Milken as an advocate for prostate cancer research and the founder of the Milken Institute, a think tank that promotes market-based principles and everything from financial innovations to social issues. When <em>New Yorker </em>writer Connie Bruck’s gripping book was published, life was very different for Milken. He was fighting off federal charges of securities and tax violations. He had been the junk bond king who underwrote some of the biggest corporate raiders, such as Ronald Perelman and Carl Icahn, during the height of junk bonds’ popularity and the leveraged buyout boom. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-70"> So concerned was Milken about Bruck’s reporting that he offered to pay her for all the book’s copies sold in exchange for not publishing it. He was right to be scared. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-71"> The book chronicles how Milken built the junk bond market and supported the corporate raider culture, while working 18-hour days from his Southern California office, as well as his precipitous fall leading to a plea deal in 1990. In addition to Milken, the characters include Apollo Management’s Leon Black, KKR &amp; Co.’s Henry Kravis, Loews Corp.’s Laurence Tisch, stock trader Ivan Boesky, and Rudy Giuliani, then the crusading U.S. Attorney for the Southern District of New York. Then-President Donald Trump granted Milken a full pardon in 2020. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-72"> <em>The Predators’ Ball</em> is a meticulous retelling of the era that spawned the sentiment “greed is good.”<br> </br></p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="11" id="mntl-sc-block-adslot_1-0-10"></div> <div class="comp mntl-sc-list-item mntl-sc-list-item--last list-sc-item mntl-block" id="list-sc-item_1-0-11"> <span class="heading-toc" id="toc-best-for-dealmakers-getting-to-yes"></span> <h2 class="comp mntl-sc-list-item-title finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-73"> <span class="mntl-sc-block-heading__text"> Best for Dealmakers: <em>Getting to Yes</em> </span> </h2> <figure class="comp mntl-sc-block-image inline-image mntl-sc-block litho-sc-block commerce-sc-block-image--finance litho-sc-block-image--finance litho-sc-block-image mntl-sc-block-universal-image figure-portrait figure-low-res" id="mntl-sc-block_2-0-74"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:154.0%;"> <img alt="Cover of “Getting to Yes” by Roger Fisher and William Ury" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-img-lightbox="true" data-sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" data-src="https://www.investopedia.com/thmb/kNLdT8ycG9FUWZNRBc4WtJEe0oE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg" data-srcset="https://www.investopedia.com/thmb/5v7duvlPl0zNEkr5tQe_2a3_t10=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 300w, https://www.investopedia.com/thmb/sSvx5oYJphKE1IzEGJf2VW5azsg=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 500w, https://www.investopedia.com/thmb/vDmofDV1ANJoxEp_G98hmAsZ20U=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 700w, https://www.investopedia.com/thmb/pOX6sPACql8Har3BiF7uSyIkzQw=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 900w, https://www.investopedia.com/thmb/4UrtSa8WvwIuUKAYrfy1i6WsKRQ=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 1100w, https://www.investopedia.com/thmb/iImjofkzb4cd676ViPLz3U5o-cs=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 1300w, https://www.investopedia.com/thmb/kNLdT8ycG9FUWZNRBc4WtJEe0oE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 1500w" data-tracking-container="true" height="1040" id="mntl-sc-block-image_1-0-11" width="675"/> <noscript> <img alt="Cover of “Getting to Yes” by Roger Fisher and William Ury" class="img--noscript universal-image__image" height="1040" sizes="(min-width: 1000px) 700px, (min-width: 780px) 450px, 100vw" src="https://www.investopedia.com/thmb/kNLdT8ycG9FUWZNRBc4WtJEe0oE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg" srcset="https://www.investopedia.com/thmb/5v7duvlPl0zNEkr5tQe_2a3_t10=/300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 300w, https://www.investopedia.com/thmb/sSvx5oYJphKE1IzEGJf2VW5azsg=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 500w, https://www.investopedia.com/thmb/vDmofDV1ANJoxEp_G98hmAsZ20U=/700x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 700w, https://www.investopedia.com/thmb/pOX6sPACql8Har3BiF7uSyIkzQw=/900x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 900w, https://www.investopedia.com/thmb/4UrtSa8WvwIuUKAYrfy1i6WsKRQ=/1100x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 1100w, https://www.investopedia.com/thmb/iImjofkzb4cd676ViPLz3U5o-cs=/1300x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 1300w, https://www.investopedia.com/thmb/kNLdT8ycG9FUWZNRBc4WtJEe0oE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg 1500w" width="675"/> </noscript> </div> </div> </figure> <div class="comp commerce-widget mntl-sc-block litho-sc-block commerce-sc-block-commerce--finance commerce-sc-block-commerce litho-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-use-child-url=".mntl-sc-block-commerce__button" id="mntl-sc-block_2-0-75"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0-11"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="amazon" data-tracking-container="true" href="https://www.amazon.com/Getting-Yes-Negotiating-Agreement-Without/dp/0143118757/?tag=investopedia-onsite-backup-20" id="button_1-0-11" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Buy on Amazon</span></a> </div> </div> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-76"> This classic book uses the words of poet Wallace Stevens to lay out its premise: “After the final no there comes a yes and on the yes the future of the world depends.” <em>Getting to Yes</em>, which debuted in 1981 and has been revised since, is the finest book on how to advocate for what you want with skill, integrity, and success. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-77"> It offers tips on developing a cordial relationship with the other side—that is, being a person, not the entity you represent—while avoiding the trap of being “nice” and getting walked all over, and deflecting and moving beyond the aggressive tactics of unscrupulous negotiators. Most helpful are examples of simple dealings in which the parameters of what’s at stake are expanded—the pie gets bigger, so to speak, so that both parties end up with more than they first asked for. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0-78"> Underneath these outcomes are four steps: separating people from the problem; focusing on interests, not positions; inventing multiple options representing multiple gains for both sides; and insisting that the results be based on an objective standard.<br/> </p> </div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="12" id="mntl-sc-block-adslot_1-0-11"></div> </div> <div class="comp mntl-sc-page--commerce article-outro litho-sc-page mntl-sc-page mntl-block" id="article-outro_1-0"> <span class="heading-toc" id="toc-why-trust-investopedia"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block litho-sc-block commerce-sc-block-heading--finance commerce-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> Why Trust Investopedia? </span> </h2> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0-1"> Michelle Lodge is steeped in the book and book-reviewing world. She has been published in <em>Publishers Weekly </em>and was an editor and writer for <em>Library Journal</em>, both of which cover books and the industry. While a book review editor at <em>LJ</em>, which recommends books for public library collections, she selected a number of fine business books for review. She was also the editor of the On Wall Street Book Club, in which she reviewed books and interviewed authors on a podcast. </p> <p class="comp mntl-sc-block litho-sc-block commerce-sc-block-html--finance commerce-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0-2"> A burgeoning field of business and economics books needs many “heads” to cull out notable selections and pull it all together. Lodge marshaled the resources, in which she considered recommendations from Investopedia Financial Review Board members and Investopedia<em> </em>editors, business executives, bestseller lists from the <em>Financial Times, The</em> <em>New York Times, The Times </em>of London, and others, as well as her own experience as a book review editor. She also pulled three books from her own library: <em>Getting to Yes</em>, <em>The Predators’ Ball</em>, and <em>Thinking, Fast and Slow</em>. Her aim is to cover the bases in subject matter and expertise and tap into a diverse pool of writers, whose coverage reveals the impact on investing, while also ensuring that each selection is a good read. </p> </div> </div> </span> </div>

There is no shortage of interest in finance books. Sales of business and economics print books reached a 10-year high in 2022, accounting for a quarter of all nonfiction unit volume and realized a 10% raise from 2021, according to market research firm The NPD Group. Business is the second-highest category in print publishing after books about religion. This large, complex print category has more than 100 categories and over 200 subcategories. To help you sort through these offerings, we’ve put together a list of the best—everything from a biography; how-tos on managing money and investments; a lively reference book about cryptocurrency; policies that impact economics; scandals and personalities laid bare; and the thinking behind decision making in the stock market and other areas, as well as the all-time best book on negotiating. These books, written by authors of diverse backgrounds, offer the most comprehensive picture and the freshest insights to provide a broad [perspective on the economy](https://www.investopedia.com/best-economics-books-5186983) in these complicated and high-risk times and will help you make better financial choices. ## Best Overall: *No Filter: The Inside Story of Instagram* ![Cover of the book “No Filter: The Inside Story of Instagram” by Sarah Frier]() :max_bytes(150000):strip_icc()/Book.Cover.NoFilter.417fi-blMIL._SX331_BO1204203200_-eddd4380f27a44338bfa293689889d59.jpg) [Buy on Amazon](https://www.amazon.com/No-Filter-Inside-Story-Instagram/dp/1982126809/?tag=investopedia-onsite-backup-20) Sarah Frier’s *No Filter: The Inside Story of Instagram* ranks as the best overall book on our list of fine finance books. The title doesn’t do the book justice, because it’s so much more than a book about two smart tech guys creating a novel app and then selling it to Facebook. Through her well-written and -reported prose, Frier, the Bloomberg editor in charge of Big Tech coverage, tackles the significance of social media—how it can alter the outcomes of elections, impact the self-esteem and behavior of followers who don’t have the seemingly perfect lives of celebrities and influencers, and generally hurt society when it professes to do the opposite. She also takes us inside Facebook, especially profiling its co-founder Mark Zuckerberg, who Instagram co-founder Kevin Systrom called the most strategic thinker he has ever met. It’s a gripping read.  “If Facebook was about friendships, and Twitter was about opinions, then Instagram was about experiences—*anyone* could be interested in anyone’s visual experiences, anywhere in the world,” Frier writes in her tale of app envy among Silicon Valley leaders. In 2010, Instagram co-founders Mike Krieger and Systrom were coming to terms with the scope of their online creation, a social media app for photos and video that led Facebook co-founder Mark Zuckerberg to acquire it for $1 billion two years later. Systrom stayed on after the sale and tried to preserve the app’s initial intent of a way station for beautiful images, but he clashed with Zuckerberg, who wanted to grow Instagram while keeping it from overshadowing the [parent](https://www.investopedia.com/terms/p/parentcompany.asp). “Facebook was like the big sister that wants to dress you up for a party, but does not want you to be prettier than she is,” an unnamed former Instagram executive is quoted in the book as saying. Instagram comes out poorly, too, as its images of “perfect-looking” women caused some its followers to seek out cosmetic surgery, and opioids were sold through its site for several years. Silicon Valley’s workings are thoroughly reported, thanks to Frier’s extensive interviews with venture capitalists and tech executives and Instagram influencers and celebrities. Accolades poured in for *No Filter*: It was named the best business book in 2020 by the *Financial Times* and McKinsey Business Book, and it received equally effusive attention from *Fortune, The Economist*, *Inc.*, and NPR.  ## Best on Personal Finance: *Rich Dad Poor Dad* ![Cover of “Rich Dad Poor Dad” by Robert T. Kiyosaki]() :max_bytes(150000):strip_icc()/Book.cover.Rich.Dad.51u8ZRDCVoL._SX330_BO1204203200_-072af4469c75472bafa96e8918197068.jpg) [Buy on Amazon](https://www.amazon.com/Rich-Dad-Poor-Anniversary-Middle/dp/B07QPQ8WBL/?tag=investopedia-onsite-backup-20) As any investor knows, it’s not how much money you make, but how much you keep—a main premise of *Rich Dad Poor Dad*, now published in a 20th anniversary edition. This conversational book—which considers being financially literate crucial to acquiring wealth—cites the lessons from a “rich dad,” a friend’s father who rises from humble beginnings to create a lucrative business and a capitalist, and a “poor dad,” author [Robert T. Kiyosaki’s](https://www.investopedia.com/robert-kiyosaki-7832587) own father, who was a highly educated government employee his entire working life and a socialist. Kiyosaki obviously took the “rich dad” lessons to heart in co-writing what’s still considered, after 25 years, a top personal finance book. Chapter 2 questions the “American dream” of homeownership by spelling out Kiyosaki’s controversial argument that owning a house is a financial liability, not an asset, because paying for and maintaining it is a drain on finances, while Chapter 4 delves into the history of taxes and the power of corporations. He says that having financial literacy means a broad understanding of accounting and investing and knowing the markets and the law. Each chapter ends with a “Study Session,” which reviews the material and poses questions. *Rich Dad* spent nearly seven years on the *New York Times* bestseller list, one of the first self-published books to land there. “It [offers] useful information for a generation on the brink of making important financial decisions,” says Eric Estevez, a member of Investopedia’s Financial Review Board and an independent insurance broker. “Robert has a track record of breaking down complex financial concepts into simple explanations.” ## Best Cryptocurrency Reference: *The Basics of Bitcoins and Blockchains* ![Cover of “The Basics of Bitcoins and Blockchains” by Antony Lewis]() :max_bytes(150000):strip_icc()/Book.cover.Basics.of.Bitcoins.51-afHCwctL._SX321_BO1204203200_-64d1e8ce95744ab8bd46486c3c57bab6.jpg) [Buy on Amazon](https://www.amazon.com/Basics-Bitcoins-Blockchains-Introduction-Cryptocurrencies/dp/1633538001/?tag=investopedia-onsite-backup-20) You *can* judge this book by its cover because it delivers on its title, resulting in a comprehensive, lively must-have reference book on cryptocurrencies. Antony Lewis, a former technologist at Credit Suisse in Singapore and London, left banking to join the startup iBit, where clients buy and sell Bitcoins, and has never looked back. His nine-chapter book starts with defining money—followed by definitions of digital money, cryptography, cryptocurrencies, digital tokens, and blockchains—and illustrates points with pictures, graphs, tables, pie charts, and infographics. He suggests, for example, that Bitcoin be called an “electronic asset” because “the word *currency* often sidetracks people when they are trying to understand Bitcoin. They get caught up trying to understand aspects of conventional currencies which do not apply to Bitcoin, what backs it (nothing) and who sets the interest rates (there is none).” Investopedia’s Vinamrata Chaturvedi, senior editor overseeing blockchain and cryptocurrency, says this about the book: “There are many questions we have when thinking about blockchain. This book answers all of them. It explains how blockchain technology works and why cryptocurrencies are the future of money.” Lewis freely admits that he “loves the industry” of crypto assets, Bitcoins, and blockchains, yet he also cautions about the very real dangers to investors. In a section called “Scams,” he lays out the swindles of Ponzi schemes, exit and fake scams, pump-and-dumps, scam initial coin offerings (ICOs), spoof ICOs, scam mining schemes, and fake (digital) wallets. “People have made and lost fortunes trading cryptocurrencies and investing in ICOs, but there are many risks,” he writes. “If you do decide to get involved, be careful and do a lot of research before committing your money.” ## Best for Investing: *A Random Walk Down Wall Street* ![Cover of “A Random Walk Down Wall Street” by Burton G. Malkiel]() :max_bytes(150000):strip_icc()/Book.cover.random.walk.41JUaybAZvL._SX327_BO1204203200_-1355825b3c024e989b96f034b386817b.jpg) [Buy on Amazon](https://www.amazon.com/Random-Walk-down-Wall-Street/dp/0393352242/?tag=investopedia-onsite-backup-20) Burton G. Malkiel is an economics professor, a former director at Vanguard, and a former dean of the Yale School of Management, yet his most recognizable contribution to finance is his *Random Walk* book, originally published in 1973 and, as of 2019, in its 12th edition. If you wait for Jan. 3, 2023, you can get the 50th anniversary edition in a green, not yellow, cover—the one pictured above. “A random walk is one in which future steps or directions cannot be predicted on the basis of past history,” writes Malkiel. “When the term is applied to the stock market, it means that short-run changes in stock prices are unpredictable.” Sound familiar? Amy Drury, a member ofInvestopedia’s Financial Review Board, and CEO and founder of the financial training company OnPoint Learning, who recommended the book, had this to say: “I reread this recently and found that it was a pretty comprehensive overview about finance and investing. It is very dense, so maybe not one to take to the beach, but it is great as a reference book to dip into on specific topics.” ## Best Personal Finance Disaster Management: *What to Do with Your Money When Crisis Hits: A Survival Guide* ![Cover of “What to Do with Your Money When Crisis Hits: A Survival Guide” by Michelle Singletary]() :max_bytes(150000):strip_icc()/Book.coverl.Singletary.money.51X3RBSlnVL-f0cce620e5d940f4b59dfd2f5c39eec7.jpeg) [Buy on Amazon](https://www.amazon.com/What-Your-Money-When-Crisis/dp/0358719216/ref=tmm_pap_swatch_0?_encoding=UTF8&tag=investopedia-onsite-backup-20&qid=&sr=/?tag=investopedia00-20) There are two ways to read Michelle Singletary’s personal finance book, and both are right: You can tackle it from start to finish or dive into the topics that are the most pressing first and then read the rest. In her *Survival Guide*—an outgrowth of her nationally syndicated personal finance column, “The Color of Money,” for *The* *Washington Post*—Singletary covers how to manage money and deal with crises, using a question-and-answer format, which delivers authoritative, straightforward, and actionable answers. When money is tight, Singletary advises triaging: assessing what must be paid for, such as having food on the table, and dealing with remaining creditors directly by working out payment plans. What’s especially impressive about her book is that it serves a wide range of readers—those who enjoy hefty incomes and live beyond their means, rank newcomers to financial self-care, and everyone in between. Its “Resources” chapter lists organizations, companies, and government agencies that offer information and, as needed, possible relief for the consumer. “Very timely, relevant, practical, and helpful” is how Marguerita M. Cheng, CEO of Blue Ocean Global Wealth and an [Investopedia Financial Review Board member](https://www.investopedia.com/investopedia-financial-review-board-5076269), describes the book. ## Best Global Perspective: *The Silk Roads: A New History of the World* ![Cover of “The Silk Roads: A New History of the World” by Peter Frankopan]() :max_bytes(150000):strip_icc()/LARGE-Silkroads61oLaVHqeL._SY346_1-704b91c4f212426fb89ee64fb4e5c47d.jpg) [Buy on Amazon](https://www.amazon.com/Silk-Roads-New-History-World/dp/1101912375//?tag=investopedia-onsite-backup-20) To the uninitiated,thewords “silk roads” may conjure up the deep beauty of shimmering silk fabric in exotic locales. The reality is quite different. In his 2015 book, Oxford University global history professor Peter Frankopan weaves a complex tale across centuries about fearless merchants, middlemen, soldiers, and leaders—many of whom traveled on life-challenging passages across treacherous terrain throughout the Middle East, China, the Balkans, and South Asia with the added provocations of unpredictable weather and peoples, crime and life-threatening disease, and even the proselytizing by clergy of religions old and brand-new, which led to deadly power grabs and wars. So valued was silk that it became an international currency when others, such as grain, failed. Through the centuries, new cities sprouted and others faltered. The simple purpose, of course, was commerce. “*The* *Silk Roads* refocuses our attention on a region that has always and will always play a critical (and defining) role in the global economy,” says David M. Roth, CEO of Wakaya Group, a former director of FIJI Water in Fiji, and an entrepreneur-in-residence at INSEAD. “Frankopan also helps us contextualize and make sense of current events within the long arc of human history. To paraphrase [Democratic political operative] James Carville, it is and always has been about the economy.” A follow-up from Frankopan is *The New Silk Roads: The New Asia and the Remaking of the World Order* (Vintage, 2018).  ## Best on the Dangers of the Gender Data Gap: *Invisible Women: Data Bias in a World Designed for Men* ![Cover of “Invisible Women: Data Bias in a World Designed for Men” by Caroline Criado Perez]() :max_bytes(150000):strip_icc()/Book.cover.InvisibleWomen41o5Wl8DcjL._SX330_BO1204203200_-34cdd08a1ad44a829b80786cba5e65ef.jpg) [Buy on Amazon](https://www.amazon.com/Invisible-Women-Data-World-Designed/dp/1419735217/?tag=investopedia-onsite-backup-20) In this absorbing book—named 2019’s *Financial Times* and McKinsey Business Book of the Year and a London *Times* bestseller, British journalist and activist Caroline Criado Perez spells out how the data gender gap accounts for disadvantages for women worldwide, costing companies and governments plenty in missed opportunities and productivity. It shows how this bias can yield an unhappy workforce and populace and result in unnecessary illnesses—and even deaths—among women. “The stories we tell ourselves about our past, present, and future. They are all marked—disfigured—by a female-shaped ‘absent presence,’” writes Criado Perez, who draws on numerous research studies. “This is the gender data gap.” Practically speaking, this means that medical studies—which often include miners and construction workers, mostly male, and leave out cleaning staff and nail-salon workers, mostly female—still largely focus on men as the default, leaving doctors to estimate drug dosages and treatments for women. In addition, car safety systems are designed for the larger male body, causing additional injuries for female drivers in the event of an accident. The same is true of personal protective equipment (PPE), which leaves female police officers, for example, unprotected on duty as bulletproof vests often don’t fit them. Even transportation systems are geared toward the male breadwinner driving a car. Meanwhile, women, who are often responsible for primarily caring for children and aging adults and grocery shopping, are left to rely on usually time-consuming and inefficient public transportation and walking. One success story was a change in the order of snow-clearing practices in the Swedish town of Karlskoga. The governing body decided to clear snow from sidewalks before roadways. That’s because pedestrians, two-thirds of whom were women, sustained injuries, mostly through falls, three times more often in the winter. The estimated cost of all these falls in a single winter season was some $4 million. Criado Perez maintains that using the male default isn’t intentional, but ingrained. However, the next time you see a female colleague wrapped in a blanket in the office, while male workers simply wear their regular clothes, know that the data gender gap is partly to blame. ## Best Biography: *The Snowball: Warren Buffett and the Business of Life* ![Cover of “The Snowball: Warren Buffett and the Business of Life” by Alice Schroeder]() :max_bytes(150000):strip_icc()/Book.cover.The.Snowball.51KVWaAP02L._SX328_BO1204203200_-dff432fa972048f2ab78abd55f30cc86.jpg) [Buy on Amazon](https://www.amazon.com/Snowball-Warren-Buffett-Business-Life/dp/0553805096/ref=tmm_hrd_swatch_0?_encoding=UTF8&tag=investopedia-onsite-backup-20&qid=1659548267&sr=1-1%2F/?tag=investopedia00-20) Berkshire Hathaway Chairman and CEO Warren Buffett, the so-called “Oracle of Omaha,” has had volumes in many languages written about him. Yet his personal life from the earliest days and beyond remained a mystery until Alice Schroeder penned this eloquent biography at Buffett’s invitation. “Whenever my version is different from somebody else’s, Alice, use the less flattering version,” Buffett advised Schroeder. This *New York Times* bestseller traces Buffett’sFrench Huguenot and Germanheritage, whose family motto was likely “spend less than you make,” with the addendum of “don’t go into debt.” She goes from his birth 10 months after the [1929 stock market crash](https://www.investopedia.com/terms/s/stock-market-crash-1929.asp) to his unconventional marriage and fatherhood, to his many deals and the circus-like atmosphere surrounding Berkshire Hathaway’s popular shareholders meetings. Buffett credits his success to “intelligent parents” and having “luck.” Yet the numbers-loving Buffett had, by age 10, figured out that having money meant coveted independence, the basics of buying and selling stocks, and how equity’s volatility can impact an investor. His metaphor for [compounding](https://www.investopedia.com/terms/c/compounding.asp) is a snowball in wet snow that gathers strength and heft as it rolls down the hill. Still working 82 years later, Buffett is one of the world’s richest men, with an estimated net worth of $99.7 billion as of this writing. ## Best Origin Story: *Trillions* ![Cover of “Trillions” by Robin Wigglesworth]() :max_bytes(150000):strip_icc()/Book.cover.Trillions.51W7y6YfbiL._SX329_BO1204203200_-e09356f387cd4ecaad3aa753c4d1755e.jpg) [Buy on Amazon](https://www.amazon.com/Trillions-Renegades-Invented-Changed-Finance/dp/0593087682/?tag=investopedia-onsite-backup-20) “Over the past decade, 80 cents of every dollar that has gone into the U.S. investment industry has ended up at Vanguard, State Street, and BlackRock,” writes Robin Wigglesworth, editor of the *Financial Times*’ Alphaville, a news and commentary service for financial professionals. Wigglesworth’s compelling book tracks the beginning of [index funds](https://www.investopedia.com/terms/i/indexfund.asp) to the current day and ponders what their dominance means. Wigglesworth begins by introducing a cast of 32 characters—among them, only two women: Jeanne Sinquefield, who designed derivatives, and former Barclays Global Investors CEO Pattie Dunn. Other key players: * “Early-twentieth-century French mathematician Louis Bachelier, whose work on the ‘random walk’ of stocks would make him the intellectual godfather of passive investing” * Berkshire Hathaway Chairman and CEO Warren Buffett, who won a 10-year-old bet with Ted Seides of Protege Partners in 2017that the returns of index funds would outstrip those of a basket of hedge funds * Jack Bogle, the founder of Vanguard, often called “Saint Jack” because his company offered index funds to the public en masse. At the end of his life, Bogle questioned the value of index funds but also defended them. “It’s hard to know how big we can get, and the consequences...,” he said. “But to solve this, we should not destroy the greatest invention in the history of finance.” ## Best for Decision-Making Skills: *Thinking, Fast and Slow* ![Cover of “Thinking, Fast and Slow” by Daniel Kahneman]() :max_bytes(150000):strip_icc()/Book.cover.thinking.fast.and.319zc862DSL._SX335_BO1204203200_1-8442f05e14f2482c8e9f8c2f0894dfa5.jpg) [Buy on Amazon](https://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/0374533555/?tag=investopedia-onsite-backup-20) Daniel Kahneman is a psychologist by training. However, his work on prospect theory earned him a Nobel Prize in Economics in 2002, an award he acknowledges he would have shared with collaborator Amos Tversky, had Tversky lived, and with whom he also explored heuristics in judgment and decision making. Prospect theory means that investors value gains and losses differently, placing more weight on perceived gains than perceived losses. His research also led him to conclude that women make better investors than men because they hold on to their investments, whereas men panic and sell when the market dips, thereby missing out on upswings. Kahneman estimates that the average person makes 35,000 decisions a day—the fast kind, such as when to get up, what to eat for breakfast, what to wear, and the slow kind that involve deliberative thinking, such as whether and whom to marry, which career to pursue, or where to live. This data-heavy book, thoughtful and cerebral, is also full of anecdotes about Kahneman’s life of research and experiences. In 2016, Michael Lewis published *The Undoing Project: A Friendship That Changed Our Minds*, on the close partnership of Kahneman and Tversky.   ## Best Read on Scoundrels and Saviors: *The Predators’ Ball* ![Cover of “The Predators’ Ball” by Connie Bruck]() :max_bytes(150000):strip_icc()/Book.cover.predators.ball.41zAKMUYHQL._SX326_BO1204203200_-5087f2edd00844fda77ecd47a4dd246e.jpg) [Buy on Amazon](https://www.amazon.com/Predators-Ball-Inside-Burnham-Raiders/dp/1982144262/?tag=investopedia-onsite-backup-20) Today’s younger readers may only know Michael Milken as an advocate for prostate cancer research and the founder of the Milken Institute, a think tank that promotes market-based principles and everything from financial innovations to social issues. When *New Yorker* writer Connie Bruck’s gripping book was published, life was very different for Milken. He was fighting off federal charges of securities and tax violations. He had been the junk bond king who underwrote some of the biggest corporate raiders, such as Ronald Perelman and Carl Icahn, during the height of junk bonds’ popularity and the leveraged buyout boom. So concerned was Milken about Bruck’s reporting that he offered to pay her for all the book’s copies sold in exchange for not publishing it. He was right to be scared. The book chronicles how Milken built the junk bond market and supported the corporate raider culture, while working 18-hour days from his Southern California office, as well as his precipitous fall leading to a plea deal in 1990. In addition to Milken, the characters include Apollo Management’s Leon Black, KKR & Co.’s Henry Kravis, Loews Corp.’s Laurence Tisch, stock trader Ivan Boesky, and Rudy Giuliani, then the crusading U.S. Attorney for the Southern District of New York. Then-President Donald Trump granted Milken a full pardon in 2020. *The Predators’ Ball* is a meticulous retelling of the era that spawned the sentiment “greed is good.” ## Best for Dealmakers: *Getting to Yes* ![Cover of “Getting to Yes” by Roger Fisher and William Ury]() :max_bytes(150000):strip_icc()/Book.cover.getting.to.yes.51vcylss4nL._SX322_BO1204203200_-c8276dc22eb14ee698caefd0d9decafd.jpg) [Buy on Amazon](https://www.amazon.com/Getting-Yes-Negotiating-Agreement-Without/dp/0143118757/?tag=investopedia-onsite-backup-20) This classic book uses the words of poet Wallace Stevens to lay out its premise: “After the final no there comes a yes and on the yes the future of the world depends.” *Getting to Yes*, which debuted in 1981 and has been revised since, is the finest book on how to advocate for what you want with skill, integrity, and success. It offers tips on developing a cordial relationship with the other side—that is, being a person, not the entity you represent—while avoiding the trap of being “nice” and getting walked all over, and deflecting and moving beyond the aggressive tactics of unscrupulous negotiators. Most helpful are examples of simple dealings in which the parameters of what’s at stake are expanded—the pie gets bigger, so to speak, so that both parties end up with more than they first asked for. Underneath these outcomes are four steps: separating people from the problem; focusing on interests, not positions; inventing multiple options representing multiple gains for both sides; and insisting that the results be based on an objective standard. ## Why Trust Investopedia? Michelle Lodge is steeped in the book and book-reviewing world. She has been published in *Publishers Weekly* and was an editor and writer for *Library Journal*, both of which cover books and the industry. While a book review editor at *LJ*, which recommends books for public library collections, she selected a number of fine business books for review. She was also the editor of the On Wall Street Book Club, in which she reviewed books and interviewed authors on a podcast. A burgeoning field of business and economics books needs many “heads” to cull out notable selections and pull it all together. Lodge marshaled the resources, in which she considered recommendations from Investopedia Financial Review Board members and Investopediaeditors, business executives, bestseller lists from the *Financial Times, The* *New York Times, The Times* of London, and others, as well as her own experience as a book review editor. She also pulled three books from her own library: *Getting to Yes*, *The Predators’ Ball*, and *Thinking, Fast and Slow*. Her aim is to cover the bases in subject matter and expertise and tap into a diverse pool of writers, whose coverage reveals the impact on investing, while also ensuring that each selection is a good read.

There is no shortage of interest in finance books. Sales of business and economics print books reached a 10-year high in 2022, accounting for a quarter of all nonfiction unit volume and realized a 10% raise from 2021, according to market research firm The NPD Group. Business is the second-highest category in print publishing after books about religion. This large, complex print category has more than 100 categories and over 200 subcategories. To help you sort through these offerings, we’ve put together a list of the best—everything from a biography; how-tos on managing money and investments; a lively reference book about cryptocurrency; policies that impact economics; scandals and personalities laid bare; and the thinking behind decision making in the stock market and other areas, as well as the all-time best book on negotiating. These books, written by authors of diverse backgrounds, offer the most comprehensive picture and the freshest insights to provide a broad perspective on the economy in these complicated and high-risk times and will help you make better financial choices. Best Overall: No Filter: The Inside Story of Instagram Buy on Amazon Sarah Frier’s No Filter: The Inside Story of Instagram ranks as the best overall book on our list of fine finance books. The title doesn’t do the book justice, because it’s so much more than a book about two smart tech guys creating a novel app and then selling it to Facebook. Through her well-written and -reported prose, Frier, the Bloomberg editor in charge of Big Tech coverage, tackles the significance of social media—how it can alter the outcomes of elections, impact the self-esteem and behavior of followers who don’t have the seemingly perfect lives of celebrities and influencers, and generally hurt society when it professes to do the opposite. She also takes us inside Facebook, especially profiling its co-founder Mark Zuckerberg, who Instagram co-founder Kevin Systrom called the most strategic thinker he has ever met. It’s a gripping read.  “If Facebook was about friendships, and Twitter was about opinions, then Instagram was about experiences—anyone could be interested in anyone’s visual experiences, anywhere in the world,” Frier writes in her tale of app envy among Silicon Valley leaders. In 2010, Instagram co-founders Mike Krieger and Systrom were coming to terms with the scope of their online creation, a social media app for photos and video that led Facebook co-founder Mark Zuckerberg to acquire it for $1 billion two years later. Systrom stayed on after the sale and tried to preserve the app’s initial intent of a way station for beautiful images, but he clashed with Zuckerberg, who wanted to grow Instagram while keeping it from overshadowing the parent. “Facebook was like the big sister that wants to dress you up for a party, but does not want you to be prettier than she is,” an unnamed former Instagram executive is quoted in the book as saying. Instagram comes out poorly, too, as its images of “perfect-looking” women caused some its followers to seek out cosmetic surgery, and opioids were sold through its site for several years. Silicon Valley’s workings are thoroughly reported, thanks to Frier’s extensive interviews with venture capitalists and tech executives and Instagram influencers and celebrities. Accolades poured in for No Filter: It was named the best business book in 2020 by the Financial Times and McKinsey Business Book, and it received equally effusive attention from Fortune, The Economist, Inc., and NPR.  Best on Personal Finance: Rich Dad Poor Dad Buy on Amazon As any investor knows, it’s not how much money you make, but how much you keep—a main premise of Rich Dad Poor Dad, now published in a 20th anniversary edition. This conversational book—which considers being financially literate crucial to acquiring wealth—cites the lessons from a “rich dad,” a friend’s father who rises from humble beginnings to create a lucrative business and a capitalist, and a “poor dad,” author Robert T. Kiyosaki’s own father, who was a highly educated government employee his entire working life and a socialist. Kiyosaki obviously took the “rich dad” lessons to heart in co-writing what’s still considered, after 25 years, a top personal finance book. Chapter 2 questions the “American dream” of homeownership by spelling out Kiyosaki’s controversial argument that owning a house is a financial liability, not an asset, because paying for and maintaining it is a drain on finances, while Chapter 4 delves into the history of taxes and the power of corporations. He says that having financial literacy means a broad understanding of accounting and investing and knowing the markets and the law. Each chapter ends with a “Study Session,” which reviews the material and poses questions. Rich Dad spent nearly seven years on the New York Times bestseller list, one of the first self-published books to land there. “It [offers] useful information for a generation on the brink of making important financial decisions,” says Eric Estevez, a member of Investopedia’s Financial Review Board and an independent insurance broker. “Robert has a track record of breaking down complex financial concepts into simple explanations.” Best Cryptocurrency Reference: The Basics of Bitcoins and Blockchains Buy on Amazon You can judge this book by its cover because it delivers on its title, resulting in a comprehensive, lively must-have reference book on cryptocurrencies. Antony Lewis, a former technologist at Credit Suisse in Singapore and London, left banking to join the startup iBit, where clients buy and sell Bitcoins, and has never looked back. His nine-chapter book starts with defining money—followed by definitions of digital money, cryptography, cryptocurrencies, digital tokens, and blockchains—and illustrates points with pictures, graphs, tables, pie charts, and infographics. He suggests, for example, that Bitcoin be called an “electronic asset” because “the word currency often sidetracks people when they are trying to understand Bitcoin. They get caught up trying to understand aspects of conventional currencies which do not apply to Bitcoin, what backs it (nothing) and who sets the interest rates (there is none).” Investopedia’s Vinamrata Chaturvedi, senior editor overseeing blockchain and cryptocurrency, says this about the book: “There are many questions we have when thinking about blockchain. This book answers all of them. It explains how blockchain technology works and why cryptocurrencies are the future of money.” Lewis freely admits that he “loves the industry” of crypto assets, Bitcoins, and blockchains, yet he also cautions about the very real dangers to investors. In a section called “Scams,” he lays out the swindles of Ponzi schemes, exit and fake scams, pump-and-dumps, scam initial coin offerings (ICOs), spoof ICOs, scam mining schemes, and fake (digital) wallets. “People have made and lost fortunes trading cryptocurrencies and investing in ICOs, but there are many risks,” he writes. “If you do decide to get involved, be careful and do a lot of research before committing your money.” Best for Investing: A Random Walk Down Wall Street Buy on Amazon Burton G. Malkiel is an economics professor, a former director at Vanguard, and a former dean of the Yale School of Management, yet his most recognizable contribution to finance is his Random Walk book, originally published in 1973 and, as of 2019, in its 12th edition. If you wait for Jan. 3, 2023, you can get the 50th anniversary edition in a green, not yellow, cover—the one pictured above. “A random walk is one in which future steps or directions cannot be predicted on the basis of past history,” writes Malkiel. “When the term is applied to the stock market, it means that short-run changes in stock prices are unpredictable.” Sound familiar? Amy Drury, a member of Investopedia’s Financial Review Board, and CEO and founder of the financial training company OnPoint Learning, who recommended the book, had this to say: “I reread this recently and found that it was a pretty comprehensive overview about finance and investing. It is very dense, so maybe not one to take to the beach, but it is great as a reference book to dip into on specific topics.” Best Personal Finance Disaster Management: What to Do with Your Money When Crisis Hits: A Survival Guide Buy on Amazon There are two ways to read Michelle Singletary’s personal finance book, and both are right: You can tackle it from start to finish or dive into the topics that are the most pressing first and then read the rest. In her Survival Guide—an outgrowth of her nationally syndicated personal finance column, “The Color of Money,” for The Washington Post—Singletary covers how to manage money and deal with crises, using a question-and-answer format, which delivers authoritative, straightforward, and actionable answers. When money is tight, Singletary advises triaging: assessing what must be paid for, such as having food on the table, and dealing with remaining creditors directly by working out payment plans. What’s especially impressive about her book is that it serves a wide range of readers—those who enjoy hefty incomes and live beyond their means, rank newcomers to financial self-care, and everyone in between. Its “Resources” chapter lists organizations, companies, and government agencies that offer information and, as needed, possible relief for the consumer. “Very timely, relevant, practical, and helpful” is how Marguerita M. Cheng, CEO of Blue Ocean Global Wealth and an Investopedia Financial Review Board member, describes the book. Best Global Perspective: The Silk Roads: A New History of the World Buy on Amazon To the uninitiated, the words “silk roads” may conjure up the deep beauty of shimmering silk fabric in exotic locales. The reality is quite different. In his 2015 book, Oxford University global history professor Peter Frankopan weaves a complex tale across centuries about fearless merchants, middlemen, soldiers, and leaders—many of whom traveled on life-challenging passages across treacherous terrain throughout the Middle East, China, the Balkans, and South Asia with the added provocations of unpredictable weather and peoples, crime and life-threatening disease, and even the proselytizing by clergy of religions old and brand-new, which led to deadly power grabs and wars. So valued was silk that it became an international currency when others, such as grain, failed. Through the centuries, new cities sprouted and others faltered. The simple purpose, of course, was commerce. “The Silk Roads refocuses our attention on a region that has always and will always play a critical (and defining) role in the global economy,” says David M. Roth, CEO of Wakaya Group, a former director of FIJI Water in Fiji, and an entrepreneur-in-residence at INSEAD. “Frankopan also helps us contextualize and make sense of current events within the long arc of human history. To paraphrase [Democratic political operative] James Carville, it is and always has been about the economy.” A follow-up from Frankopan is The New Silk Roads: The New Asia and the Remaking of the World Order (Vintage, 2018).  Best on the Dangers of the Gender Data Gap: Invisible Women: Data Bias in a World Designed for Men Buy on Amazon In this absorbing book—named 2019’s Financial Times and McKinsey Business Book of the Year and a London Times bestseller, British journalist and activist Caroline Criado Perez spells out how the data gender gap accounts for disadvantages for women worldwide, costing companies and governments plenty in missed opportunities and productivity. It shows how this bias can yield an unhappy workforce and populace and result in unnecessary illnesses—and even deaths—among women. “The stories we tell ourselves about our past, present, and future. They are all marked—disfigured—by a female-shaped ‘absent presence,’” writes Criado Perez, who draws on numerous research studies. “This is the gender data gap.” Practically speaking, this means that medical studies—which often include miners and construction workers, mostly male, and leave out cleaning staff and nail-salon workers, mostly female—still largely focus on men as the default, leaving doctors to estimate drug dosages and treatments for women. In addition, car safety systems are designed for the larger male body, causing additional injuries for female drivers in the event of an accident. The same is true of personal protective equipment (PPE), which leaves female police officers, for example, unprotected on duty as bulletproof vests often don’t fit them. Even transportation systems are geared toward the male breadwinner driving a car. Meanwhile, women, who are often responsible for primarily caring for children and aging adults and grocery shopping, are left to rely on usually time-consuming and inefficient public transportation and walking. One success story was a change in the order of snow-clearing practices in the Swedish town of Karlskoga. The governing body decided to clear snow from sidewalks before roadways. That’s because pedestrians, two-thirds of whom were women, sustained injuries, mostly through falls, three times more often in the winter. The estimated cost of all these falls in a single winter season was some $4 million. Criado Perez maintains that using the male default isn’t intentional, but ingrained. However, the next time you see a female colleague wrapped in a blanket in the office, while male workers simply wear their regular clothes, know that the data gender gap is partly to blame. Best Biography: The Snowball: Warren Buffett and the Business of Life Buy on Amazon Berkshire Hathaway Chairman and CEO Warren Buffett, the so-called “Oracle of Omaha,” has had volumes in many languages written about him. Yet his personal life from the earliest days and beyond remained a mystery until Alice Schroeder penned this eloquent biography at Buffett’s invitation. “Whenever my version is different from somebody else’s, Alice, use the less flattering version,” Buffett advised Schroeder. This New York Times bestseller traces Buffett’s French Huguenot and German heritage, whose family motto was likely “spend less than you make,” with the addendum of “don’t go into debt.” She goes from his birth 10 months after the 1929 stock market crash to his unconventional marriage and fatherhood, to his many deals and the circus-like atmosphere surrounding Berkshire Hathaway’s popular shareholders meetings. Buffett credits his success to “intelligent parents” and having “luck.” Yet the numbers-loving Buffett had, by age 10, figured out that having money meant coveted independence, the basics of buying and selling stocks, and how equity’s volatility can impact an investor. His metaphor for compounding is a snowball in wet snow that gathers strength and heft as it rolls down the hill. Still working 82 years later, Buffett is one of the world’s richest men, with an estimated net worth of $99.7 billion as of this writing. Best Origin Story: Trillions Buy on Amazon “Over the past decade, 80 cents of every dollar that has gone into the U.S. investment industry has ended up at Vanguard, State Street, and BlackRock,” writes Robin Wigglesworth, editor of the Financial Times’ Alphaville, a news and commentary service for financial professionals. Wigglesworth’s compelling book tracks the beginning of index funds to the current day and ponders what their dominance means. Wigglesworth begins by introducing a cast of 32 characters—among them, only two women: Jeanne Sinquefield, who designed derivatives, and former Barclays Global Investors CEO Pattie Dunn. Other key players: “Early-twentieth-century French mathematician Louis Bachelier, whose work on the ‘random walk’ of stocks would make him the intellectual godfather of passive investing”Berkshire Hathaway Chairman and CEO Warren Buffett, who won a 10-year-old bet with Ted Seides of Protege Partners in 2017 that the returns of index funds would outstrip those of a basket of hedge fundsJack Bogle, the founder of Vanguard, often called “Saint Jack” because his company offered index funds to the public en masse. At the end of his life, Bogle questioned the value of index funds but also defended them. “It’s hard to know how big we can get, and the consequences...,” he said. “But to solve this, we should not destroy the greatest invention in the history of finance.” Best for Decision-Making Skills: Thinking, Fast and Slow Buy on Amazon Daniel Kahneman is a psychologist by training. However, his work on prospect theory earned him a Nobel Prize in Economics in 2002, an award he acknowledges he would have shared with collaborator Amos Tversky, had Tversky lived, and with whom he also explored heuristics in judgment and decision making. Prospect theory means that investors value gains and losses differently, placing more weight on perceived gains than perceived losses. His research also led him to conclude that women make better investors than men because they hold on to their investments, whereas men panic and sell when the market dips, thereby missing out on upswings. Kahneman estimates that the average person makes 35,000 decisions a day—the fast kind, such as when to get up, what to eat for breakfast, what to wear, and the slow kind that involve deliberative thinking, such as whether and whom to marry, which career to pursue, or where to live. This data-heavy book, thoughtful and cerebral, is also full of anecdotes about Kahneman’s life of research and experiences. In 2016, Michael Lewis published The Undoing Project: A Friendship That Changed Our Minds, on the close partnership of Kahneman and Tversky.   Best Read on Scoundrels and Saviors: The Predators’ Ball Buy on Amazon Today’s younger readers may only know Michael Milken as an advocate for prostate cancer research and the founder of the Milken Institute, a think tank that promotes market-based principles and everything from financial innovations to social issues. When New Yorker writer Connie Bruck’s gripping book was published, life was very different for Milken. He was fighting off federal charges of securities and tax violations. He had been the junk bond king who underwrote some of the biggest corporate raiders, such as Ronald Perelman and Carl Icahn, during the height of junk bonds’ popularity and the leveraged buyout boom. So concerned was Milken about Bruck’s reporting that he offered to pay her for all the book’s copies sold in exchange for not publishing it. He was right to be scared. The book chronicles how Milken built the junk bond market and supported the corporate raider culture, while working 18-hour days from his Southern California office, as well as his precipitous fall leading to a plea deal in 1990. In addition to Milken, the characters include Apollo Management’s Leon Black, KKR & Co.’s Henry Kravis, Loews Corp.’s Laurence Tisch, stock trader Ivan Boesky, and Rudy Giuliani, then the crusading U.S. Attorney for the Southern District of New York. Then-President Donald Trump granted Milken a full pardon in 2020. The Predators’ Ball is a meticulous retelling of the era that spawned the sentiment “greed is good.” Best for Dealmakers: Getting to Yes Buy on Amazon This classic book uses the words of poet Wallace Stevens to lay out its premise: “After the final no there comes a yes and on the yes the future of the world depends.” Getting to Yes, which debuted in 1981 and has been revised since, is the finest book on how to advocate for what you want with skill, integrity, and success. It offers tips on developing a cordial relationship with the other side—that is, being a person, not the entity you represent—while avoiding the trap of being “nice” and getting walked all over, and deflecting and moving beyond the aggressive tactics of unscrupulous negotiators. Most helpful are examples of simple dealings in which the parameters of what’s at stake are expanded—the pie gets bigger, so to speak, so that both parties end up with more than they first asked for. Underneath these outcomes are four steps: separating people from the problem; focusing on interests, not positions; inventing multiple options representing multiple gains for both sides; and insisting that the results be based on an objective standard. Why Trust Investopedia? Michelle Lodge is steeped in the book and book-reviewing world. She has been published in Publishers Weekly and was an editor and writer for Library Journal, both of which cover books and the industry. While a book review editor at LJ, which recommends books for public library collections, she selected a number of fine business books for review. She was also the editor of the On Wall Street Book Club, in which she reviewed books and interviewed authors on a podcast. A burgeoning field of business and economics books needs many “heads” to cull out notable selections and pull it all together. Lodge marshaled the resources, in which she considered recommendations from Investopedia Financial Review Board members and Investopedia editors, business executives, bestseller lists from the Financial Times, The New York Times, The Times of London, and others, as well as her own experience as a book review editor. She also pulled three books from her own library: Getting to Yes, The Predators’ Ball, and Thinking, Fast and Slow. Her aim is to cover the bases in subject matter and expertise and tap into a diverse pool of writers, whose coverage reveals the impact on investing, while also ensuring that each selection is a good read.

https://www.investopedia.com/terms/c/collaborative-economy.asp

Collaborative Economy: Meaning, Examples, Challenges

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-collaborative-economy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Collaborative Economy? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A collaborative economy is a marketplace where consumers rely on each other instead of large companies to meet their wants and needs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Collaborative economies consist of giving, swapping, borrowing, trading, renting, and sharing products and services for a fee, between an individual who has something and an individual who needs something—generally with the help of a web-based middleman.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A collaborative economy may also be known as a "shared economy," "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sharing-economy.asp" rel="noopener noreferrer">sharing economy</a>," or a "peer-to-peer economy." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_9-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A collaborative economy is a marketplace where consumers rely on each other instead of large companies to meet their wants and needs. </li><li>Collaborative economies consist of giving, swapping, borrowing, trading, renting, and sharing products and services for a fee, between an individual who has something and an individual who needs something—generally with the help of a web-based middleman. </li><li>A collaborative economy may also be known as a "shared economy," "sharing economy," or a "peer-to-peer economy."</li><li>Essential to a collaborative economy is a company or group that acts as a middleman to facilitate consumers’ ability to rely on each other. </li><li>Examples of collaborative economies include Uber and Lyft, through which individuals with vehicles can provide rides to others who want inexpensive alternatives to taxis.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-collaborative-economies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Understanding Collaborative Economies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Essential to a collaborative economy is a company or group that acts as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/middleman.asp">middleman</a> to facilitate consumers’ ability to rely on each other. For example, through Uber, individuals with cars can provide rides to other individuals who want an inexpensive alternative to taxi service; through Craigslist, individuals buy used vehicles and rent out extra living spaces to each other; and consumers on Etsy buy jewelry and other handmade items from individual crafters. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The model behind many collaborative economy businesses may be best exemplified by that of eBay Inc., which has been linking buyers and sellers on the internet since 1995. As a "network orchestrator," eBay creates a peer-to-peer network where participants interact, exchange items or services for money, and create value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Collaborative economy may be a more accurate term for what many refer to as a "sharing economy," because the middlemen that facilitate such economic activity do so for a fee. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://hbr.org/2015/01/the-sharing-economy-isnt-about-sharing-at-all" rel="noopener noreferrer">2015 <em>Harvard Business Review</em> article</a> posited that when a market is mediated, it should be considered more of an "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market-access.asp" rel="noopener noreferrer">access economy</a>" than a sharing economy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-collaborative-economy-examples"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Collaborative Economy Examples </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Companies in the collaborative economy are often disruptive to established businesses (think Uber and the taxi industry or Airbnb and the hotel industry), and many have experienced rapid revenue growth. They rely on the digital space and smartphone apps to connect buyers and sellers. Online reviews and, in some cases, background checks facilitate trust to make these exchanges possible. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The collaborative economy encompasses many types of businesses. There are services like Taskrabbit which lets consumers hire individuals to complete tasks ranging from running errands to assembling furniture; <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crowdfunding.asp" rel="noopener noreferrer">Crowdfunding</a> services like Lending Club which connect people who need to borrow money with numerous individuals who collectively fund loans; Room rental services like Airbnb that lets property owners earn extra income by renting out their spare rooms or entire homes to travelers; and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peertopeer-p2p-economy.asp" rel="noopener noreferrer">peer-to-peer marketplaces</a> such as Poshmark, used for reselling high quality used clothing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Rideshare apps, crowdfunding platforms, room rental services, and peer-to-peer marketplaces are all examples of collaborative economies.</p></div></div></div> <span class="heading-toc" id="toc-collaborative-economy-challenges"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Collaborative Economy Challenges </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Businesses that rely on customers who buy something rather than share it face a significant threat from businesses in the collaborative economy. Research shows that customers will consider sharing instead of buying if it will result in cost savings of at least 25%, if it is more convenient, or if it offers access to brand-name items. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Likewise, sharers can be converted to buyers for the same reasons. Ownership-based companies can join forces with borrowing- or sharing-based companies so that both benefit, for example, specialty grocer Whole Foods’s collaboration with Instacart, a grocery delivery service provided by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/independent-contractor.asp" rel="noopener noreferrer">independent contractors</a> who work on their schedules. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> A big uncertainty surrounding many collaborative economy companies is regulation. Collaborative platforms like Uber and Airbnb have faced well-publicized regulatory battles in numerous cities where their long-established competitors have tried to use fear of consumer harm as a premise, sometimes valid and sometimes overblown, to implement regulations to put these new companies out of business or to make doing business more difficult. </p></div>

## What Is a Collaborative Economy? A collaborative economy is a marketplace where consumers rely on each other instead of large companies to meet their wants and needs. Collaborative economies consist of giving, swapping, borrowing, trading, renting, and sharing products and services for a fee, between an individual who has something and an individual who needs something—generally with the help of a web-based middleman.  A collaborative economy may also be known as a "shared economy," "[sharing economy](https://www.investopedia.com/terms/s/sharing-economy.asp)," or a "peer-to-peer economy." ### Key Takeaways * A collaborative economy is a marketplace where consumers rely on each other instead of large companies to meet their wants and needs. * Collaborative economies consist of giving, swapping, borrowing, trading, renting, and sharing products and services for a fee, between an individual who has something and an individual who needs something—generally with the help of a web-based middleman. * A collaborative economy may also be known as a "shared economy," "sharing economy," or a "peer-to-peer economy." * Essential to a collaborative economy is a company or group that acts as a middleman to facilitate consumers’ ability to rely on each other. * Examples of collaborative economies include Uber and Lyft, through which individuals with vehicles can provide rides to others who want inexpensive alternatives to taxis. ## Understanding Collaborative Economies Essential to a collaborative economy is a company or group that acts as a [middleman](https://www.investopedia.com/terms/m/middleman.asp) to facilitate consumers’ ability to rely on each other. For example, through Uber, individuals with cars can provide rides to other individuals who want an inexpensive alternative to taxi service; through Craigslist, individuals buy used vehicles and rent out extra living spaces to each other; and consumers on Etsy buy jewelry and other handmade items from individual crafters. The model behind many collaborative economy businesses may be best exemplified by that of eBay Inc., which has been linking buyers and sellers on the internet since 1995. As a "network orchestrator," eBay creates a peer-to-peer network where participants interact, exchange items or services for money, and create value. Collaborative economy may be a more accurate term for what many refer to as a "sharing economy," because the middlemen that facilitate such economic activity do so for a fee. A [2015 *Harvard Business Review* article](https://hbr.org/2015/01/the-sharing-economy-isnt-about-sharing-at-all) posited that when a market is mediated, it should be considered more of an "[access economy](https://www.investopedia.com/terms/m/market-access.asp)" than a sharing economy. ## Collaborative Economy Examples Companies in the collaborative economy are often disruptive to established businesses (think Uber and the taxi industry or Airbnb and the hotel industry), and many have experienced rapid revenue growth. They rely on the digital space and smartphone apps to connect buyers and sellers. Online reviews and, in some cases, background checks facilitate trust to make these exchanges possible. The collaborative economy encompasses many types of businesses. There are services like Taskrabbit which lets consumers hire individuals to complete tasks ranging from running errands to assembling furniture; [Crowdfunding](https://www.investopedia.com/terms/c/crowdfunding.asp) services like Lending Club which connect people who need to borrow money with numerous individuals who collectively fund loans; Room rental services like Airbnb that lets property owners earn extra income by renting out their spare rooms or entire homes to travelers; and [peer-to-peer marketplaces](https://www.investopedia.com/terms/p/peertopeer-p2p-economy.asp) such as Poshmark, used for reselling high quality used clothing. ### Rideshare apps, crowdfunding platforms, room rental services, and peer-to-peer marketplaces are all examples of collaborative economies. ## Collaborative Economy Challenges Businesses that rely on customers who buy something rather than share it face a significant threat from businesses in the collaborative economy. Research shows that customers will consider sharing instead of buying if it will result in cost savings of at least 25%, if it is more convenient, or if it offers access to brand-name items. Likewise, sharers can be converted to buyers for the same reasons. Ownership-based companies can join forces with borrowing- or sharing-based companies so that both benefit, for example, specialty grocer Whole Foods’s collaboration with Instacart, a grocery delivery service provided by [independent contractors](https://www.investopedia.com/terms/i/independent-contractor.asp) who work on their schedules. A big uncertainty surrounding many collaborative economy companies is regulation. Collaborative platforms like Uber and Airbnb have faced well-publicized regulatory battles in numerous cities where their long-established competitors have tried to use fear of consumer harm as a premise, sometimes valid and sometimes overblown, to implement regulations to put these new companies out of business or to make doing business more difficult.

What Is a Collaborative Economy? A collaborative economy is a marketplace where consumers rely on each other instead of large companies to meet their wants and needs. Collaborative economies consist of giving, swapping, borrowing, trading, renting, and sharing products and services for a fee, between an individual who has something and an individual who needs something—generally with the help of a web-based middleman.  A collaborative economy may also be known as a "shared economy," "sharing economy," or a "peer-to-peer economy." Key Takeaways A collaborative economy is a marketplace where consumers rely on each other instead of large companies to meet their wants and needs. Collaborative economies consist of giving, swapping, borrowing, trading, renting, and sharing products and services for a fee, between an individual who has something and an individual who needs something—generally with the help of a web-based middleman. A collaborative economy may also be known as a "shared economy," "sharing economy," or a "peer-to-peer economy."Essential to a collaborative economy is a company or group that acts as a middleman to facilitate consumers’ ability to rely on each other. Examples of collaborative economies include Uber and Lyft, through which individuals with vehicles can provide rides to others who want inexpensive alternatives to taxis. Understanding Collaborative Economies Essential to a collaborative economy is a company or group that acts as a middleman to facilitate consumers’ ability to rely on each other. For example, through Uber, individuals with cars can provide rides to other individuals who want an inexpensive alternative to taxi service; through Craigslist, individuals buy used vehicles and rent out extra living spaces to each other; and consumers on Etsy buy jewelry and other handmade items from individual crafters. The model behind many collaborative economy businesses may be best exemplified by that of eBay Inc., which has been linking buyers and sellers on the internet since 1995. As a "network orchestrator," eBay creates a peer-to-peer network where participants interact, exchange items or services for money, and create value. Collaborative economy may be a more accurate term for what many refer to as a "sharing economy," because the middlemen that facilitate such economic activity do so for a fee. A 2015 Harvard Business Review article posited that when a market is mediated, it should be considered more of an "access economy" than a sharing economy. Collaborative Economy Examples Companies in the collaborative economy are often disruptive to established businesses (think Uber and the taxi industry or Airbnb and the hotel industry), and many have experienced rapid revenue growth. They rely on the digital space and smartphone apps to connect buyers and sellers. Online reviews and, in some cases, background checks facilitate trust to make these exchanges possible. The collaborative economy encompasses many types of businesses. There are services like Taskrabbit which lets consumers hire individuals to complete tasks ranging from running errands to assembling furniture; Crowdfunding services like Lending Club which connect people who need to borrow money with numerous individuals who collectively fund loans; Room rental services like Airbnb that lets property owners earn extra income by renting out their spare rooms or entire homes to travelers; and peer-to-peer marketplaces such as Poshmark, used for reselling high quality used clothing. Rideshare apps, crowdfunding platforms, room rental services, and peer-to-peer marketplaces are all examples of collaborative economies. Collaborative Economy Challenges Businesses that rely on customers who buy something rather than share it face a significant threat from businesses in the collaborative economy. Research shows that customers will consider sharing instead of buying if it will result in cost savings of at least 25%, if it is more convenient, or if it offers access to brand-name items. Likewise, sharers can be converted to buyers for the same reasons. Ownership-based companies can join forces with borrowing- or sharing-based companies so that both benefit, for example, specialty grocer Whole Foods’s collaboration with Instacart, a grocery delivery service provided by independent contractors who work on their schedules. A big uncertainty surrounding many collaborative economy companies is regulation. Collaborative platforms like Uber and Airbnb have faced well-publicized regulatory battles in numerous cities where their long-established competitors have tried to use fear of consumer harm as a premise, sometimes valid and sometimes overblown, to implement regulations to put these new companies out of business or to make doing business more difficult.

https://www.investopedia.com/terms/t/termloan.asp

Term Loan Definition, Types, and Common Attributes

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-term-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Term Loan? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms. Term loans are normally meant for established small businesses with sound <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-statements.asp">financial statements</a>. In exchange for a specified amount of cash, the borrower agrees to a certain repayment schedule with a fixed or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/floatinginterestrate.asp">floating interest rate</a>. Term loans may require substantial <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/down_payment.asp">down payments</a> to reduce the payment amounts and the total cost of the loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms.</li><li>Borrowers agree to pay their lenders a fixed amount over a certain repayment schedule with either a fixed or floating interest rate.</li><li>Term loans are commonly used by small businesses to purchase fixed assets, such as equipment or a new building.</li><li>Borrowers prefer term loans because they offer more flexibility and lower interest rates.</li><li>Short and intermediate-term loans may require balloon payments while long-term facilities come with fixed payments.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-term-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Term Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Term loans are commonly granted to small businesses that need cash to purchase equipment, a new building for their production processes, or any other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedasset.asp">fixed assets</a> to keep their businesses going. Some businesses borrow the cash they need to operate on a month-to-month basis. Many banks have established term loan programs specifically to help companies in this way. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Business owners apply for term loans the same way they would any other credit facility—by approaching their lender. They must provide statements and other financial evidence demonstrating their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-worthiness.asp">creditworthiness</a>.<span class="ql-inline-citation" data-cite="3"></span> Approved borrowers get a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lump-sum-payment.asp">lump sum</a> of cash and are required to make payments over a certain period of time, usually on a monthly or quarterly repayment schedule.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Term loans carry a fixed or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variableinterestrate.asp">variable interest rate</a> and a set maturity date. If the proceeds are used to finance the purchase of an asset, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/usefullife.asp">useful life</a> of that asset can impact the repayment schedule. The loan requires collateral and a rigorous approval process to reduce the risk of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default</a> or failure to make payments. As noted above, some lenders may require down payments before they advance the loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Borrowers often choose term loans for several reasons, including: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>Simple application process</li><li>Receiving an upfront lump sum of cash</li><li>Specified payments</li><li>Lower interest rates</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Taking out a term loan also frees up cash from a company's cash flow in order to use it elsewhere. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Variable-rate term loans are based on a benchmark rate like the U.S. prime rate or the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/libor.asp">London InterBank Offered Rate</a> (LIBOR).<span class="ql-inline-citation" data-cite="7"></span></p></div></div></div> <span class="heading-toc" id="toc-types-of-term-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Types of Term Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Term loans come in several varieties, usually reflecting the lifespan of the loan. These include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <li><strong>Short-term loans:</strong> These types of term loans are usually offered to firms that don't qualify for a line of credit. They generally run less than a year, though they can also refer to a loan of up to 18 months.<span class="ql-inline-citation" data-cite="8"></span></li> <li><strong>Intermediate-term loans:</strong> These loans generally run between one to three years and are paid in monthly installments from a company’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp">cash flow</a>.</li> <li><strong>Long-term loans:</strong> These loans last anywhere between three to 25 years. They use company assets as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a> and require monthly or quarterly payments from profits or cash flow. They limit other financial commitments the company may take on, including other debts, <a class="pseudoStyle" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a>, or principals' salaries, and can require an amount of profit set aside specifically for loan repayment.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Both short- and intermediate-term loans may also be balloon loans and come with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balloon-payment.asp">balloon payments</a>. This means the final installment swells or balloons into a much larger amount than any of the previous ones. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_28-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_29-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>While the principal of a term loan is not technically due until maturity, most term loans operate on a specified schedule requiring a specific payment size at certain intervals.</p></div></div></div> <span class="heading-toc" id="toc-example-of-a-term-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> Example of a Term Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/small-business-administration.asp">Small Business Administration</a> (SBA) loan, officially known as a 7(a) guaranteed loan, encourages long-term financing. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-short-term-business-loans-5088589">Short-term loans</a> and revolving credit lines are also available to help with a company’s immediate and cyclical working capital needs.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Maturities for long-term loans vary according to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/ability-to-repay.asp">the ability to repay</a>, the purpose of the loan, and the useful life of the financed asset. Maximum <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturitydate.asp">maturity dates</a> are generally 25 years for real estate, up to ten years for working capital, and ten years for most other loans. The borrower repays the loan with monthly principal and interest payments.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> As with any loan, an SBA fixed-rate loan payment remains the same because the interest rate is constant. Conversely, a variable-rate loan's payment amount can vary since the interest rate fluctuates. A lender may establish an SBA loan with interest-only payments during a company's startup or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expansion.asp">expansion</a> phase. As a result, the business has time to generate income before making full loan payments. Most SBA loans do not allow balloon payments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The SBA charges the borrower a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prepayment.asp">prepayment</a> fee only if the loan has a maturity of 15 years or longer. Business and personal assets secure every loan until the recovery value equals the loan amount or until the borrower has pledged all assets as reasonably available.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_39-0"><span class="heading-toc" id="toc-why-do-businesses-get-term-loans"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Do Businesses Get Term Loans?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A term loan is usually meant for equipment, real estate, or working capital paid off between one and 25 years. A small business often uses the cash from a term loan to purchase fixed assets, such as equipment or a new building for its production process. Some businesses borrow the cash they need to operate from month to month. Many banks have established term-loan programs specifically to help companies in this way.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_41-0"><span class="heading-toc" id="toc-what-are-the-types-of-term-loans"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Types of Term Loans?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Term loans come in several varieties, usually reflecting the lifespan of the loan. A short-term loan, usually offered to firms that don't qualify for a line of credit, generally runs less than a year, though it can also refer to a loan of up to 18 months or so.<span class="ql-inline-citation" data-cite="8"></span> An intermediate-term loan generally runs more than one to three years and is paid in monthly installments from a company’s cash flow. A long-term loan runs for three to 25 years, uses company assets as collateral, and requires monthly or quarterly payments from profits or cash flow.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_43-0"><span class="heading-toc" id="toc-what-are-the-common-attributes-of-term-loans"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Common Attributes of Term Loans?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Term loans carry a fixed or variable interest rate, a monthly or quarterly repayment schedule, and a set maturity date. If the loan is used to finance an asset purchase, the useful life of that asset can impact the repayment schedule. The loan requires collateral and a rigorous approval process to reduce the risk of default or failure to make payments. However, term loans generally carry no penalties if they are paid off ahead of schedule.</p></div> </div></div>

## What Is a Term Loan? A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms. Term loans are normally meant for established small businesses with sound [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp). In exchange for a specified amount of cash, the borrower agrees to a certain repayment schedule with a fixed or [floating interest rate](https://www.investopedia.com/terms/f/floatinginterestrate.asp). Term loans may require substantial [down payments](https://www.investopedia.com/terms/d/down_payment.asp) to reduce the payment amounts and the total cost of the loan. ### Key Takeaways * A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms. * Borrowers agree to pay their lenders a fixed amount over a certain repayment schedule with either a fixed or floating interest rate. * Term loans are commonly used by small businesses to purchase fixed assets, such as equipment or a new building. * Borrowers prefer term loans because they offer more flexibility and lower interest rates. * Short and intermediate-term loans may require balloon payments while long-term facilities come with fixed payments. ## Understanding Term Loans Term loans are commonly granted to small businesses that need cash to purchase equipment, a new building for their production processes, or any other [fixed assets](https://www.investopedia.com/terms/f/fixedasset.asp) to keep their businesses going. Some businesses borrow the cash they need to operate on a month-to-month basis. Many banks have established term loan programs specifically to help companies in this way. Business owners apply for term loans the same way they would any other credit facility—by approaching their lender. They must provide statements and other financial evidence demonstrating their [creditworthiness](https://www.investopedia.com/terms/c/credit-worthiness.asp). Approved borrowers get a [lump sum](https://www.investopedia.com/terms/l/lump-sum-payment.asp) of cash and are required to make payments over a certain period of time, usually on a monthly or quarterly repayment schedule.  Term loans carry a fixed or [variable interest rate](https://www.investopedia.com/terms/v/variableinterestrate.asp) and a set maturity date. If the proceeds are used to finance the purchase of an asset, the [useful life](https://www.investopedia.com/terms/u/usefullife.asp) of that asset can impact the repayment schedule. The loan requires collateral and a rigorous approval process to reduce the risk of [default](https://www.investopedia.com/terms/d/default2.asp) or failure to make payments. As noted above, some lenders may require down payments before they advance the loan. Borrowers often choose term loans for several reasons, including: * Simple application process * Receiving an upfront lump sum of cash * Specified payments * Lower interest rates Taking out a term loan also frees up cash from a company's cash flow in order to use it elsewhere. ### Variable-rate term loans are based on a benchmark rate like the U.S. prime rate or the [London InterBank Offered Rate](https://www.investopedia.com/terms/l/libor.asp) (LIBOR). ## Types of Term Loans Term loans come in several varieties, usually reflecting the lifespan of the loan. These include: * **Short-term loans:** These types of term loans are usually offered to firms that don't qualify for a line of credit. They generally run less than a year, though they can also refer to a loan of up to 18 months. * **Intermediate-term loans:** These loans generally run between one to three years and are paid in monthly installments from a company’s [cash flow](https://www.investopedia.com/terms/c/cashflow.asp). * **Long-term loans:** These loans last anywhere between three to 25 years. They use company assets as [collateral](https://www.investopedia.com/terms/c/collateral.asp) and require monthly or quarterly payments from profits or cash flow. They limit other financial commitments the company may take on, including other debts, [dividends](https://www.investopedia.com/terms/d/dividend.asp), or principals' salaries, and can require an amount of profit set aside specifically for loan repayment. Both short- and intermediate-term loans may also be balloon loans and come with [balloon payments](https://www.investopedia.com/terms/b/balloon-payment.asp). This means the final installment swells or balloons into a much larger amount than any of the previous ones. ### While the principal of a term loan is not technically due until maturity, most term loans operate on a specified schedule requiring a specific payment size at certain intervals. ## Example of a Term Loan A [Small Business Administration](https://www.investopedia.com/terms/s/small-business-administration.asp) (SBA) loan, officially known as a 7(a) guaranteed loan, encourages long-term financing. [Short-term loans](https://www.investopedia.com/best-short-term-business-loans-5088589) and revolving credit lines are also available to help with a company’s immediate and cyclical working capital needs. Maturities for long-term loans vary according to [the ability to repay](https://www.investopedia.com/terms/a/ability-to-repay.asp), the purpose of the loan, and the useful life of the financed asset. Maximum [maturity dates](https://www.investopedia.com/terms/m/maturitydate.asp) are generally 25 years for real estate, up to ten years for working capital, and ten years for most other loans. The borrower repays the loan with monthly principal and interest payments. As with any loan, an SBA fixed-rate loan payment remains the same because the interest rate is constant. Conversely, a variable-rate loan's payment amount can vary since the interest rate fluctuates. A lender may establish an SBA loan with interest-only payments during a company's startup or [expansion](https://www.investopedia.com/terms/e/expansion.asp) phase. As a result, the business has time to generate income before making full loan payments. Most SBA loans do not allow balloon payments. The SBA charges the borrower a [prepayment](https://www.investopedia.com/terms/p/prepayment.asp) fee only if the loan has a maturity of 15 years or longer. Business and personal assets secure every loan until the recovery value equals the loan amount or until the borrower has pledged all assets as reasonably available. ## Why Do Businesses Get Term Loans? A term loan is usually meant for equipment, real estate, or working capital paid off between one and 25 years. A small business often uses the cash from a term loan to purchase fixed assets, such as equipment or a new building for its production process. Some businesses borrow the cash they need to operate from month to month. Many banks have established term-loan programs specifically to help companies in this way. ## What Are the Types of Term Loans? Term loans come in several varieties, usually reflecting the lifespan of the loan. A short-term loan, usually offered to firms that don't qualify for a line of credit, generally runs less than a year, though it can also refer to a loan of up to 18 months or so. An intermediate-term loan generally runs more than one to three years and is paid in monthly installments from a company’s cash flow. A long-term loan runs for three to 25 years, uses company assets as collateral, and requires monthly or quarterly payments from profits or cash flow. ## What Are the Common Attributes of Term Loans? Term loans carry a fixed or variable interest rate, a monthly or quarterly repayment schedule, and a set maturity date. If the loan is used to finance an asset purchase, the useful life of that asset can impact the repayment schedule. The loan requires collateral and a rigorous approval process to reduce the risk of default or failure to make payments. However, term loans generally carry no penalties if they are paid off ahead of schedule.

What Is a Term Loan? A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms. Term loans are normally meant for established small businesses with sound financial statements. In exchange for a specified amount of cash, the borrower agrees to a certain repayment schedule with a fixed or floating interest rate. Term loans may require substantial down payments to reduce the payment amounts and the total cost of the loan. Key Takeaways A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms.Borrowers agree to pay their lenders a fixed amount over a certain repayment schedule with either a fixed or floating interest rate.Term loans are commonly used by small businesses to purchase fixed assets, such as equipment or a new building.Borrowers prefer term loans because they offer more flexibility and lower interest rates.Short and intermediate-term loans may require balloon payments while long-term facilities come with fixed payments. Understanding Term Loans Term loans are commonly granted to small businesses that need cash to purchase equipment, a new building for their production processes, or any other fixed assets to keep their businesses going. Some businesses borrow the cash they need to operate on a month-to-month basis. Many banks have established term loan programs specifically to help companies in this way. Business owners apply for term loans the same way they would any other credit facility—by approaching their lender. They must provide statements and other financial evidence demonstrating their creditworthiness. Approved borrowers get a lump sum of cash and are required to make payments over a certain period of time, usually on a monthly or quarterly repayment schedule.  Term loans carry a fixed or variable interest rate and a set maturity date. If the proceeds are used to finance the purchase of an asset, the useful life of that asset can impact the repayment schedule. The loan requires collateral and a rigorous approval process to reduce the risk of default or failure to make payments. As noted above, some lenders may require down payments before they advance the loan. Borrowers often choose term loans for several reasons, including: Simple application processReceiving an upfront lump sum of cashSpecified paymentsLower interest rates Taking out a term loan also frees up cash from a company's cash flow in order to use it elsewhere. Variable-rate term loans are based on a benchmark rate like the U.S. prime rate or the London InterBank Offered Rate (LIBOR). Types of Term Loans Term loans come in several varieties, usually reflecting the lifespan of the loan. These include: Short-term loans: These types of term loans are usually offered to firms that don't qualify for a line of credit. They generally run less than a year, though they can also refer to a loan of up to 18 months. Intermediate-term loans: These loans generally run between one to three years and are paid in monthly installments from a company’s cash flow. Long-term loans: These loans last anywhere between three to 25 years. They use company assets as collateral and require monthly or quarterly payments from profits or cash flow. They limit other financial commitments the company may take on, including other debts, dividends, or principals' salaries, and can require an amount of profit set aside specifically for loan repayment. Both short- and intermediate-term loans may also be balloon loans and come with balloon payments. This means the final installment swells or balloons into a much larger amount than any of the previous ones. While the principal of a term loan is not technically due until maturity, most term loans operate on a specified schedule requiring a specific payment size at certain intervals. Example of a Term Loan A Small Business Administration (SBA) loan, officially known as a 7(a) guaranteed loan, encourages long-term financing. Short-term loans and revolving credit lines are also available to help with a company’s immediate and cyclical working capital needs. Maturities for long-term loans vary according to the ability to repay, the purpose of the loan, and the useful life of the financed asset. Maximum maturity dates are generally 25 years for real estate, up to ten years for working capital, and ten years for most other loans. The borrower repays the loan with monthly principal and interest payments. As with any loan, an SBA fixed-rate loan payment remains the same because the interest rate is constant. Conversely, a variable-rate loan's payment amount can vary since the interest rate fluctuates. A lender may establish an SBA loan with interest-only payments during a company's startup or expansion phase. As a result, the business has time to generate income before making full loan payments. Most SBA loans do not allow balloon payments. The SBA charges the borrower a prepayment fee only if the loan has a maturity of 15 years or longer. Business and personal assets secure every loan until the recovery value equals the loan amount or until the borrower has pledged all assets as reasonably available. Why Do Businesses Get Term Loans? A term loan is usually meant for equipment, real estate, or working capital paid off between one and 25 years. A small business often uses the cash from a term loan to purchase fixed assets, such as equipment or a new building for its production process. Some businesses borrow the cash they need to operate from month to month. Many banks have established term-loan programs specifically to help companies in this way. What Are the Types of Term Loans? Term loans come in several varieties, usually reflecting the lifespan of the loan. A short-term loan, usually offered to firms that don't qualify for a line of credit, generally runs less than a year, though it can also refer to a loan of up to 18 months or so. An intermediate-term loan generally runs more than one to three years and is paid in monthly installments from a company’s cash flow. A long-term loan runs for three to 25 years, uses company assets as collateral, and requires monthly or quarterly payments from profits or cash flow. What Are the Common Attributes of Term Loans? Term loans carry a fixed or variable interest rate, a monthly or quarterly repayment schedule, and a set maturity date. If the loan is used to finance an asset purchase, the useful life of that asset can impact the repayment schedule. The loan requires collateral and a rigorous approval process to reduce the risk of default or failure to make payments. However, term loans generally carry no penalties if they are paid off ahead of schedule.

https://www.investopedia.com/terms/c/convertible-bond-arbitrage.asp

Convertible Bond Arbitrage: Definition, How It Works, Examples

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-convertible-bond-arbitrage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Convertible Bond Arbitrage? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Convertible bond arbitrage is an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arbitrage.asp">arbitrage</a> strategy that aims to capitalize on mispricing between a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/convertiblebond.asp">convertible bond</a> and its underlying stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The strategy is generally market neutral. In other words, the arbitrageur seeks to generate consistent returns with minimal volatility regardless of market direction through a combination of long and short positions in the convertible bond and underlying stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A convertible bond arbitrage strategy is one that benefits from the difference in pricing between a convertible bond and the underlying stock price.</li><li>The arbitrage strategy takes a long position in the convertible bonds while shorting the stock of the company.</li><li>A convertible bond can be converted to equity in the underlying company at a specific price at some point in the future.</li><li>The benefit of a convertible bond for the issuer is that it typically carries a lower rate of interest than a comparable bond without the embedded option.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-convertible-bond-arbitrage-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How Convertible Bond Arbitrage Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A convertible bond is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hybridsecurity.asp">hybrid security</a> that can be converted into equity of the issuing company. It typically has a lower yield than a comparable bond that does not have a convertible option, but this is usually balanced by the fact that the convertible bondholder can convert the security into equity at a discount to the stock’s market price. If the price of the stock is expected to increase, the bondholder will exercise their option to convert the bonds into equity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conversion-arbitrage.asp">Convertible arbitrage</a> essentially involves taking simultaneous long and short positions in a convertible bond and its underlying stock. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arbitrageur.asp">arbitrageur</a> hopes to profit from any movement in the market by having the appropriate hedge between long and short positions.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> How much the arbitrageur buys and sells of each security depends on the appropriate <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedgeratio.asp">hedge ratio</a> which is determined by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/delta.asp">delta</a>. Delta is defined as the sensitivity of the price of a convertible bond to changes in the price of the underlying stock. Once the delta has been estimated, the arbitrageur can establish their delta position—the ratio of their stock-to-convertible position. This position must be adjusted continuously as the delta changes following changes in the price of the underlying shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The issuer of a convertible bond is essentially short a call option on the underlying stock at the strike price, whereas the bondholder is long a call option.</p></div></div></div> <span class="heading-toc" id="toc-impact-of-price"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Impact of Price  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The price of a convertible bond is especially sensitive to changes in interest rates, the price of the underlying stock, and the issuer's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrating.asp">credit rating</a>. Therefore, another type of convertible bond arbitrage involves buying a convertible bond and hedging two of the three factors so as to get exposure to the third factor at an attractive price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-requirements-for-convertible-bond-arbitrage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Requirements for Convertible Bond Arbitrage  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Convertible bonds are sometimes priced inefficiently relative to the price of the underlying stock. To take advantage of such price differentials, arbitrageurs will use a convertible bond arbitrage strategy. If the convertible bond is cheap or undervalued relative to the underlying stock, the arbitrageur will take a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/long.asp">long position</a> in the convertible bond and a simultaneous <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/short.asp">short position</a> in the stock.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> In the event that the price of the stock falls in value, the arbitrageur will profit from its short position. Since the short stock position neutralizes the potential downside price move in the convertible bond, the arbitrageur captures the convertible <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond-yield.asp">bond yield</a>.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> On the other hand, if stock prices rise instead, the bonds can be converted into stock that will be sold at the market value, resulting in a profit from the long position and ideally, compensating for any losses on its short position. Thus, the arbitrageur can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/ascot.asp">make a relatively low-risk profit</a> whether the underlying share price rises or falls without speculating as to which direction the underlying share price will move. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Conversely, if the convertible bond is overpriced relative to the underlying stock, the arbitrageur will take a short position in the convertible bond and a simultaneous long position in the underlying stock. If share prices increase, the gains from the long position should exceed the loss from the short position. If stock prices decrease instead, the loss from the long position in the equity should be less than the gain from the price of the convertible bond. </p></div>

## What Is Convertible Bond Arbitrage? Convertible bond arbitrage is an [arbitrage](https://www.investopedia.com/terms/a/arbitrage.asp) strategy that aims to capitalize on mispricing between a [convertible bond](https://www.investopedia.com/terms/c/convertiblebond.asp) and its underlying stock. The strategy is generally market neutral. In other words, the arbitrageur seeks to generate consistent returns with minimal volatility regardless of market direction through a combination of long and short positions in the convertible bond and underlying stock. ### Key Takeaways * A convertible bond arbitrage strategy is one that benefits from the difference in pricing between a convertible bond and the underlying stock price. * The arbitrage strategy takes a long position in the convertible bonds while shorting the stock of the company. * A convertible bond can be converted to equity in the underlying company at a specific price at some point in the future. * The benefit of a convertible bond for the issuer is that it typically carries a lower rate of interest than a comparable bond without the embedded option. ## How Convertible Bond Arbitrage Works A convertible bond is a [hybrid security](https://www.investopedia.com/terms/h/hybridsecurity.asp) that can be converted into equity of the issuing company. It typically has a lower yield than a comparable bond that does not have a convertible option, but this is usually balanced by the fact that the convertible bondholder can convert the security into equity at a discount to the stock’s market price. If the price of the stock is expected to increase, the bondholder will exercise their option to convert the bonds into equity. [Convertible arbitrage](https://www.investopedia.com/terms/c/conversion-arbitrage.asp) essentially involves taking simultaneous long and short positions in a convertible bond and its underlying stock. The [arbitrageur](https://www.investopedia.com/terms/a/arbitrageur.asp) hopes to profit from any movement in the market by having the appropriate hedge between long and short positions.  How much the arbitrageur buys and sells of each security depends on the appropriate [hedge ratio](https://www.investopedia.com/terms/h/hedgeratio.asp) which is determined by the [delta](https://www.investopedia.com/terms/d/delta.asp). Delta is defined as the sensitivity of the price of a convertible bond to changes in the price of the underlying stock. Once the delta has been estimated, the arbitrageur can establish their delta position—the ratio of their stock-to-convertible position. This position must be adjusted continuously as the delta changes following changes in the price of the underlying shares. ### The issuer of a convertible bond is essentially short a call option on the underlying stock at the strike price, whereas the bondholder is long a call option. ## Impact of Price The price of a convertible bond is especially sensitive to changes in interest rates, the price of the underlying stock, and the issuer's [credit rating](https://www.investopedia.com/terms/c/creditrating.asp). Therefore, another type of convertible bond arbitrage involves buying a convertible bond and hedging two of the three factors so as to get exposure to the third factor at an attractive price. ## Requirements for Convertible Bond Arbitrage Convertible bonds are sometimes priced inefficiently relative to the price of the underlying stock. To take advantage of such price differentials, arbitrageurs will use a convertible bond arbitrage strategy. If the convertible bond is cheap or undervalued relative to the underlying stock, the arbitrageur will take a [long position](https://www.investopedia.com/terms/l/long.asp) in the convertible bond and a simultaneous [short position](https://www.investopedia.com/terms/s/short.asp) in the stock.  In the event that the price of the stock falls in value, the arbitrageur will profit from its short position. Since the short stock position neutralizes the potential downside price move in the convertible bond, the arbitrageur captures the convertible [bond yield](https://www.investopedia.com/terms/b/bond-yield.asp).  On the other hand, if stock prices rise instead, the bonds can be converted into stock that will be sold at the market value, resulting in a profit from the long position and ideally, compensating for any losses on its short position. Thus, the arbitrageur can [make a relatively low-risk profit](https://www.investopedia.com/terms/a/ascot.asp) whether the underlying share price rises or falls without speculating as to which direction the underlying share price will move. Conversely, if the convertible bond is overpriced relative to the underlying stock, the arbitrageur will take a short position in the convertible bond and a simultaneous long position in the underlying stock. If share prices increase, the gains from the long position should exceed the loss from the short position. If stock prices decrease instead, the loss from the long position in the equity should be less than the gain from the price of the convertible bond.

What Is Convertible Bond Arbitrage? Convertible bond arbitrage is an arbitrage strategy that aims to capitalize on mispricing between a convertible bond and its underlying stock. The strategy is generally market neutral. In other words, the arbitrageur seeks to generate consistent returns with minimal volatility regardless of market direction through a combination of long and short positions in the convertible bond and underlying stock. Key Takeaways A convertible bond arbitrage strategy is one that benefits from the difference in pricing between a convertible bond and the underlying stock price.The arbitrage strategy takes a long position in the convertible bonds while shorting the stock of the company.A convertible bond can be converted to equity in the underlying company at a specific price at some point in the future.The benefit of a convertible bond for the issuer is that it typically carries a lower rate of interest than a comparable bond without the embedded option. How Convertible Bond Arbitrage Works A convertible bond is a hybrid security that can be converted into equity of the issuing company. It typically has a lower yield than a comparable bond that does not have a convertible option, but this is usually balanced by the fact that the convertible bondholder can convert the security into equity at a discount to the stock’s market price. If the price of the stock is expected to increase, the bondholder will exercise their option to convert the bonds into equity. Convertible arbitrage essentially involves taking simultaneous long and short positions in a convertible bond and its underlying stock. The arbitrageur hopes to profit from any movement in the market by having the appropriate hedge between long and short positions.  How much the arbitrageur buys and sells of each security depends on the appropriate hedge ratio which is determined by the delta. Delta is defined as the sensitivity of the price of a convertible bond to changes in the price of the underlying stock. Once the delta has been estimated, the arbitrageur can establish their delta position—the ratio of their stock-to-convertible position. This position must be adjusted continuously as the delta changes following changes in the price of the underlying shares. The issuer of a convertible bond is essentially short a call option on the underlying stock at the strike price, whereas the bondholder is long a call option. Impact of Price  The price of a convertible bond is especially sensitive to changes in interest rates, the price of the underlying stock, and the issuer's credit rating. Therefore, another type of convertible bond arbitrage involves buying a convertible bond and hedging two of the three factors so as to get exposure to the third factor at an attractive price. Requirements for Convertible Bond Arbitrage  Convertible bonds are sometimes priced inefficiently relative to the price of the underlying stock. To take advantage of such price differentials, arbitrageurs will use a convertible bond arbitrage strategy. If the convertible bond is cheap or undervalued relative to the underlying stock, the arbitrageur will take a long position in the convertible bond and a simultaneous short position in the stock.  In the event that the price of the stock falls in value, the arbitrageur will profit from its short position. Since the short stock position neutralizes the potential downside price move in the convertible bond, the arbitrageur captures the convertible bond yield.  On the other hand, if stock prices rise instead, the bonds can be converted into stock that will be sold at the market value, resulting in a profit from the long position and ideally, compensating for any losses on its short position. Thus, the arbitrageur can make a relatively low-risk profit whether the underlying share price rises or falls without speculating as to which direction the underlying share price will move. Conversely, if the convertible bond is overpriced relative to the underlying stock, the arbitrageur will take a short position in the convertible bond and a simultaneous long position in the underlying stock. If share prices increase, the gains from the long position should exceed the loss from the short position. If stock prices decrease instead, the loss from the long position in the equity should be less than the gain from the price of the convertible bond.

https://www.investopedia.com/ask/answers/122414/what-difference-between-debenture-and-bond.asp

Debenture vs. Bond: What's the Difference?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-debentures-vs-bonds-an-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> Debentures vs. Bonds: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> In a sense, all debentures are bonds, but not all bonds are debentures. Whenever a bond is unsecured, it can be referred to as a debenture. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> To complicate matters, this is the American definition of a debenture. In British usage, a debenture is a bond that is secured by company assets. In some countries, the terms are interchangeable. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A debenture is a form of unsecured debt (in American usage).</li><li>The debenture is the most common variety of bonds issued by corporations and government entities.</li><li>Strictly speaking, a U.S. Treasury bond and a U.S. Treasury bill are both debentures.</li></ul></div></div></div> <span class="heading-toc" id="toc-debentures"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Debentures </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debenture.asp">Debentures</a> generally have a more specific purpose than other bonds. While both are used to raise capital, debentures typically are issued to raise capital to meet the expenses of an upcoming project or to pay for a planned expansion in business. These debt securities are a common form of long-term financing taken out by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporation.asp">corporations</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Debentures carry either a floating or a fixed-interest coupon rate return to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a> and will list a repayable date. When the interest payment is due, the company will, most often, pay the interest before they pay shareholder dividends. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> On the due date, the company has two general choices of repayment of principal. They may pay in one lump sum or make installment payments. The installment plan is known as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debentureredemptionreserve.asp">debenture redemption reserve</a>, and the company will pay a set amount each year to the investor until maturity. The terms of the debenture will be listed in the underlying documentation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Debentures are sometimes called revenue bonds because the issuer expects to repay the loans from the proceeds of the business project they helped finance. Physical assets or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.investopedia.comterms/c/collateral.asp" rel="nofollow">collateral</a> do not back debentures. They are <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/09/non-convertible-debentures-fixed-deposits-difference.asp">backed solely by the full faith and credit of the issuer</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Some debentures, like other bonds, are convertible, meaning they can be converted into company stock, while others are non-convertible. Generally, investors prefer convertibles and will accept a slightly lower return to get them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Like any bond, debentures can be purchased through a broker. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_21-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_22-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The convertible debenture can be converted into stock, and this feature will serve to dilute the per-share metrics of the stock and reduce any earnings per share (EPS). </p></div></div></div> <span class="heading-toc" id="toc-bonds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> Bonds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp" rel="noopener noreferrer">bond </a>is the most common type of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtinstrument.asp" rel="noopener noreferrer">debt instrument</a> used by private corporations and by governments. It serves as an IOU between the issuer and an investor. An investor loans a sum of money in return for the promise of repayment at the specified maturity date. Usually, the investor also receives periodic interest payments over the duration of the bond's term. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> In the investing world, bonds are generally considered to be a relatively safe investment. Highly rated corporate or government bonds come with little perceived default risk. However, each bond, including those issued by government agencies or municipalities, will carry an individual credit rating. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> In general, bonds are considered safe if unspectacular investments with a guaranteed rate of return. Generally, professional financial advisors encourage their clients to keep a percentage of their assets in bonds and to increase that percentage as they approach retirement age. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> The lack of security does not necessarily mean that a debenture is riskier than any other bond. Strictly speaking, a U.S. Treasury bond and a U.S. Treasury bill are both debentures. They are not secured by collateral, yet they are considered risk-free. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Similarly, debentures are the most common form of long-term debt instruments issued by corporations. A company might <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/011215/how-debenture-stock-different-regular-debenture.asp">issue bonds to raise money</a> to expand its number of retail stores. It expects to repay the money from future sales. The bond is considered as creditworthy as the company that issues it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Bonds and debentures provide companies and governments with a way to finance beyond their normal cash flows. </p></div>

## Debentures vs. Bonds: An Overview In a sense, all debentures are bonds, but not all bonds are debentures. Whenever a bond is unsecured, it can be referred to as a debenture. To complicate matters, this is the American definition of a debenture. In British usage, a debenture is a bond that is secured by company assets. In some countries, the terms are interchangeable. ### Key Takeaways * A debenture is a form of unsecured debt (in American usage). * The debenture is the most common variety of bonds issued by corporations and government entities. * Strictly speaking, a U.S. Treasury bond and a U.S. Treasury bill are both debentures. ## Debentures [Debentures](https://www.investopedia.com/terms/d/debenture.asp) generally have a more specific purpose than other bonds. While both are used to raise capital, debentures typically are issued to raise capital to meet the expenses of an upcoming project or to pay for a planned expansion in business. These debt securities are a common form of long-term financing taken out by [corporations](https://www.investopedia.com/terms/c/corporation.asp). Debentures carry either a floating or a fixed-interest coupon rate return to [investors](https://www.investopedia.com/terms/i/investor.asp) and will list a repayable date. When the interest payment is due, the company will, most often, pay the interest before they pay shareholder dividends. On the due date, the company has two general choices of repayment of principal. They may pay in one lump sum or make installment payments. The installment plan is known as a [debenture redemption reserve](https://www.investopedia.com/terms/d/debentureredemptionreserve.asp), and the company will pay a set amount each year to the investor until maturity. The terms of the debenture will be listed in the underlying documentation. Debentures are sometimes called revenue bonds because the issuer expects to repay the loans from the proceeds of the business project they helped finance. Physical assets or [collateral](https://www.investopedia.comterms/c/collateral.asp) do not back debentures. They are [backed solely by the full faith and credit of the issuer](https://www.investopedia.com/ask/answers/09/non-convertible-debentures-fixed-deposits-difference.asp). Some debentures, like other bonds, are convertible, meaning they can be converted into company stock, while others are non-convertible. Generally, investors prefer convertibles and will accept a slightly lower return to get them. Like any bond, debentures can be purchased through a broker. ### The convertible debenture can be converted into stock, and this feature will serve to dilute the per-share metrics of the stock and reduce any earnings per share (EPS).  ## Bonds The [bond](https://www.investopedia.com/terms/b/bond.asp) is the most common type of [debt instrument](https://www.investopedia.com/terms/d/debtinstrument.asp) used by private corporations and by governments. It serves as an IOU between the issuer and an investor. An investor loans a sum of money in return for the promise of repayment at the specified maturity date. Usually, the investor also receives periodic interest payments over the duration of the bond's term. In the investing world, bonds are generally considered to be a relatively safe investment. Highly rated corporate or government bonds come with little perceived default risk. However, each bond, including those issued by government agencies or municipalities, will carry an individual credit rating. In general, bonds are considered safe if unspectacular investments with a guaranteed rate of return. Generally, professional financial advisors encourage their clients to keep a percentage of their assets in bonds and to increase that percentage as they approach retirement age. ## Special Considerations The lack of security does not necessarily mean that a debenture is riskier than any other bond. Strictly speaking, a U.S. Treasury bond and a U.S. Treasury bill are both debentures. They are not secured by collateral, yet they are considered risk-free. Similarly, debentures are the most common form of long-term debt instruments issued by corporations. A company might [issue bonds to raise money](https://www.investopedia.com/ask/answers/011215/how-debenture-stock-different-regular-debenture.asp) to expand its number of retail stores. It expects to repay the money from future sales. The bond is considered as creditworthy as the company that issues it. Bonds and debentures provide companies and governments with a way to finance beyond their normal cash flows.

Debentures vs. Bonds: An Overview In a sense, all debentures are bonds, but not all bonds are debentures. Whenever a bond is unsecured, it can be referred to as a debenture. To complicate matters, this is the American definition of a debenture. In British usage, a debenture is a bond that is secured by company assets. In some countries, the terms are interchangeable. Key Takeaways A debenture is a form of unsecured debt (in American usage).The debenture is the most common variety of bonds issued by corporations and government entities.Strictly speaking, a U.S. Treasury bond and a U.S. Treasury bill are both debentures. Debentures Debentures generally have a more specific purpose than other bonds. While both are used to raise capital, debentures typically are issued to raise capital to meet the expenses of an upcoming project or to pay for a planned expansion in business. These debt securities are a common form of long-term financing taken out by corporations. Debentures carry either a floating or a fixed-interest coupon rate return to investors and will list a repayable date. When the interest payment is due, the company will, most often, pay the interest before they pay shareholder dividends. On the due date, the company has two general choices of repayment of principal. They may pay in one lump sum or make installment payments. The installment plan is known as a debenture redemption reserve, and the company will pay a set amount each year to the investor until maturity. The terms of the debenture will be listed in the underlying documentation. Debentures are sometimes called revenue bonds because the issuer expects to repay the loans from the proceeds of the business project they helped finance. Physical assets or collateral do not back debentures. They are backed solely by the full faith and credit of the issuer. Some debentures, like other bonds, are convertible, meaning they can be converted into company stock, while others are non-convertible. Generally, investors prefer convertibles and will accept a slightly lower return to get them. Like any bond, debentures can be purchased through a broker. The convertible debenture can be converted into stock, and this feature will serve to dilute the per-share metrics of the stock and reduce any earnings per share (EPS).  Bonds The bond is the most common type of debt instrument used by private corporations and by governments. It serves as an IOU between the issuer and an investor. An investor loans a sum of money in return for the promise of repayment at the specified maturity date. Usually, the investor also receives periodic interest payments over the duration of the bond's term. In the investing world, bonds are generally considered to be a relatively safe investment. Highly rated corporate or government bonds come with little perceived default risk. However, each bond, including those issued by government agencies or municipalities, will carry an individual credit rating. In general, bonds are considered safe if unspectacular investments with a guaranteed rate of return. Generally, professional financial advisors encourage their clients to keep a percentage of their assets in bonds and to increase that percentage as they approach retirement age. Special Considerations The lack of security does not necessarily mean that a debenture is riskier than any other bond. Strictly speaking, a U.S. Treasury bond and a U.S. Treasury bill are both debentures. They are not secured by collateral, yet they are considered risk-free. Similarly, debentures are the most common form of long-term debt instruments issued by corporations. A company might issue bonds to raise money to expand its number of retail stores. It expects to repay the money from future sales. The bond is considered as creditworthy as the company that issues it. Bonds and debentures provide companies and governments with a way to finance beyond their normal cash flows.

https://www.investopedia.com/rising-insurance-rates-could-make-home-buying-less-affordable-8383653

Rising Insurance Rates Could Make Home Buying Less Affordable

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Homeowners insurance costs are on average $1,754 a year. </li><li>With mortgage rates approaching 8%, homeowners are already stretching their budgets to afford a home. </li><li>Insurance rates could continue to rise over the next year, putting extra stress on the homebuying market.<br/></li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> With high mortgage rates and rising prices increasing homebuying costs, growing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-choose-homeowners-insurance-7486550">insurance rates</a> could push home affordability out of reach for even more people. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/homeowners-insurance.asp">Homeowners insurance</a> premiums jumped an average of 21% as of the spring, with average policy <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/if-you-thought-the-worst-of-inflation-was-over-check-out-your-insurance-bill-8386955">costs jumping to $1,754 a year</a>. With mortgage rates approaching 8%, an additional nearly $150 a month for insurance could push homeownership out of the budget range for would-be homeowners. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> “The link between the housing market and the insurance sector has never been more apparent," said Travis Hodges, managing director at digital insurance platform VIU by HUB, in a statement. "The trajectory of new home sales directly shapes the market landscape and influences the demand for new homeowners insurance policies—an indispensable facet of property ownership." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-premiums-expected-to-rise"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> Premiums Expected to Rise </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> With insurance premiums expected to rise by an average of 9% this year, finding affordable coverage remains an important consideration for new homebuyers.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Many prospective homeowners fail to consider insurance costs until the end of the homebuying process, potentially causing their monthly payment to exceed their budget, Hodges said. That creates a domino effect that slows business for the industry's mortgage lenders, real estate agents, and others. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> “Addressing the escalating insurance rates is an urgent priority for achieving housing-market stability nationwide," Hodges said. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-severe-weather-affects-premiums"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Severe Weather Affects Premiums </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> As a result of severe weather events, home insurance premiums are increasing on 12 million properties due to flooding, 24 million due to wind damage, and 4.4 million due to the risk of wildfires.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Despite California's recent announcement of its Fair Access to Insurance Requirements Plan, states across the country are increasingly facing similar challenges. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Additionally, new home sales surpassed expectations, indicating Americans are willing to purchase homes even as insurance costs rise. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> In addition to saving consumers money, the process can be made easier for buyers and sellers by determining home insurance at the start of the homebuying process. Finding affordable, complete coverage can also be made easier by shopping through a broker with access to multiple insurance companies.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * Homeowners insurance costs are on average $1,754 a year. * With mortgage rates approaching 8%, homeowners are already stretching their budgets to afford a home. * Insurance rates could continue to rise over the next year, putting extra stress on the homebuying market. With high mortgage rates and rising prices increasing homebuying costs, growing [insurance rates](https://www.investopedia.com/how-to-choose-homeowners-insurance-7486550) could push home affordability out of reach for even more people. [Homeowners insurance](https://www.investopedia.com/terms/h/homeowners-insurance.asp) premiums jumped an average of 21% as of the spring, with average policy [costs jumping to $1,754 a year](https://www.investopedia.com/if-you-thought-the-worst-of-inflation-was-over-check-out-your-insurance-bill-8386955). With mortgage rates approaching 8%, an additional nearly $150 a month for insurance could push homeownership out of the budget range for would-be homeowners. “The link between the housing market and the insurance sector has never been more apparent," said Travis Hodges, managing director at digital insurance platform VIU by HUB, in a statement. "The trajectory of new home sales directly shapes the market landscape and influences the demand for new homeowners insurance policies—an indispensable facet of property ownership." ## Premiums Expected to Rise With insurance premiums expected to rise by an average of 9% this year, finding affordable coverage remains an important consideration for new homebuyers. Many prospective homeowners fail to consider insurance costs until the end of the homebuying process, potentially causing their monthly payment to exceed their budget, Hodges said. That creates a domino effect that slows business for the industry's mortgage lenders, real estate agents, and others. “Addressing the escalating insurance rates is an urgent priority for achieving housing-market stability nationwide," Hodges said. ## Severe Weather Affects Premiums As a result of severe weather events, home insurance premiums are increasing on 12 million properties due to flooding, 24 million due to wind damage, and 4.4 million due to the risk of wildfires. Despite California's recent announcement of its Fair Access to Insurance Requirements Plan, states across the country are increasingly facing similar challenges. Additionally, new home sales surpassed expectations, indicating Americans are willing to purchase homes even as insurance costs rise. In addition to saving consumers money, the process can be made easier for buyers and sellers by determining home insurance at the start of the homebuying process. Finding affordable, complete coverage can also be made easier by shopping through a broker with access to multiple insurance companies. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Homeowners insurance costs are on average $1,754 a year. With mortgage rates approaching 8%, homeowners are already stretching their budgets to afford a home. Insurance rates could continue to rise over the next year, putting extra stress on the homebuying market. With high mortgage rates and rising prices increasing homebuying costs, growing insurance rates could push home affordability out of reach for even more people. Homeowners insurance premiums jumped an average of 21% as of the spring, with average policy costs jumping to $1,754 a year. With mortgage rates approaching 8%, an additional nearly $150 a month for insurance could push homeownership out of the budget range for would-be homeowners. “The link between the housing market and the insurance sector has never been more apparent," said Travis Hodges, managing director at digital insurance platform VIU by HUB, in a statement. "The trajectory of new home sales directly shapes the market landscape and influences the demand for new homeowners insurance policies—an indispensable facet of property ownership." Premiums Expected to Rise With insurance premiums expected to rise by an average of 9% this year, finding affordable coverage remains an important consideration for new homebuyers. Many prospective homeowners fail to consider insurance costs until the end of the homebuying process, potentially causing their monthly payment to exceed their budget, Hodges said. That creates a domino effect that slows business for the industry's mortgage lenders, real estate agents, and others. “Addressing the escalating insurance rates is an urgent priority for achieving housing-market stability nationwide," Hodges said. Severe Weather Affects Premiums As a result of severe weather events, home insurance premiums are increasing on 12 million properties due to flooding, 24 million due to wind damage, and 4.4 million due to the risk of wildfires. Despite California's recent announcement of its Fair Access to Insurance Requirements Plan, states across the country are increasingly facing similar challenges. Additionally, new home sales surpassed expectations, indicating Americans are willing to purchase homes even as insurance costs rise. In addition to saving consumers money, the process can be made easier for buyers and sellers by determining home insurance at the start of the homebuying process. Finding affordable, complete coverage can also be made easier by shopping through a broker with access to multiple insurance companies. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/articles/retirement/07/5yearstoretirement.asp

Want to Retire in Five Years? What You Must Know

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The last five years before you retire may be a critical point of time—at least when it comes to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retirement-planning.asp">retirement planning</a>. That's because you must determine whether you truly can afford to quit work within that period of time. The determination will hinge heavily on the amount of preparation you have done to date and the results of that preparation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> If you are financially prepared, you may just need to maintain your program and continue on to your retirement goal. If you are not prepared, you may be looking at more than five years—or a modification of your planned retirement lifestyle. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Let's look at an action plan you can use to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/07/retirement-questions.asp">determine your level of readiness</a> as you start the five-year stretch. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>If you hope to retire in five years, now's a good time to do a realistic retirement needs analysis.</li><li>Estimate how much you plan to spend each year by using your current budget.</li><li>Compare your planned expenses to how much retirement income you can reasonably expect.</li><li>Estimate your life expectancy and insure your assets against long illnesses.<br/></li><li>If your expenses are too high or your income is too low, you may have to make some changes or adjust your retirement schedule.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-much-money-will-you-need"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> How Much Money Will You Need? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Failing to do a proper retirement needs analysis is one reason many people find themselves struggling financially during their post-work life. At its most basic level, an analysis of your retirement needs might consist of multiplying your current <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a> by some recommended percentage, such as 75% or 80%. That's based on the assumption that your expenses are likely to go down after you retire, which unfortunately is often not the case. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> To get a more realistic picture of how much money you'll need for retirement, your analysis should take a holistic approach. This means considering <em>all</em> aspects of your finances, including items that could affect your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp">cash flow</a> and expenditures. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Below are some questions to ask yourself. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-subheading__text"> How Long do You Expect to be Retired? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> With half a decade left until your planned retirement date, the key objective is to determine if you can afford to retire by then. To make this determination, you must first consider how long you expect to live. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Unless you are clairvoyant, there is no way to be sure. However, you can make a reasonable estimate based on your general level of health and family history. For example, if your family members typically live into their 80s and you are in good health, then you may want to assume that you'll still be around at that age. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_21-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_22-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Order your copy of the print edition of <a data-component="amazon" data-ordinal="1" data-source="affiliate" data-type="externalLink" href="https://www.amazon.com/Investopedia-Retirement-Guide/dp/1547861975/ref=sr_1_1?crid=MGINV1AZRN70&amp;keywords=9781547861972&amp;qid=1665522668&amp;qu=eyJxc2" rel="sponsored nofollow">Investopedia's Retirement Guide</a> for more assistance in building the best plan for your retirement.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-subheading__text"> Do You Need to Insure Your Assets Against Long Illness? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> While you're pondering <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lifeexpectancy.asp">life expectancy</a>, also consider whether your family has been prone to costly, long-term illnesses. If so, insuring your retirement assets should be high on the list of items to include in your analysis. You may want to consider <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/ltcinsurance.asp">long-term care (LTC) insurance</a> to pay for nursing home care or similar services should you eventually need them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Having to use your retirement savings to pay expenses could wipe out your nest egg in no time. This is especially true if your assets are significant enough that it's unlikely you will qualify for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/102014/top-5-elder-care-strategies.asp">Medicaid-supported nursing home care</a>—but you're not so wealthy that your assets will easily cover whatever happens to you. If you're married, consider what would happen if one partner became sick and drained the savings intended to support the other partner after a spouse's death. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-subheading__text"> What Will Your Expenses be During Retirement? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Projecting your expenses during retirement can be one of the easier parts of your needs analysis. This is as simple as making a list of the items or experiences you expect to spend money on and determining how much they are likely to cost. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> One way is to use your current <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/budget.asp">budget</a> as the starting point. Then eliminate or lower the expenses that will no longer apply, such as the gasoline you use to commute to and from work, and add or increase the items that will represent new expenses during retirement (such as higher home utility bills or more leisure travel). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_33-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_34-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>When you tally up your financial resources, don't forget any property that might produce income or that you could sell and convert into cash, such as real estate.</p></div></div></div> <span class="heading-toc" id="toc-how-much-income-will-you-have"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> How Much Income Will You Have? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Next, add up the income you are guaranteed to receive in retirement. This includes: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <li>Your monthly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/social-security-benefits.asp">Social Security benefits</a>. You can get an estimate of your Social Security benefits by using a calculator at the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssa.asp">Social Security Administration (SSA)</a> website.</li> <li>Any <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pensionplan.asp">pension</a> income from current or former employers.</li> <li>Any funds coming as regular payments from an annuity you own.</li> <li>Any property, real or intellectual, that you plan to sell or collect ongoing payments from to help finance your retirement, including <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/realestate.asp">real estate</a>, <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/royalty.asp">royalties</a>, or rental properties.</li> <li>Once you reach the age of being subject to <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/requiredminimumdistribution.asp">required minimum distributions (RMDs)</a> get an estimate of how much you will be required to take out and add this to your guaranteed income for that period.<span class="ql-inline-citation" data-cite="3"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Also, inventory any other savings and assets you have that you could draw on in retirement: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> <li>Funds you have saved in retirement savings accounts, such as IRAs and 401(k)s.</li> <li>Inherited IRAs and other inherited retirement accounts. Be aware that distribution rules for inherited retirement accounts changed with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secure-act-4688468">Setting Every Community Up for Retirement Enhancement (SECURE) Act</a>. Before the passage of this Act, certain non-spouse beneficiaries could spread the disbursements of their inherited money over their lifetime. With the SECURE Act, these beneficiaries have 10 years from the death of the retirement account owner to take full distributions.<span class="ql-inline-citation" data-cite="2"></span></li> <li>Money in other savings or investment accounts.</li> <li>Your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hsa.asp">Health Savings Account (HSA)</a>, if you have one.</li> <li>The value of your home or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/12/income-property.asp">other real estate property</a>.</li> <li>Any other valuable property, such as art.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_44-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_45-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>The age to take RMDs was increased to 73 with the passing of the SECURE Act 2.0. If you turned that age on or after Jan. 1, 2023, you must begin taking distributions from your qualified retirement account(s) by April 1 of the following year. Prior to this, the age to take RMDs was 72 if account holders turned that age between Jan. 1, 2020, and Dec. 31, 2022.<span class="ql-inline-citation" data-cite="5"></span></p></div></div></div> <span class="heading-toc" id="toc-doing-the-retirement-math"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_46-0"> <span class="mntl-sc-block-heading__text"> Doing the Retirement Math </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Once you have established your projected expenses and the amount of income you will regularly receive, the next step is to determine how much additional money you'll need to draw from the retirement savings and other assets you just inventoried to support yourself. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Below is an example of that calculation, based on the following assumptions: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> <li>This person plans to retire in five years.</li> <li>Their annual retirement expenses will be 75% of their pre-retirement income.</li> <li>They expect to spend 20 years in retirement.</li> <li>Their current annual income is $250,000, and they will receive an estimated salary increase of 5% per year.</li> <li>Their estimated income from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/socialsecurity.asp">Social Security</a> is $24,528 per year.</li> <li>Their current retirement savings balance is $1.5 million, which they project will grow at a rate of 8% per year.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> In this case, the results look like this: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-portrait figure-high-res" id="mntl-sc-block_55-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:112.4%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/w4UKdcoJ9Dg0sZqmaf22lGhRljo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Want_to_Retire_in_5_Years_What_You_Must_Know_Dec_2020-01-6f884ac9429f49a59231c7fc08a3a6c6.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/w4UKdcoJ9Dg0sZqmaf22lGhRljo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Want_to_Retire_in_5_Years_What_You_Must_Know_Dec_2020-01-6f884ac9429f49a59231c7fc08a3a6c6.jpg" data-srcset="https://www.investopedia.com/thmb/dnzfAEqT-ED7mSIn5AI58RINJ4Q=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Want_to_Retire_in_5_Years_What_You_Must_Know_Dec_2020-01-6f884ac9429f49a59231c7fc08a3a6c6.jpg 750w" data-tracking-container="true" height="5593" id="mntl-sc-block-image_1-0" width="4975"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="5593" sizes="750px" src="https://www.investopedia.com/thmb/w4UKdcoJ9Dg0sZqmaf22lGhRljo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Want_to_Retire_in_5_Years_What_You_Must_Know_Dec_2020-01-6f884ac9429f49a59231c7fc08a3a6c6.jpg" srcset="https://www.investopedia.com/thmb/dnzfAEqT-ED7mSIn5AI58RINJ4Q=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_final_Want_to_Retire_in_5_Years_What_You_Must_Know_Dec_2020-01-6f884ac9429f49a59231c7fc08a3a6c6.jpg 750w" width="4975"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Image by Sabrina Jiang © Investopedia 2021</p></span> </figcaption></figure> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_56-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_57-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>You can get a calculator for this calculation at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="http://www.choosetosave.org/" rel="nofollow">http://www.choosetosave.org/</a>.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Even though our hypothetical pre-retiree has a higher-than-average income and retirement savings, the calculation shows that they are on track to replace only about 64% of their pre-retirement income, a good deal less than the 75% replacement rate they were aiming for. That means they'll have to make some adjustments if they want to retire in five years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Your particular facts and circumstances will likely produce different results. For instance, do you have more or less saved? Will you get more or less from Social Security? Will your income from other sources be higher or lower? Is your projected time in retirement longer or shorter? All of these factors could change the bottom line. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <span class="heading-toc" id="toc-are-you-on-track-or-off"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_62-0"> <span class="mntl-sc-block-heading__text"> Are You on Track or Off? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> If the result of your retirement-needs analysis shows that you are on track, congratulations! You'll still want to keep adding the recommended amounts—more if possible—to your savings and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rebalancing.asp" rel="noopener noreferrer">rebalancing</a> your portfolio as necessary so that it's suitable for your retirement horizon. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> If the results of your needs analysis show that you are not financially prepared to retire in five years, here are some things to consider: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> <li>Could you make some changes to your planned retirement lifestyle that would significantly reduce your annual expenses?</li><li>Would you be able to increase your retirement account contributions enough over the next five years so that they'll produce sufficient income once you retire?</li><li>Could you work part-time in retirement and bring in additional income?</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> If there isn't much you can do to reduce your expenses or increase your income, your best option may be to put retirement off for a few more years. The longer you work, the more time you'll have to set money aside, and the fewer years you'll need to rely on your retirement savings to support yourself. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_71-0"><span class="heading-toc" id="toc-how-much-money-will-i-need-for-my-retirement"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Money Will I Need for my Retirement?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The amount of money you'll need during retirement depends on a number of factors. The general rule is that you should save up enough money to maintain your current lifestyle. Some experts believe this figure falls somewhere in the neighborhood between 70% to 80% of your current income.<span class="ql-inline-citation" data-cite="6"></span> Keep in mind that some individuals may use more while others can use less than that. The best way to determine how much money you'll need is to try to estimate your costs, including housing, food, healthcare, travel, liabilities, and other expenses.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_73-0"><span class="heading-toc" id="toc-when-should-you-reevaluate-your-retirement-plan"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Should You Reevaluate Your Retirement Plan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It's always a good idea to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-analysis/090216/7-steps-create-10-year-retirement-plan.asp">review your retirement plan</a> and accounts on a regular basis. That's because your situation may change over time, including your income, personal situation, and family life among other things. And keep in mind that, as you age, your risk tolerance decreases, so the older you get, you'll want more stable investments that may not be as volatile as those you invested in when you were younger. But the last five years before you intend to retire may be the most important as this is the point in your life when you can truly determine whether you can actually leave the workforce as you planned. If that isn't the case, you'll have to make some changes and adjust your retirement date.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_75-0"><span class="heading-toc" id="toc-what-is-the-full-retirement-age"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Full Retirement Age?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The full retirement age for individuals who reach age 62 by 2023 will be 67, according to the Social Security Administration. This is the age at which retirees can begin collecting full Social Security benefits. This means that anyone born in 1960 or later reaches full retirement age at 67. The benefit is decreased if a retiree chooses to take their benefits earlier.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="7"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_77-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> It's always a good idea to review your retirement accounts and plan on a consistent basis. But the last five years before your intended retirement date may be the most important. That's because things can change, whether that's your job, family situation, or your own goals. At this point, you'll know whether you're on track and if retiring is still an option. Be prepared, though. If the stars don't align, you may need to make changes and alter your date. You may also need to make some other adjustments, like rebalancing your portfolio. </p></div>

The last five years before you retire may be a critical point of time—at least when it comes to [retirement planning](https://www.investopedia.com/terms/r/retirement-planning.asp). That's because you must determine whether you truly can afford to quit work within that period of time. The determination will hinge heavily on the amount of preparation you have done to date and the results of that preparation. If you are financially prepared, you may just need to maintain your program and continue on to your retirement goal. If you are not prepared, you may be looking at more than five years—or a modification of your planned retirement lifestyle. Let's look at an action plan you can use to [determine your level of readiness](https://www.investopedia.com/articles/retirement/07/retirement-questions.asp) as you start the five-year stretch. ### Key Takeaways * If you hope to retire in five years, now's a good time to do a realistic retirement needs analysis. * Estimate how much you plan to spend each year by using your current budget. * Compare your planned expenses to how much retirement income you can reasonably expect. * Estimate your life expectancy and insure your assets against long illnesses. * If your expenses are too high or your income is too low, you may have to make some changes or adjust your retirement schedule. ## How Much Money Will You Need? Failing to do a proper retirement needs analysis is one reason many people find themselves struggling financially during their post-work life. At its most basic level, an analysis of your retirement needs might consist of multiplying your current [income](https://www.investopedia.com/terms/i/income.asp) by some recommended percentage, such as 75% or 80%. That's based on the assumption that your expenses are likely to go down after you retire, which unfortunately is often not the case. To get a more realistic picture of how much money you'll need for retirement, your analysis should take a holistic approach. This means considering *all* aspects of your finances, including items that could affect your [cash flow](https://www.investopedia.com/terms/c/cashflow.asp) and expenditures. Below are some questions to ask yourself. ### How Long do You Expect to be Retired? With half a decade left until your planned retirement date, the key objective is to determine if you can afford to retire by then. To make this determination, you must first consider how long you expect to live. Unless you are clairvoyant, there is no way to be sure. However, you can make a reasonable estimate based on your general level of health and family history. For example, if your family members typically live into their 80s and you are in good health, then you may want to assume that you'll still be around at that age. ### Order your copy of the print edition of [Investopedia's Retirement Guide](https://www.amazon.com/Investopedia-Retirement-Guide/dp/1547861975/ref=sr_1_1?crid=MGINV1AZRN70&keywords=9781547861972&qid=1665522668&qu=eyJxc2) for more assistance in building the best plan for your retirement. ### Do You Need to Insure Your Assets Against Long Illness? While you're pondering [life expectancy](https://www.investopedia.com/terms/l/lifeexpectancy.asp), also consider whether your family has been prone to costly, long-term illnesses. If so, insuring your retirement assets should be high on the list of items to include in your analysis. You may want to consider [long-term care (LTC) insurance](https://www.investopedia.com/terms/l/ltcinsurance.asp) to pay for nursing home care or similar services should you eventually need them. Having to use your retirement savings to pay expenses could wipe out your nest egg in no time. This is especially true if your assets are significant enough that it's unlikely you will qualify for [Medicaid-supported nursing home care](https://www.investopedia.com/articles/personal-finance/102014/top-5-elder-care-strategies.asp)—but you're not so wealthy that your assets will easily cover whatever happens to you. If you're married, consider what would happen if one partner became sick and drained the savings intended to support the other partner after a spouse's death. ### What Will Your Expenses be During Retirement? Projecting your expenses during retirement can be one of the easier parts of your needs analysis. This is as simple as making a list of the items or experiences you expect to spend money on and determining how much they are likely to cost. One way is to use your current [budget](https://www.investopedia.com/terms/b/budget.asp) as the starting point. Then eliminate or lower the expenses that will no longer apply, such as the gasoline you use to commute to and from work, and add or increase the items that will represent new expenses during retirement (such as higher home utility bills or more leisure travel). ### When you tally up your financial resources, don't forget any property that might produce income or that you could sell and convert into cash, such as real estate. ## How Much Income Will You Have? Next, add up the income you are guaranteed to receive in retirement. This includes: * Your monthly [Social Security benefits](https://www.investopedia.com/terms/s/social-security-benefits.asp). You can get an estimate of your Social Security benefits by using a calculator at the [Social Security Administration (SSA)](https://www.investopedia.com/terms/s/ssa.asp) website. * Any [pension](https://www.investopedia.com/terms/p/pensionplan.asp) income from current or former employers. * Any funds coming as regular payments from an annuity you own. * Any property, real or intellectual, that you plan to sell or collect ongoing payments from to help finance your retirement, including [real estate](https://www.investopedia.com/terms/r/realestate.asp), [royalties](https://www.investopedia.com/terms/r/royalty.asp), or rental properties. * Once you reach the age of being subject to [required minimum distributions (RMDs)](https://www.investopedia.com/terms/r/requiredminimumdistribution.asp) get an estimate of how much you will be required to take out and add this to your guaranteed income for that period. Also, inventory any other savings and assets you have that you could draw on in retirement: * Funds you have saved in retirement savings accounts, such as IRAs and 401(k)s. * Inherited IRAs and other inherited retirement accounts. Be aware that distribution rules for inherited retirement accounts changed with the [Setting Every Community Up for Retirement Enhancement (SECURE) Act](https://www.investopedia.com/secure-act-4688468). Before the passage of this Act, certain non-spouse beneficiaries could spread the disbursements of their inherited money over their lifetime. With the SECURE Act, these beneficiaries have 10 years from the death of the retirement account owner to take full distributions. * Money in other savings or investment accounts. * Your [Health Savings Account (HSA)](https://www.investopedia.com/terms/h/hsa.asp), if you have one. * The value of your home or [other real estate property](https://www.investopedia.com/articles/pf/12/income-property.asp). * Any other valuable property, such as art. ### The age to take RMDs was increased to 73 with the passing of the SECURE Act 2.0. If you turned that age on or after Jan. 1, 2023, you must begin taking distributions from your qualified retirement account(s) by April 1 of the following year. Prior to this, the age to take RMDs was 72 if account holders turned that age between Jan. 1, 2020, and Dec. 31, 2022. ## Doing the Retirement Math Once you have established your projected expenses and the amount of income you will regularly receive, the next step is to determine how much additional money you'll need to draw from the retirement savings and other assets you just inventoried to support yourself. Below is an example of that calculation, based on the following assumptions: * This person plans to retire in five years. * Their annual retirement expenses will be 75% of their pre-retirement income. * They expect to spend 20 years in retirement. * Their current annual income is $250,000, and they will receive an estimated salary increase of 5% per year. * Their estimated income from [Social Security](https://www.investopedia.com/terms/s/socialsecurity.asp) is $24,528 per year. * Their current retirement savings balance is $1.5 million, which they project will grow at a rate of 8% per year. In this case, the results look like this: ![Image]() :max_bytes(150000):strip_icc()/dotdash_final_Want_to_Retire_in_5_Years_What_You_Must_Know_Dec_2020-01-6f884ac9429f49a59231c7fc08a3a6c6.jpg) Image by Sabrina Jiang © Investopedia 2021 ### You can get a calculator for this calculation at <http://www.choosetosave.org/>. Even though our hypothetical pre-retiree has a higher-than-average income and retirement savings, the calculation shows that they are on track to replace only about 64% of their pre-retirement income, a good deal less than the 75% replacement rate they were aiming for. That means they'll have to make some adjustments if they want to retire in five years. Your particular facts and circumstances will likely produce different results. For instance, do you have more or less saved? Will you get more or less from Social Security? Will your income from other sources be higher or lower? Is your projected time in retirement longer or shorter? All of these factors could change the bottom line. ## Are You on Track or Off? If the result of your retirement-needs analysis shows that you are on track, congratulations! You'll still want to keep adding the recommended amounts—more if possible—to your savings and [rebalancing](https://www.investopedia.com/terms/r/rebalancing.asp) your portfolio as necessary so that it's suitable for your retirement horizon. If the results of your needs analysis show that you are not financially prepared to retire in five years, here are some things to consider: * Could you make some changes to your planned retirement lifestyle that would significantly reduce your annual expenses? * Would you be able to increase your retirement account contributions enough over the next five years so that they'll produce sufficient income once you retire? * Could you work part-time in retirement and bring in additional income? If there isn't much you can do to reduce your expenses or increase your income, your best option may be to put retirement off for a few more years. The longer you work, the more time you'll have to set money aside, and the fewer years you'll need to rely on your retirement savings to support yourself. ## How Much Money Will I Need for my Retirement? The amount of money you'll need during retirement depends on a number of factors. The general rule is that you should save up enough money to maintain your current lifestyle. Some experts believe this figure falls somewhere in the neighborhood between 70% to 80% of your current income. Keep in mind that some individuals may use more while others can use less than that. The best way to determine how much money you'll need is to try to estimate your costs, including housing, food, healthcare, travel, liabilities, and other expenses. ## When Should You Reevaluate Your Retirement Plan? It's always a good idea to [review your retirement plan](https://www.investopedia.com/articles/financial-analysis/090216/7-steps-create-10-year-retirement-plan.asp) and accounts on a regular basis. That's because your situation may change over time, including your income, personal situation, and family life among other things. And keep in mind that, as you age, your risk tolerance decreases, so the older you get, you'll want more stable investments that may not be as volatile as those you invested in when you were younger. But the last five years before you intend to retire may be the most important as this is the point in your life when you can truly determine whether you can actually leave the workforce as you planned. If that isn't the case, you'll have to make some changes and adjust your retirement date. ## What Is the Full Retirement Age? The full retirement age for individuals who reach age 62 by 2023 will be 67, according to the Social Security Administration. This is the age at which retirees can begin collecting full Social Security benefits. This means that anyone born in 1960 or later reaches full retirement age at 67. The benefit is decreased if a retiree chooses to take their benefits earlier. ## The Bottom Line It's always a good idea to review your retirement accounts and plan on a consistent basis. But the last five years before your intended retirement date may be the most important. That's because things can change, whether that's your job, family situation, or your own goals. At this point, you'll know whether you're on track and if retiring is still an option. Be prepared, though. If the stars don't align, you may need to make changes and alter your date. You may also need to make some other adjustments, like rebalancing your portfolio.

The last five years before you retire may be a critical point of time—at least when it comes to retirement planning. That's because you must determine whether you truly can afford to quit work within that period of time. The determination will hinge heavily on the amount of preparation you have done to date and the results of that preparation. If you are financially prepared, you may just need to maintain your program and continue on to your retirement goal. If you are not prepared, you may be looking at more than five years—or a modification of your planned retirement lifestyle. Let's look at an action plan you can use to determine your level of readiness as you start the five-year stretch. Key Takeaways If you hope to retire in five years, now's a good time to do a realistic retirement needs analysis.Estimate how much you plan to spend each year by using your current budget.Compare your planned expenses to how much retirement income you can reasonably expect.Estimate your life expectancy and insure your assets against long illnesses.If your expenses are too high or your income is too low, you may have to make some changes or adjust your retirement schedule. How Much Money Will You Need? Failing to do a proper retirement needs analysis is one reason many people find themselves struggling financially during their post-work life. At its most basic level, an analysis of your retirement needs might consist of multiplying your current income by some recommended percentage, such as 75% or 80%. That's based on the assumption that your expenses are likely to go down after you retire, which unfortunately is often not the case. To get a more realistic picture of how much money you'll need for retirement, your analysis should take a holistic approach. This means considering all aspects of your finances, including items that could affect your cash flow and expenditures. Below are some questions to ask yourself. How Long do You Expect to be Retired? With half a decade left until your planned retirement date, the key objective is to determine if you can afford to retire by then. To make this determination, you must first consider how long you expect to live. Unless you are clairvoyant, there is no way to be sure. However, you can make a reasonable estimate based on your general level of health and family history. For example, if your family members typically live into their 80s and you are in good health, then you may want to assume that you'll still be around at that age. Order your copy of the print edition of Investopedia's Retirement Guide for more assistance in building the best plan for your retirement. Do You Need to Insure Your Assets Against Long Illness? While you're pondering life expectancy, also consider whether your family has been prone to costly, long-term illnesses. If so, insuring your retirement assets should be high on the list of items to include in your analysis. You may want to consider long-term care (LTC) insurance to pay for nursing home care or similar services should you eventually need them. Having to use your retirement savings to pay expenses could wipe out your nest egg in no time. This is especially true if your assets are significant enough that it's unlikely you will qualify for Medicaid-supported nursing home care—but you're not so wealthy that your assets will easily cover whatever happens to you. If you're married, consider what would happen if one partner became sick and drained the savings intended to support the other partner after a spouse's death. What Will Your Expenses be During Retirement? Projecting your expenses during retirement can be one of the easier parts of your needs analysis. This is as simple as making a list of the items or experiences you expect to spend money on and determining how much they are likely to cost. One way is to use your current budget as the starting point. Then eliminate or lower the expenses that will no longer apply, such as the gasoline you use to commute to and from work, and add or increase the items that will represent new expenses during retirement (such as higher home utility bills or more leisure travel). When you tally up your financial resources, don't forget any property that might produce income or that you could sell and convert into cash, such as real estate. How Much Income Will You Have? Next, add up the income you are guaranteed to receive in retirement. This includes: Your monthly Social Security benefits. You can get an estimate of your Social Security benefits by using a calculator at the Social Security Administration (SSA) website. Any pension income from current or former employers. Any funds coming as regular payments from an annuity you own. Any property, real or intellectual, that you plan to sell or collect ongoing payments from to help finance your retirement, including real estate, royalties, or rental properties. Once you reach the age of being subject to required minimum distributions (RMDs) get an estimate of how much you will be required to take out and add this to your guaranteed income for that period. Also, inventory any other savings and assets you have that you could draw on in retirement: Funds you have saved in retirement savings accounts, such as IRAs and 401(k)s. Inherited IRAs and other inherited retirement accounts. Be aware that distribution rules for inherited retirement accounts changed with the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Before the passage of this Act, certain non-spouse beneficiaries could spread the disbursements of their inherited money over their lifetime. With the SECURE Act, these beneficiaries have 10 years from the death of the retirement account owner to take full distributions. Money in other savings or investment accounts. Your Health Savings Account (HSA), if you have one. The value of your home or other real estate property. Any other valuable property, such as art. The age to take RMDs was increased to 73 with the passing of the SECURE Act 2.0. If you turned that age on or after Jan. 1, 2023, you must begin taking distributions from your qualified retirement account(s) by April 1 of the following year. Prior to this, the age to take RMDs was 72 if account holders turned that age between Jan. 1, 2020, and Dec. 31, 2022. Doing the Retirement Math Once you have established your projected expenses and the amount of income you will regularly receive, the next step is to determine how much additional money you'll need to draw from the retirement savings and other assets you just inventoried to support yourself. Below is an example of that calculation, based on the following assumptions: This person plans to retire in five years. Their annual retirement expenses will be 75% of their pre-retirement income. They expect to spend 20 years in retirement. Their current annual income is $250,000, and they will receive an estimated salary increase of 5% per year. Their estimated income from Social Security is $24,528 per year. Their current retirement savings balance is $1.5 million, which they project will grow at a rate of 8% per year. In this case, the results look like this: Image by Sabrina Jiang © Investopedia 2021 You can get a calculator for this calculation at http://www.choosetosave.org/. Even though our hypothetical pre-retiree has a higher-than-average income and retirement savings, the calculation shows that they are on track to replace only about 64% of their pre-retirement income, a good deal less than the 75% replacement rate they were aiming for. That means they'll have to make some adjustments if they want to retire in five years. Your particular facts and circumstances will likely produce different results. For instance, do you have more or less saved? Will you get more or less from Social Security? Will your income from other sources be higher or lower? Is your projected time in retirement longer or shorter? All of these factors could change the bottom line. Are You on Track or Off? If the result of your retirement-needs analysis shows that you are on track, congratulations! You'll still want to keep adding the recommended amounts—more if possible—to your savings and rebalancing your portfolio as necessary so that it's suitable for your retirement horizon. If the results of your needs analysis show that you are not financially prepared to retire in five years, here are some things to consider: Could you make some changes to your planned retirement lifestyle that would significantly reduce your annual expenses?Would you be able to increase your retirement account contributions enough over the next five years so that they'll produce sufficient income once you retire?Could you work part-time in retirement and bring in additional income? If there isn't much you can do to reduce your expenses or increase your income, your best option may be to put retirement off for a few more years. The longer you work, the more time you'll have to set money aside, and the fewer years you'll need to rely on your retirement savings to support yourself. How Much Money Will I Need for my Retirement? The amount of money you'll need during retirement depends on a number of factors. The general rule is that you should save up enough money to maintain your current lifestyle. Some experts believe this figure falls somewhere in the neighborhood between 70% to 80% of your current income. Keep in mind that some individuals may use more while others can use less than that. The best way to determine how much money you'll need is to try to estimate your costs, including housing, food, healthcare, travel, liabilities, and other expenses. When Should You Reevaluate Your Retirement Plan? It's always a good idea to review your retirement plan and accounts on a regular basis. That's because your situation may change over time, including your income, personal situation, and family life among other things. And keep in mind that, as you age, your risk tolerance decreases, so the older you get, you'll want more stable investments that may not be as volatile as those you invested in when you were younger. But the last five years before you intend to retire may be the most important as this is the point in your life when you can truly determine whether you can actually leave the workforce as you planned. If that isn't the case, you'll have to make some changes and adjust your retirement date. What Is the Full Retirement Age? The full retirement age for individuals who reach age 62 by 2023 will be 67, according to the Social Security Administration. This is the age at which retirees can begin collecting full Social Security benefits. This means that anyone born in 1960 or later reaches full retirement age at 67. The benefit is decreased if a retiree chooses to take their benefits earlier. The Bottom Line It's always a good idea to review your retirement accounts and plan on a consistent basis. But the last five years before your intended retirement date may be the most important. That's because things can change, whether that's your job, family situation, or your own goals. At this point, you'll know whether you're on track and if retiring is still an option. Be prepared, though. If the stars don't align, you may need to make changes and alter your date. You may also need to make some other adjustments, like rebalancing your portfolio.

https://www.investopedia.com/4-takeaways-from-microsoft-build-developer-conference-keynote-2024-8651858

4 Takeaways From Microsoft's Build Developer Conference Keynote

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Microsoft (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>) CEO Satya Nadella took the stage Tuesday to give a keynote address at Microsoft Build, the company's annual developer conference, where he unveiled several new <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI)</a> initiatives.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="2"></span> The updates came just a day after Microsoft <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-unveils-new-copilot-ai-pcs-here-is-what-you-need-to-know-8651238">announced new Copilot+ PCs</a>, and a week after Alphabet's (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL">GOOGL</a>) <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/5-takeaways-from-alphabets-google-io-keynote-2024-8648319">Google I/O</a> developer conference. Here are the key takeaways. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <span class="heading-toc" id="toc-introducing-team-copilot-copilot-extensions-and-more"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> Introducing Team Copilot, Copilot Extensions, and More </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Nadella announced Team Copilot, an expansion of Microsoft's Copilot chatbot that brings a personal AI assistant to Microsoft 365 users. The new Team Copilot can manage agendas, take notes, and use context to answer questions. Team Copilot is set to be available in preview later in the year for Microsoft Copilot for some Microsoft 365 customers.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The CEO also introduced new agent capabilities in Microsoft Copilot Studio to help developers build their copilots. The new agent features are available for some through Microsoft's Early Access Program and are set to become more widely available in preview later this year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Nadella unveiled Copilot extensions as well, that allow Copilot users to connect to new sources and applications to expand the assistant’s capabilities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The company introduced the first set of Copilot extensions for GitHub, Microsoft’s developer platform. Microsoft said developers can further customize their GitHub experience using the GitHub Copilot extensions, which are available in private preview. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-expanding-ai-partnerships-with-hugging-face-and-others"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Expanding AI Partnerships With Hugging Face and Others </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Nadella highlighted that Microsoft has several collaborations with companies working to further AI tech, and pointed to Microsoft's ongoing partnership with Nvidia (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>), just ahead of the chipmaker's highly anticipated <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nvidia-q1-fy-2025-earnings-preview-8643286">earnings report</a> Wednesday. Nadella also called out Microsoft's arguably most important <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-apple-nvidia-and-others-could-benefit-from-openai-new-ai-model-gpt-4o-8648151">AI era partner</a>, ChatGPT maker Open AI, which <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-backed-openai-unveils-most-capable-ai-model-gpt-4o-8647639">recently launched GPT-4o</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The CEO announced that Microsoft extended its partnership with Hugging Face to bring Hugging Face's models to Azure AI studio and a new partnership with Cognition AI, an AI startup, to power Cognition’s AI agent specialized in software development on Azure. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The company also announced a partnership with Khan Academy focused on leveraging AI tech to power educational materials. Microsoft is donating Azure infrastructure access and Khan Academy is working to make its AI teaching assistant, Khanmigo, free to teachers.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-new-small-language-model-and-real-time-intelligence"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> New Small Language Model and Real-Time Intelligence </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Microsoft announced Phi-3-vision, a new multimodal model with audio and vision capabilities. The new model is part of Microsoft's Phi-3 family of small language models (SLMs). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The company <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-microsoft-is-building-smaller-ai-systems-that-can-fit-in-phones-8637643">introduced</a> the Phi-3 models as part of its push into SLMs that are less costly than <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/large-language-model-7563532">large language models (LLMs)</a> and used for specific use cases. The Phi-3 SLMs are available on Azure AI and Hugging Face.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Nadella also announced Real-Time Intelligence on Microsoft Fabric, an AI-powered analytics platform, that offers in-the-moment decision-making for organizations.<span class="ql-inline-citation" data-cite="4"></span> The feature is now in preview. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-updates-on-microsofts-custom-chip-and-ai-infrastructure-offerings"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> Updates on Microsoft's Custom Chip and AI Infrastructure Offerings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The company announced a preview of its new custom silicon Arm-based (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.tradingview.com/chart/?symbol=NASDAQ%3AARM" rel="nofollow">ARM</a>) processor <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-unveils-new-ai-chip-and-copilot-ai-features-8402186">announced in November</a>, Cobalt 100. Nadella highlighted the chip’s performance capabilities for running general and cloud-native workloads, saying that the new custom silicon provides a 40% improvement in performance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Microsoft also said it is “the first cloud provider to bring AMD’s leading MI300X <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/amd-stock-surges-with-microsoft-meta-and-openai-set-to-use-its-latest-ai-chip-8411853">AI accelerator chip</a> to power customers’ AI training and inferencing needs” through the Azure ND MI300X v5 series. The company said the chip is part of its holistic infrastructure approach to AI.<br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) CEO Satya Nadella took the stage Tuesday to give a keynote address at Microsoft Build, the company's annual developer conference, where he unveiled several new [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) initiatives. The updates came just a day after Microsoft [announced new Copilot+ PCs](https://www.investopedia.com/microsoft-unveils-new-copilot-ai-pcs-here-is-what-you-need-to-know-8651238), and a week after Alphabet's ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL)) [Google I/O](https://www.investopedia.com/5-takeaways-from-alphabets-google-io-keynote-2024-8648319) developer conference. Here are the key takeaways. ## Introducing Team Copilot, Copilot Extensions, and More Nadella announced Team Copilot, an expansion of Microsoft's Copilot chatbot that brings a personal AI assistant to Microsoft 365 users. The new Team Copilot can manage agendas, take notes, and use context to answer questions. Team Copilot is set to be available in preview later in the year for Microsoft Copilot for some Microsoft 365 customers. The CEO also introduced new agent capabilities in Microsoft Copilot Studio to help developers build their copilots. The new agent features are available for some through Microsoft's Early Access Program and are set to become more widely available in preview later this year. Nadella unveiled Copilot extensions as well, that allow Copilot users to connect to new sources and applications to expand the assistant’s capabilities. The company introduced the first set of Copilot extensions for GitHub, Microsoft’s developer platform. Microsoft said developers can further customize their GitHub experience using the GitHub Copilot extensions, which are available in private preview. ## Expanding AI Partnerships With Hugging Face and Others Nadella highlighted that Microsoft has several collaborations with companies working to further AI tech, and pointed to Microsoft's ongoing partnership with Nvidia ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)), just ahead of the chipmaker's highly anticipated [earnings report](https://www.investopedia.com/nvidia-q1-fy-2025-earnings-preview-8643286) Wednesday. Nadella also called out Microsoft's arguably most important [AI era partner](https://www.investopedia.com/how-apple-nvidia-and-others-could-benefit-from-openai-new-ai-model-gpt-4o-8648151), ChatGPT maker Open AI, which [recently launched GPT-4o](https://www.investopedia.com/microsoft-backed-openai-unveils-most-capable-ai-model-gpt-4o-8647639). The CEO announced that Microsoft extended its partnership with Hugging Face to bring Hugging Face's models to Azure AI studio and a new partnership with Cognition AI, an AI startup, to power Cognition’s AI agent specialized in software development on Azure. The company also announced a partnership with Khan Academy focused on leveraging AI tech to power educational materials. Microsoft is donating Azure infrastructure access and Khan Academy is working to make its AI teaching assistant, Khanmigo, free to teachers.  ## New Small Language Model and Real-Time Intelligence Microsoft announced Phi-3-vision, a new multimodal model with audio and vision capabilities. The new model is part of Microsoft's Phi-3 family of small language models (SLMs). The company [introduced](https://www.investopedia.com/why-microsoft-is-building-smaller-ai-systems-that-can-fit-in-phones-8637643) the Phi-3 models as part of its push into SLMs that are less costly than [large language models (LLMs)](https://www.investopedia.com/large-language-model-7563532) and used for specific use cases. The Phi-3 SLMs are available on Azure AI and Hugging Face. Nadella also announced Real-Time Intelligence on Microsoft Fabric, an AI-powered analytics platform, that offers in-the-moment decision-making for organizations. The feature is now in preview. ## Updates on Microsoft's Custom Chip and AI Infrastructure Offerings The company announced a preview of its new custom silicon Arm-based ([ARM](https://www.tradingview.com/chart/?symbol=NASDAQ%3AARM)) processor [announced in November](https://www.investopedia.com/microsoft-unveils-new-ai-chip-and-copilot-ai-features-8402186), Cobalt 100. Nadella highlighted the chip’s performance capabilities for running general and cloud-native workloads, saying that the new custom silicon provides a 40% improvement in performance. Microsoft also said it is “the first cloud provider to bring AMD’s leading MI300X [AI accelerator chip](https://www.investopedia.com/amd-stock-surges-with-microsoft-meta-and-openai-set-to-use-its-latest-ai-chip-8411853) to power customers’ AI training and inferencing needs” through the Azure ND MI300X v5 series. The company said the chip is part of its holistic infrastructure approach to AI. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Microsoft (MSFT) CEO Satya Nadella took the stage Tuesday to give a keynote address at Microsoft Build, the company's annual developer conference, where he unveiled several new artificial intelligence (AI) initiatives. The updates came just a day after Microsoft announced new Copilot+ PCs, and a week after Alphabet's (GOOGL) Google I/O developer conference. Here are the key takeaways. Introducing Team Copilot, Copilot Extensions, and More Nadella announced Team Copilot, an expansion of Microsoft's Copilot chatbot that brings a personal AI assistant to Microsoft 365 users. The new Team Copilot can manage agendas, take notes, and use context to answer questions. Team Copilot is set to be available in preview later in the year for Microsoft Copilot for some Microsoft 365 customers. The CEO also introduced new agent capabilities in Microsoft Copilot Studio to help developers build their copilots. The new agent features are available for some through Microsoft's Early Access Program and are set to become more widely available in preview later this year. Nadella unveiled Copilot extensions as well, that allow Copilot users to connect to new sources and applications to expand the assistant’s capabilities. The company introduced the first set of Copilot extensions for GitHub, Microsoft’s developer platform. Microsoft said developers can further customize their GitHub experience using the GitHub Copilot extensions, which are available in private preview. Expanding AI Partnerships With Hugging Face and Others Nadella highlighted that Microsoft has several collaborations with companies working to further AI tech, and pointed to Microsoft's ongoing partnership with Nvidia (NVDA), just ahead of the chipmaker's highly anticipated earnings report Wednesday. Nadella also called out Microsoft's arguably most important AI era partner, ChatGPT maker Open AI, which recently launched GPT-4o. The CEO announced that Microsoft extended its partnership with Hugging Face to bring Hugging Face's models to Azure AI studio and a new partnership with Cognition AI, an AI startup, to power Cognition’s AI agent specialized in software development on Azure. The company also announced a partnership with Khan Academy focused on leveraging AI tech to power educational materials. Microsoft is donating Azure infrastructure access and Khan Academy is working to make its AI teaching assistant, Khanmigo, free to teachers.  New Small Language Model and Real-Time Intelligence Microsoft announced Phi-3-vision, a new multimodal model with audio and vision capabilities. The new model is part of Microsoft's Phi-3 family of small language models (SLMs). The company introduced the Phi-3 models as part of its push into SLMs that are less costly than large language models (LLMs) and used for specific use cases. The Phi-3 SLMs are available on Azure AI and Hugging Face. Nadella also announced Real-Time Intelligence on Microsoft Fabric, an AI-powered analytics platform, that offers in-the-moment decision-making for organizations. The feature is now in preview. Updates on Microsoft's Custom Chip and AI Infrastructure Offerings The company announced a preview of its new custom silicon Arm-based (ARM) processor announced in November, Cobalt 100. Nadella highlighted the chip’s performance capabilities for running general and cloud-native workloads, saying that the new custom silicon provides a 40% improvement in performance. Microsoft also said it is “the first cloud provider to bring AMD’s leading MI300X AI accelerator chip to power customers’ AI training and inferencing needs” through the Azure ND MI300X v5 series. The company said the chip is part of its holistic infrastructure approach to AI. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/us-economy-news-today-may-16-8649409

US Economy News Today: Fed's Barkin Sees More Price Pressure in Services Sector

<div class="loc article-content"><div class="comp article__primary-video-container--jw mntl-block" id="article__primary-video-container--jw_1-0"></div> <div class="comp liveblog mntl-block" id="liveblog_1-0"><div class="comp mntl-block article-content__description" id="mntl-block_12-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Welcome to Investopedia's economics live blog, where we explain what the day's news says about the state of the U.S. economy and how that's likely to affect your finances. Here we compile data releases, economic reports, quotes from expert sources and anything else that helps explain economic issues and why they matter to you. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Today, housing data showed a mixed picture of the future for new homes and we will hear from Federal Reserve speakers in the aftermath of yesterday's inflation report. </p></div> <div class="comp liveblog__content mntl-sc-page mntl-block" data-bind-scroll-on-start="true" data-rail-bp="mntl-bp-md" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[1, 3, 6, 9, 12, 15, 18]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="liveblog__content_1-0"><div class="comp finance-liveblog-content mntl-liveblog-content mntl-block" id="finance-liveblog-content_1-0"><div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_1-0"><span class="heading-toc" id="toc-2024-05-16t164526171z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_1-0"><p><strong>Average Mortgage Rate Moderates This Week</strong></p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_1-0">May 16, 2024 12:45 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/us-economy-news-today-may-16-8649409#toc-2024-05-16t164526171z" id="mntl-blogpost__copylink_1-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Mortgage rates fell slightly this week, according to data released by Freddie Mac Thursday. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The average 30-year, fixed-rate mortgage fell to 7.02%, down from 7.09% last week. This is the second week in a row that mortgage rates have fallen. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Mortgage rates began climbing in March as it became more apparent that the Federal Reserve would likely not be able to cut its influential fed funds rate imminently. The fed funds rate impacts all types of credit, including mortgages. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Mortgages are also susceptible to movement in the bond market. Fading hope that rate cuts are on their way has pushed Treasury yields up, and in turn mortgage rates. </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="1" id="mntl-sc-block-adslot_1-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_2-0"><span class="heading-toc" id="toc-2024-05-16t163104413z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_2-0"><p><strong>Barkin Sees More Price Pressure in Services Sector</strong><br/></p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_2-0">May 16, 2024 12:31 PM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/us-economy-news-today-may-16-8649409#toc-2024-05-16t163104413z" id="mntl-blogpost__copylink_2-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Service providers are still raising their prices as they continue to work with increasing labor costs, said Richmond Federal Reserve Bank President Thomas Barkin today. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> “There’s just a lot of movement on the services side and it’s just going to take a little bit of time,” Barkin told <em>CNBC. </em> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <em>S</em>ectors like auto and health insurance are helping to push up the rise in services costs, he said.  His remarks come after the Consumer Price Index (CPI) <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737">showed inflation cooled slightly</a> in April.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Barkin said the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/april-2024-retail-sales-soft-consumers-reaching-limit-8648861">April retail sales numbers released yesterday</a> were “interesting” because the slowdown was more in line with what he was hearing from businesses in his district, which covers Maryland, Virginia, Washington, D.C., the Carolinas, and most of West Virginia.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> “That’s what I’m hearing in the marketplace, which is, good but not great consumer spending,” Barkin said. “I do think the edge will have to come off of demand a little bit more to get inflation back to target.”  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> As other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-officials-in-wait-and-see-mode-on-rate-cuts-ahead-of-next-weeks-inflation-data-8646908">Federal Reserve officials have said recently</a>, Barkin did not commit to the timing of interest rate changes, saying inflation appeared to be on a path back toward the 2% target. He said more time at current rate levels was needed before the Fed could move to cut. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <em>-Terry Lane</em><br/> </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="2" id="mntl-sc-block-adslot_2-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_3-0"><span class="heading-toc" id="toc-2024-05-16t130751258z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_3-0"><p><strong>Home Starts and Permits Miss Expectations in April</strong></p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_3-0">May 16, 2024 09:07 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/us-economy-news-today-may-16-8649409#toc-2024-05-16t130751258z" id="mntl-blogpost__copylink_3-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Homebuilding activity missed expectations as high mortgage rates continued to drag down the market.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Builders started building houses in April at a rate that would see 1.36 million units constructed if that pace continued all year, the Census Bureau said Thursday.<span class="ql-inline-citation" data-cite="2"></span> That is a 5.7% increase from March but below expectations for an annual rate of 1.40 million according to a survey of forecasters by Dow Jones Newswires and <em>The Wall Street Journal.</em> </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Building permits, a signal of future activity, fell 3% from March to an annual rate of 1.44 million, short of the consensus forecast for 1.48 million. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Housing starts are usually taken with a grain of salt by economists because they’re prone to large up-and-down swings from month to month. However, they’re the latest of several indicators that high mortgage rates are stifling the housing market.<br/><br/>The average rate offered for a 30-year mortgage has hovered over the 7% mark in recent weeks, according to Freddie Mac, close to a two-decade high. The Federal Reserve has held its benchmark fed funds <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952">rate high to combat inflation</a>, which influences all kinds of credit including mortgages. High mortgage rates have helped raise required monthly payments to the point of unaffordability for many prospective buyers.  </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The Fed’s monetary policy intentionally raises borrowing costs on mortgages and other loans in an attempt to discourage borrowing and spending, cool the economy, and push inflation down to a 2% annual rate from its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737">current level of 3.4%</a>. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> “Restrictive monetary policy clearly continues to weigh on housing activity as housing starts have essentially been stuck in a sideways pattern around 1.4 million since the summer of 2022,” Ali Jaffery, an economist at CIBC, wrote in a commentary. “That trend is likely to continue until the Fed is confident inflation is headed for 2%."<br> </br></p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="3" id="mntl-sc-block-adslot_3-0"></div> <div class="comp mntl-liveblog-item mntl-block" id="mntl-liveblog-item_4-0"><span class="heading-toc" id="toc-2024-05-16t124852048z"></span> <h2 class="comp mntl-blogpost__headline mntl-text-block" id="mntl-blogpost__headline_4-0"><p><strong>Initial Claims For Unemployment Insurance Fell Last Week</strong></p></h2> <div class="comp mntl-blogpost__publishedDate mntl-text-block" id="mntl-blogpost__publishedDate_4-0">May 16, 2024 08:48 AM EDT</div> <button aria-label="Copy Link" class="comp mntl-blogpost__copylink mntl-copy-link-button mntl-button" data-link="https://www.investopedia.com/us-economy-news-today-may-16-8649409#toc-2024-05-16t124852048z" id="mntl-blogpost__copylink_4-0"> </button> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The number of people filing for unemployment insurance for the first time fell by 10,000 last week, according to data released by the Department of Labor Thursday. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Initial claims fell to 222,000, down from the prior week's revised level of 232,000.<span class="ql-inline-citation" data-cite="1"></span> The volatile weekly measure often used as a proxy for layoffs has fluctuated around the 200,000 mark so far this year. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The four-week moving average, which some economists site as a more stable figure, rose to 217,750, some 2,500 more than in the previous week. </p> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Some economists said last week's jump was caused mainly by an anomaly in New York schools. </p></div> <div class="comp mntl-sc-block-adslot mntl-block" data-item-index="4" id="mntl-sc-block-adslot_4-0"></div></div></div></div> <div class="comp textnote-placeholder mntl-block" id="textnote-placeholder_1-0"></div> <div class="comp textnote mm-ads-gpt-adunit gpt textnote" id="textnote_1-0"> <div class="wrapper" id="textnote"></div> </div> </div>

Welcome to Investopedia's economics live blog, where we explain what the day's news says about the state of the U.S. economy and how that's likely to affect your finances. Here we compile data releases, economic reports, quotes from expert sources and anything else that helps explain economic issues and why they matter to you. Today, housing data showed a mixed picture of the future for new homes and we will hear from Federal Reserve speakers in the aftermath of yesterday's inflation report. ## **Average Mortgage Rate Moderates This Week** May 16, 2024 12:45 PM EDT Mortgage rates fell slightly this week, according to data released by Freddie Mac Thursday. The average 30-year, fixed-rate mortgage fell to 7.02%, down from 7.09% last week. This is the second week in a row that mortgage rates have fallen. Mortgage rates began climbing in March as it became more apparent that the Federal Reserve would likely not be able to cut its influential fed funds rate imminently. The fed funds rate impacts all types of credit, including mortgages. Mortgages are also susceptible to movement in the bond market. Fading hope that rate cuts are on their way has pushed Treasury yields up, and in turn mortgage rates. ## **Barkin Sees More Price Pressure in Services Sector** May 16, 2024 12:31 PM EDT Service providers are still raising their prices as they continue to work with increasing labor costs, said Richmond Federal Reserve Bank President Thomas Barkin today. “There’s just a lot of movement on the services side and it’s just going to take a little bit of time,” Barkin told *CNBC.* *S*ectors like auto and health insurance are helping to push up the rise in services costs, he said.  His remarks come after the Consumer Price Index (CPI) [showed inflation cooled slightly](https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737) in April.  Barkin said the [April retail sales numbers released yesterday](https://www.investopedia.com/april-2024-retail-sales-soft-consumers-reaching-limit-8648861) were “interesting” because the slowdown was more in line with what he was hearing from businesses in his district, which covers Maryland, Virginia, Washington, D.C., the Carolinas, and most of West Virginia.  “That’s what I’m hearing in the marketplace, which is, good but not great consumer spending,” Barkin said. “I do think the edge will have to come off of demand a little bit more to get inflation back to target.”  As other [Federal Reserve officials have said recently](https://www.investopedia.com/fed-officials-in-wait-and-see-mode-on-rate-cuts-ahead-of-next-weeks-inflation-data-8646908), Barkin did not commit to the timing of interest rate changes, saying inflation appeared to be on a path back toward the 2% target. He said more time at current rate levels was needed before the Fed could move to cut. *-Terry Lane* ## **Home Starts and Permits Miss Expectations in April** May 16, 2024 09:07 AM EDT Homebuilding activity missed expectations as high mortgage rates continued to drag down the market.  Builders started building houses in April at a rate that would see 1.36 million units constructed if that pace continued all year, the Census Bureau said Thursday. That is a 5.7% increase from March but below expectations for an annual rate of 1.40 million according to a survey of forecasters by Dow Jones Newswires and *The Wall Street Journal.* Building permits, a signal of future activity, fell 3% from March to an annual rate of 1.44 million, short of the consensus forecast for 1.48 million. Housing starts are usually taken with a grain of salt by economists because they’re prone to large up-and-down swings from month to month. However, they’re the latest of several indicators that high mortgage rates are stifling the housing market. The average rate offered for a 30-year mortgage has hovered over the 7% mark in recent weeks, according to Freddie Mac, close to a two-decade high. The Federal Reserve has held its benchmark fed funds [rate high to combat inflation](https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952), which influences all kinds of credit including mortgages. High mortgage rates have helped raise required monthly payments to the point of unaffordability for many prospective buyers.  The Fed’s monetary policy intentionally raises borrowing costs on mortgages and other loans in an attempt to discourage borrowing and spending, cool the economy, and push inflation down to a 2% annual rate from its [current level of 3.4%](https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737). “Restrictive monetary policy clearly continues to weigh on housing activity as housing starts have essentially been stuck in a sideways pattern around 1.4 million since the summer of 2022,” Ali Jaffery, an economist at CIBC, wrote in a commentary. “That trend is likely to continue until the Fed is confident inflation is headed for 2%." ## **Initial Claims For Unemployment Insurance Fell Last Week** May 16, 2024 08:48 AM EDT The number of people filing for unemployment insurance for the first time fell by 10,000 last week, according to data released by the Department of Labor Thursday. Initial claims fell to 222,000, down from the prior week's revised level of 232,000. The volatile weekly measure often used as a proxy for layoffs has fluctuated around the 200,000 mark so far this year. The four-week moving average, which some economists site as a more stable figure, rose to 217,750, some 2,500 more than in the previous week. Some economists said last week's jump was caused mainly by an anomaly in New York schools.

Welcome to Investopedia's economics live blog, where we explain what the day's news says about the state of the U.S. economy and how that's likely to affect your finances. Here we compile data releases, economic reports, quotes from expert sources and anything else that helps explain economic issues and why they matter to you. Today, housing data showed a mixed picture of the future for new homes and we will hear from Federal Reserve speakers in the aftermath of yesterday's inflation report. Average Mortgage Rate Moderates This Week May 16, 2024 12:45 PM EDT Mortgage rates fell slightly this week, according to data released by Freddie Mac Thursday. The average 30-year, fixed-rate mortgage fell to 7.02%, down from 7.09% last week. This is the second week in a row that mortgage rates have fallen. Mortgage rates began climbing in March as it became more apparent that the Federal Reserve would likely not be able to cut its influential fed funds rate imminently. The fed funds rate impacts all types of credit, including mortgages. Mortgages are also susceptible to movement in the bond market. Fading hope that rate cuts are on their way has pushed Treasury yields up, and in turn mortgage rates. Barkin Sees More Price Pressure in Services Sector May 16, 2024 12:31 PM EDT Service providers are still raising their prices as they continue to work with increasing labor costs, said Richmond Federal Reserve Bank President Thomas Barkin today. “There’s just a lot of movement on the services side and it’s just going to take a little bit of time,” Barkin told CNBC. Sectors like auto and health insurance are helping to push up the rise in services costs, he said.  His remarks come after the Consumer Price Index (CPI) showed inflation cooled slightly in April.  Barkin said the April retail sales numbers released yesterday were “interesting” because the slowdown was more in line with what he was hearing from businesses in his district, which covers Maryland, Virginia, Washington, D.C., the Carolinas, and most of West Virginia.  “That’s what I’m hearing in the marketplace, which is, good but not great consumer spending,” Barkin said. “I do think the edge will have to come off of demand a little bit more to get inflation back to target.”  As other Federal Reserve officials have said recently, Barkin did not commit to the timing of interest rate changes, saying inflation appeared to be on a path back toward the 2% target. He said more time at current rate levels was needed before the Fed could move to cut. -Terry Lane Home Starts and Permits Miss Expectations in April May 16, 2024 09:07 AM EDT Homebuilding activity missed expectations as high mortgage rates continued to drag down the market.  Builders started building houses in April at a rate that would see 1.36 million units constructed if that pace continued all year, the Census Bureau said Thursday. That is a 5.7% increase from March but below expectations for an annual rate of 1.40 million according to a survey of forecasters by Dow Jones Newswires and The Wall Street Journal. Building permits, a signal of future activity, fell 3% from March to an annual rate of 1.44 million, short of the consensus forecast for 1.48 million. Housing starts are usually taken with a grain of salt by economists because they’re prone to large up-and-down swings from month to month. However, they’re the latest of several indicators that high mortgage rates are stifling the housing market.The average rate offered for a 30-year mortgage has hovered over the 7% mark in recent weeks, according to Freddie Mac, close to a two-decade high. The Federal Reserve has held its benchmark fed funds rate high to combat inflation, which influences all kinds of credit including mortgages. High mortgage rates have helped raise required monthly payments to the point of unaffordability for many prospective buyers.  The Fed’s monetary policy intentionally raises borrowing costs on mortgages and other loans in an attempt to discourage borrowing and spending, cool the economy, and push inflation down to a 2% annual rate from its current level of 3.4%. “Restrictive monetary policy clearly continues to weigh on housing activity as housing starts have essentially been stuck in a sideways pattern around 1.4 million since the summer of 2022,” Ali Jaffery, an economist at CIBC, wrote in a commentary. “That trend is likely to continue until the Fed is confident inflation is headed for 2%." Initial Claims For Unemployment Insurance Fell Last Week May 16, 2024 08:48 AM EDT The number of people filing for unemployment insurance for the first time fell by 10,000 last week, according to data released by the Department of Labor Thursday. Initial claims fell to 222,000, down from the prior week's revised level of 232,000. The volatile weekly measure often used as a proxy for layoffs has fluctuated around the 200,000 mark so far this year. The four-week moving average, which some economists site as a more stable figure, rose to 217,750, some 2,500 more than in the previous week. Some economists said last week's jump was caused mainly by an anomaly in New York schools.

https://www.investopedia.com/terms/s/smalltrader.asp

Small Trader

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-small-trader"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Small Trader? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A small trader refers to a market participant whose buying and selling activity is small enough for them to be exempt from certain <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/09/financial-regulatory-body.asp" rel="noopener noreferrer">regulatory requirements</a>. It is often used to refer to retail traders or small financial firms, whose trading volumes are relatively low. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Large traders, by contrast, are required to register with regulators and regularly file reports disclosing their activities. For example, large traders must register with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp" rel="noopener noreferrer">Securities and Exchange Commission</a> (SEC) by filing Form 13H.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A small trader is a buyer or seller of securities whose transaction sizes are relatively small.</li><li>Virtually all retail traders would fall under this category.</li><li>Small traders are exempt from certain registration and reporting requirements.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-small-traders"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Small Traders </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Different exchanges will have separate standards relating to how large a particular market participant can be before they are required to make special disclosures about their trades. In the case of the SEC, a trader is small if their daily <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volume.asp" rel="noopener noreferrer">trading volume</a> is less than either two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month.<span class="ql-inline-citation" data-cite="2"></span> In practice, therefore, practically all market participants are small traders, aside from <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/ultra-high-net-worth-individuals-uhnwi.asp" rel="noopener noreferrer">ultra high net-worth individuals</a> and very large firms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Generally speaking, regulators determine the amount of small traders active in the market by taking the total volume for the entire marketplace and subtracting the volume reported by large traders. The remainder is of course attributable to small traders, though this methodology does not require the individual small traders to be identified. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The reason that small traders do not face the level of regulatory scrutiny required of large traders is that they are presumed to have a lesser ability to influence or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/manipulation.asp" rel="noopener noreferrer">manipulate the market</a>. For instance, small traders’ trading decisions are unlikely to have a significant influence on the overall price of a given security, and small traders are very unlikely to succeed in deliberately cornering a market. At a practical level, regulators would also struggle to scrutinize small traders' activities because the administrative burden of doing so would be prohibitively expensive. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-real-world-example-of-a-small-trader"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Real-World Example of a Small Trader </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> One example of where small traders are identified by regulators can be found in the Commitments of Traders (COT) report issued by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cftc.asp" rel="noopener noreferrer">Commodity Futures Trading Commission</a> (CFTC). The COT report is published every Friday, and it outlines the size and direction of all positions taken in a particular commodity, dividing this data into trades made by <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commercialtraders.asp" rel="noopener noreferrer">commercial traders</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/noncommercialtrader.asp" rel="noopener noreferrer">non-commercial traders</a>, and non-reportable traders.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> This last category, non-reportable traders, includes small traders whose position sizes are too low to require active reporting or monitoring under the CFTC's guidelines. Other regulators and financial intermediaries, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/clearinghouse.asp" rel="noopener noreferrer">clearinghouses</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-company.asp" rel="noopener noreferrer">brokerage firms</a>, typically follow similar procedures when monitoring and disclosing their clients’ trades.<span class="ql-inline-citation" data-cite="3"></span> </p></div>

## What Is a Small Trader? A small trader refers to a market participant whose buying and selling activity is small enough for them to be exempt from certain [regulatory requirements](https://www.investopedia.com/articles/economics/09/financial-regulatory-body.asp). It is often used to refer to retail traders or small financial firms, whose trading volumes are relatively low. Large traders, by contrast, are required to register with regulators and regularly file reports disclosing their activities. For example, large traders must register with the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) by filing Form 13H. ### Key Takeaways * A small trader is a buyer or seller of securities whose transaction sizes are relatively small. * Virtually all retail traders would fall under this category. * Small traders are exempt from certain registration and reporting requirements. ## Understanding Small Traders Different exchanges will have separate standards relating to how large a particular market participant can be before they are required to make special disclosures about their trades. In the case of the SEC, a trader is small if their daily [trading volume](https://www.investopedia.com/terms/v/volume.asp) is less than either two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month. In practice, therefore, practically all market participants are small traders, aside from [ultra high net-worth individuals](https://www.investopedia.com/terms/u/ultra-high-net-worth-individuals-uhnwi.asp) and very large firms. Generally speaking, regulators determine the amount of small traders active in the market by taking the total volume for the entire marketplace and subtracting the volume reported by large traders. The remainder is of course attributable to small traders, though this methodology does not require the individual small traders to be identified. The reason that small traders do not face the level of regulatory scrutiny required of large traders is that they are presumed to have a lesser ability to influence or [manipulate the market](https://www.investopedia.com/terms/m/manipulation.asp). For instance, small traders’ trading decisions are unlikely to have a significant influence on the overall price of a given security, and small traders are very unlikely to succeed in deliberately cornering a market. At a practical level, regulators would also struggle to scrutinize small traders' activities because the administrative burden of doing so would be prohibitively expensive. ## Real-World Example of a Small Trader One example of where small traders are identified by regulators can be found in the Commitments of Traders (COT) report issued by the [Commodity Futures Trading Commission](https://www.investopedia.com/terms/c/cftc.asp) (CFTC). The COT report is published every Friday, and it outlines the size and direction of all positions taken in a particular commodity, dividing this data into trades made by [commercial traders](https://www.investopedia.com/terms/c/commercialtraders.asp), [non-commercial traders](https://www.investopedia.com/terms/n/noncommercialtrader.asp), and non-reportable traders. This last category, non-reportable traders, includes small traders whose position sizes are too low to require active reporting or monitoring under the CFTC's guidelines. Other regulators and financial intermediaries, such as [clearinghouses](https://www.investopedia.com/terms/c/clearinghouse.asp) and [brokerage firms](https://www.investopedia.com/terms/b/brokerage-company.asp), typically follow similar procedures when monitoring and disclosing their clients’ trades.

What Is a Small Trader? A small trader refers to a market participant whose buying and selling activity is small enough for them to be exempt from certain regulatory requirements. It is often used to refer to retail traders or small financial firms, whose trading volumes are relatively low. Large traders, by contrast, are required to register with regulators and regularly file reports disclosing their activities. For example, large traders must register with the Securities and Exchange Commission (SEC) by filing Form 13H. Key Takeaways A small trader is a buyer or seller of securities whose transaction sizes are relatively small.Virtually all retail traders would fall under this category.Small traders are exempt from certain registration and reporting requirements. Understanding Small Traders Different exchanges will have separate standards relating to how large a particular market participant can be before they are required to make special disclosures about their trades. In the case of the SEC, a trader is small if their daily trading volume is less than either two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month. In practice, therefore, practically all market participants are small traders, aside from ultra high net-worth individuals and very large firms. Generally speaking, regulators determine the amount of small traders active in the market by taking the total volume for the entire marketplace and subtracting the volume reported by large traders. The remainder is of course attributable to small traders, though this methodology does not require the individual small traders to be identified. The reason that small traders do not face the level of regulatory scrutiny required of large traders is that they are presumed to have a lesser ability to influence or manipulate the market. For instance, small traders’ trading decisions are unlikely to have a significant influence on the overall price of a given security, and small traders are very unlikely to succeed in deliberately cornering a market. At a practical level, regulators would also struggle to scrutinize small traders' activities because the administrative burden of doing so would be prohibitively expensive. Real-World Example of a Small Trader One example of where small traders are identified by regulators can be found in the Commitments of Traders (COT) report issued by the Commodity Futures Trading Commission (CFTC). The COT report is published every Friday, and it outlines the size and direction of all positions taken in a particular commodity, dividing this data into trades made by commercial traders, non-commercial traders, and non-reportable traders. This last category, non-reportable traders, includes small traders whose position sizes are too low to require active reporting or monitoring under the CFTC's guidelines. Other regulators and financial intermediaries, such as clearinghouses and brokerage firms, typically follow similar procedures when monitoring and disclosing their clients’ trades.

https://www.investopedia.com/terms/f/ftse.asp

Financial Times Stock Exchange Group (FTSE): Definition

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-financial-times-stock-exchange-group-ftse"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is the Financial Times Stock Exchange Group (FTSE)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Financial Times Stock Exchange (FTSE), now known as FTSE Russell Group, is a British financial organization that specializes in providing index offerings for the global financial markets. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lse.asp">London Stock Exchange Group</a> (LSEG) owns the FTSE Russell Group. In addition to the FTSE Russell Group, the LSEG also owns Borsa Italiana, Millennium IT, and other financial brands.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The indexing division of the FTSE is similar to that of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp.asp">Standard &amp; Poor’s</a>; it specializes in creating index offerings that the global financial markets can use as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmarks</a>. An index is comprised of a hypothetical portfolio of stock holdings, so it can act as a representation of the performance of a particular market segment—also called a benchmark. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Although the FTSE offers many indexes, its two most well-known indexes are the FTSE 100, which is comprised of the most highly capitalized <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bluechipstock.asp">blue-chip stocks</a> listed on the London Stock Exchange, and the Russell 2000 Index, a small-cap stock market index of the smallest 2,000 stocks in the Russell 3000 Index. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_9-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Financial Times Stock Exchange (FTSE) Group is a financial organization that specializes in the management of asset exchanges and creating index offerings for the global financial markets.</li><li>The London Stock Exchange (LSE) Group currently owns FTSE.</li><li>In May 2015, FTSE Group combined with Russell to form the brand name, FTSE Russell.</li><li>The FTSE 100 is generally the most well-known FTSE index, but the FTSE Group manages many indexes.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-financial-times-stock-exchange-group-ftse"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Understanding the Financial Times Stock Exchange Group (FTSE) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The FTSE Russell Group, established in 2015 after the merger of FTSE and Russell Investments, is a U.K.-based global provider of benchmark financial indexes, market data, and analytics. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The FTSE's indexes are available across asset classes, styles, and strategies and are designed to meet the needs of a wide variety of clients, including buy-side, sell-side, custodians, asset owners, exchanges, investment consultants, and exchange-traded fund (ETF) providers.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-the-ftse-100-index"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> The FTSE 100 Index </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The FTSE 100 is very widely used in Europe. At its creation, in Jan. 1984, the index had a base level of 1,000. It has since reached highs of over 7,000. Many market analysts, traders, and investors look to the FTSE 100 as a proxy for the performance of the wider U.K. stock market, similar to the way that many U.S. investors look to the Dow Jones or the S&amp;P 500 indexes.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The level of the FTSE 100 is calculated using the total market capitalization of the constituent companies and the index value. Total market capitalization changes alongside individual share prices of the indexed companies throughout the trading day, so the index value also changes. When the FTSE 100 is quoted up or down, it is measured against the previous day’s market close. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> It is calculated continuously on every trading day—from 8:00 a.m. at the market opening until the 4:30 p.m. LSE close. A FTSE 100 decline means the value of the largest U.K.-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/listed.asp">listed</a> companies has decreased. When the FTSE hits a new high, it means the total worth of all the indexed companies has increased. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Readjustment of the index <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/constituent.asp">constituents</a> (the companies that make up the FTSE 100) happens every quarter, usually, the Wednesday following the first Friday in March, June, September, and December. Any changes to the underlying index constituents and their weighting come from the values of the companies taken at the close of business the night before the review.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> As of June 26, 2023, the top five FTSE 100 holdings by market cap were:<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <li>AstraZeneca         </li><li>Shell   </li><li>HSBC</li><li>Unilever       </li><li>BP  </li> </ol> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The FTSE 100 is often considered a leading indicator of prosperity for companies in the U.K. and the U.K. economy in general. As such, it typically draws investors looking for exposure to big U.K. companies. While several of its listings do include companies with homes outside of the U.K., it is most significantly made up of U.K. companies and impacted by U.K. daily developments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-other-ftse-group-indices"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> Other FTSE Group Indices </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> As mentioned, there are a prolific number of indexes attached to the FTSE Group and the FTSE Russell brand. The FTSE Group's most popular indexes—in addition to the FTSE 100—are the FTSE 250, the FTSE 350, and the FTSE All-Share. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Some of the other popular FTSE Russell indices include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <li>FTSE Nasdaq 500</li> <li>FTSE AIM 100</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ftse-rafi-us-1000-index.asp">FTSE RAFI US 1000</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ftse4good-index.asp">FTSE4Good Indices</a></li> <li>FTSE Dividend Growth</li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell-top200-index.asp">Russell Top 200</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell_3000.asp">Russell 3000</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell2000.asp">Russell 2000</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/russell_1000index.asp">Russell 1000</a></li> <li>Russell Equal Weight Indices</li> <li>Russell Geographic Exposure Indices</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-investing-in-the-ftse"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> Investing in the FTSE </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Though you cannot directly invest in an index, you can invest in funds that replicate, track, or even <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/etfs-mutual-funds/072816/top-3-etfs-short-ftse-100-xuks-suk2.asp">short the FTSE index</a>. Many of these are exchange-traded funds (ETFs) that allow for easy access to the indices. Examples of funds that track these indices that you can invest in are the Vanguard FTSE 100, the Vanguard FTSE 250, the iShares 350 U.K. Equity Index Fund, the iShares Core FTSE 100, and the Vanguard FTSE U.K. All Share Index Unit Trust. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_40-0"><span class="heading-toc" id="toc-what-is-the-us-version-of-the-ftse"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the U.S. Version of the FTSE?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The "FTSE" is the Financial Times Stock Exchange in the U.K. that is a provider of different indices, its most popular being the FTSE 100, which tracks the top 100 companies by market cap in the U.K. The U.S. version of this would be the S&amp;P 500, which tracks the top 500 U.S. companies by market cap, or the Dow Jones Industrial Average (DJIA), which tracks 30 prominent U.S. companies.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_42-0"><span class="heading-toc" id="toc-can-americans-invest-in-the-ftse"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Americans Invest in the FTSE?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, Americans can invest in the FTSE. The easiest way to do this is by investing in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/uk-etfs-how-they-work-8549739">exchange-traded funds that track these indices</a>, such as the Vanguard FTSE 100, the Vanguard FTSE 250, the iShares 350 U.K. Equity Index Fund, and the iShares Core FTSE 100.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_44-0"><span class="heading-toc" id="toc-what-is-the-difference-between-a-stock-market-and-a-stock-exchange"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a Stock Market and a Stock Exchange?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A stock exchange is a specific organization/marketplace that facilitates equity trading. For example, the New York Stock Exchange and Nasdaq. A stock market is used as an umbrella term to refer to all of the stocks that trade in a particular country or region. Such as all of the companies that trade on both the New York Stock Exchange and the Nasdaq.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_46-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> The Financial Times Stock Exchange, now known as the FTSE Russell Group, provides a variety of indices that track different segments of the U.K. financial markets. Its most popular index, the FTSE 100, tracks the top 100 companies by market cap in the United Kingdom, similarly to how the S&amp;P 500 works in the U.S. Investors looking to gain exposure to these indices can invest in funds that track the indices, such as the iShares Core FTSE 100. </p></div>

## What Is the Financial Times Stock Exchange Group (FTSE)? The Financial Times Stock Exchange (FTSE), now known as FTSE Russell Group, is a British financial organization that specializes in providing index offerings for the global financial markets. The [London Stock Exchange Group](https://www.investopedia.com/terms/l/lse.asp) (LSEG) owns the FTSE Russell Group. In addition to the FTSE Russell Group, the LSEG also owns Borsa Italiana, Millennium IT, and other financial brands. The indexing division of the FTSE is similar to that of [Standard & Poor’s](https://www.investopedia.com/terms/s/sp.asp); it specializes in creating index offerings that the global financial markets can use as [benchmarks](https://www.investopedia.com/terms/b/benchmark.asp). An index is comprised of a hypothetical portfolio of stock holdings, so it can act as a representation of the performance of a particular market segment—also called a benchmark. Although the FTSE offers many indexes, its two most well-known indexes are the FTSE 100, which is comprised of the most highly capitalized [blue-chip stocks](https://www.investopedia.com/terms/b/bluechipstock.asp) listed on the London Stock Exchange, and the Russell 2000 Index, a small-cap stock market index of the smallest 2,000 stocks in the Russell 3000 Index. ### Key Takeaways * The Financial Times Stock Exchange (FTSE) Group is a financial organization that specializes in the management of asset exchanges and creating index offerings for the global financial markets. * The London Stock Exchange (LSE) Group currently owns FTSE. * In May 2015, FTSE Group combined with Russell to form the brand name, FTSE Russell. * The FTSE 100 is generally the most well-known FTSE index, but the FTSE Group manages many indexes. ## Understanding the Financial Times Stock Exchange Group (FTSE) The FTSE Russell Group, established in 2015 after the merger of FTSE and Russell Investments, is a U.K.-based global provider of benchmark financial indexes, market data, and analytics. The FTSE's indexes are available across asset classes, styles, and strategies and are designed to meet the needs of a wide variety of clients, including buy-side, sell-side, custodians, asset owners, exchanges, investment consultants, and exchange-traded fund (ETF) providers. ## The FTSE 100 Index The FTSE 100 is very widely used in Europe. At its creation, in Jan. 1984, the index had a base level of 1,000. It has since reached highs of over 7,000. Many market analysts, traders, and investors look to the FTSE 100 as a proxy for the performance of the wider U.K. stock market, similar to the way that many U.S. investors look to the Dow Jones or the S&P 500 indexes. The level of the FTSE 100 is calculated using the total market capitalization of the constituent companies and the index value. Total market capitalization changes alongside individual share prices of the indexed companies throughout the trading day, so the index value also changes. When the FTSE 100 is quoted up or down, it is measured against the previous day’s market close. It is calculated continuously on every trading day—from 8:00 a.m. at the market opening until the 4:30 p.m. LSE close. A FTSE 100 decline means the value of the largest U.K.-[listed](https://www.investopedia.com/terms/l/listed.asp) companies has decreased. When the FTSE hits a new high, it means the total worth of all the indexed companies has increased. Readjustment of the index [constituents](https://www.investopedia.com/terms/c/constituent.asp) (the companies that make up the FTSE 100) happens every quarter, usually, the Wednesday following the first Friday in March, June, September, and December. Any changes to the underlying index constituents and their weighting come from the values of the companies taken at the close of business the night before the review. As of June 26, 2023, the top five FTSE 100 holdings by market cap were: 1. AstraZeneca 2. Shell 3. HSBC 4. Unilever 5. BP The FTSE 100 is often considered a leading indicator of prosperity for companies in the U.K. and the U.K. economy in general. As such, it typically draws investors looking for exposure to big U.K. companies. While several of its listings do include companies with homes outside of the U.K., it is most significantly made up of U.K. companies and impacted by U.K. daily developments. ## Other FTSE Group Indices As mentioned, there are a prolific number of indexes attached to the FTSE Group and the FTSE Russell brand. The FTSE Group's most popular indexes—in addition to the FTSE 100—are the FTSE 250, the FTSE 350, and the FTSE All-Share. Some of the other popular FTSE Russell indices include: * FTSE Nasdaq 500 * FTSE AIM 100 * [FTSE RAFI US 1000](https://www.investopedia.com/terms/f/ftse-rafi-us-1000-index.asp) * [FTSE4Good Indices](https://www.investopedia.com/terms/f/ftse4good-index.asp) * FTSE Dividend Growth * [Russell Top 200](https://www.investopedia.com/terms/r/russell-top200-index.asp) * [Russell 3000](https://www.investopedia.com/terms/r/russell_3000.asp) * [Russell 2000](https://www.investopedia.com/terms/r/russell2000.asp) * [Russell 1000](https://www.investopedia.com/terms/r/russell_1000index.asp) * Russell Equal Weight Indices * Russell Geographic Exposure Indices ## Investing in the FTSE Though you cannot directly invest in an index, you can invest in funds that replicate, track, or even [short the FTSE index](https://www.investopedia.com/articles/etfs-mutual-funds/072816/top-3-etfs-short-ftse-100-xuks-suk2.asp). Many of these are exchange-traded funds (ETFs) that allow for easy access to the indices. Examples of funds that track these indices that you can invest in are the Vanguard FTSE 100, the Vanguard FTSE 250, the iShares 350 U.K. Equity Index Fund, the iShares Core FTSE 100, and the Vanguard FTSE U.K. All Share Index Unit Trust. ## What Is the U.S. Version of the FTSE? The "FTSE" is the Financial Times Stock Exchange in the U.K. that is a provider of different indices, its most popular being the FTSE 100, which tracks the top 100 companies by market cap in the U.K. The U.S. version of this would be the S&P 500, which tracks the top 500 U.S. companies by market cap, or the Dow Jones Industrial Average (DJIA), which tracks 30 prominent U.S. companies. ## Can Americans Invest in the FTSE? Yes, Americans can invest in the FTSE. The easiest way to do this is by investing in [exchange-traded funds that track these indices](https://www.investopedia.com/uk-etfs-how-they-work-8549739), such as the Vanguard FTSE 100, the Vanguard FTSE 250, the iShares 350 U.K. Equity Index Fund, and the iShares Core FTSE 100. ## What Is the Difference Between a Stock Market and a Stock Exchange? A stock exchange is a specific organization/marketplace that facilitates equity trading. For example, the New York Stock Exchange and Nasdaq. A stock market is used as an umbrella term to refer to all of the stocks that trade in a particular country or region. Such as all of the companies that trade on both the New York Stock Exchange and the Nasdaq. ## The Bottom Line The Financial Times Stock Exchange, now known as the FTSE Russell Group, provides a variety of indices that track different segments of the U.K. financial markets. Its most popular index, the FTSE 100, tracks the top 100 companies by market cap in the United Kingdom, similarly to how the S&P 500 works in the U.S. Investors looking to gain exposure to these indices can invest in funds that track the indices, such as the iShares Core FTSE 100.

What Is the Financial Times Stock Exchange Group (FTSE)? The Financial Times Stock Exchange (FTSE), now known as FTSE Russell Group, is a British financial organization that specializes in providing index offerings for the global financial markets. The London Stock Exchange Group (LSEG) owns the FTSE Russell Group. In addition to the FTSE Russell Group, the LSEG also owns Borsa Italiana, Millennium IT, and other financial brands. The indexing division of the FTSE is similar to that of Standard & Poor’s; it specializes in creating index offerings that the global financial markets can use as benchmarks. An index is comprised of a hypothetical portfolio of stock holdings, so it can act as a representation of the performance of a particular market segment—also called a benchmark. Although the FTSE offers many indexes, its two most well-known indexes are the FTSE 100, which is comprised of the most highly capitalized blue-chip stocks listed on the London Stock Exchange, and the Russell 2000 Index, a small-cap stock market index of the smallest 2,000 stocks in the Russell 3000 Index. Key Takeaways The Financial Times Stock Exchange (FTSE) Group is a financial organization that specializes in the management of asset exchanges and creating index offerings for the global financial markets.The London Stock Exchange (LSE) Group currently owns FTSE.In May 2015, FTSE Group combined with Russell to form the brand name, FTSE Russell.The FTSE 100 is generally the most well-known FTSE index, but the FTSE Group manages many indexes. Understanding the Financial Times Stock Exchange Group (FTSE) The FTSE Russell Group, established in 2015 after the merger of FTSE and Russell Investments, is a U.K.-based global provider of benchmark financial indexes, market data, and analytics. The FTSE's indexes are available across asset classes, styles, and strategies and are designed to meet the needs of a wide variety of clients, including buy-side, sell-side, custodians, asset owners, exchanges, investment consultants, and exchange-traded fund (ETF) providers. The FTSE 100 Index The FTSE 100 is very widely used in Europe. At its creation, in Jan. 1984, the index had a base level of 1,000. It has since reached highs of over 7,000. Many market analysts, traders, and investors look to the FTSE 100 as a proxy for the performance of the wider U.K. stock market, similar to the way that many U.S. investors look to the Dow Jones or the S&P 500 indexes. The level of the FTSE 100 is calculated using the total market capitalization of the constituent companies and the index value. Total market capitalization changes alongside individual share prices of the indexed companies throughout the trading day, so the index value also changes. When the FTSE 100 is quoted up or down, it is measured against the previous day’s market close. It is calculated continuously on every trading day—from 8:00 a.m. at the market opening until the 4:30 p.m. LSE close. A FTSE 100 decline means the value of the largest U.K.-listed companies has decreased. When the FTSE hits a new high, it means the total worth of all the indexed companies has increased. Readjustment of the index constituents (the companies that make up the FTSE 100) happens every quarter, usually, the Wednesday following the first Friday in March, June, September, and December. Any changes to the underlying index constituents and their weighting come from the values of the companies taken at the close of business the night before the review. As of June 26, 2023, the top five FTSE 100 holdings by market cap were: AstraZeneca         Shell   HSBCUnilever       BP   The FTSE 100 is often considered a leading indicator of prosperity for companies in the U.K. and the U.K. economy in general. As such, it typically draws investors looking for exposure to big U.K. companies. While several of its listings do include companies with homes outside of the U.K., it is most significantly made up of U.K. companies and impacted by U.K. daily developments. Other FTSE Group Indices As mentioned, there are a prolific number of indexes attached to the FTSE Group and the FTSE Russell brand. The FTSE Group's most popular indexes—in addition to the FTSE 100—are the FTSE 250, the FTSE 350, and the FTSE All-Share. Some of the other popular FTSE Russell indices include: FTSE Nasdaq 500 FTSE AIM 100 FTSE RAFI US 1000 FTSE4Good Indices FTSE Dividend Growth Russell Top 200 Russell 3000 Russell 2000 Russell 1000 Russell Equal Weight Indices Russell Geographic Exposure Indices Investing in the FTSE Though you cannot directly invest in an index, you can invest in funds that replicate, track, or even short the FTSE index. Many of these are exchange-traded funds (ETFs) that allow for easy access to the indices. Examples of funds that track these indices that you can invest in are the Vanguard FTSE 100, the Vanguard FTSE 250, the iShares 350 U.K. Equity Index Fund, the iShares Core FTSE 100, and the Vanguard FTSE U.K. All Share Index Unit Trust. What Is the U.S. Version of the FTSE? The "FTSE" is the Financial Times Stock Exchange in the U.K. that is a provider of different indices, its most popular being the FTSE 100, which tracks the top 100 companies by market cap in the U.K. The U.S. version of this would be the S&P 500, which tracks the top 500 U.S. companies by market cap, or the Dow Jones Industrial Average (DJIA), which tracks 30 prominent U.S. companies. Can Americans Invest in the FTSE? Yes, Americans can invest in the FTSE. The easiest way to do this is by investing in exchange-traded funds that track these indices, such as the Vanguard FTSE 100, the Vanguard FTSE 250, the iShares 350 U.K. Equity Index Fund, and the iShares Core FTSE 100. What Is the Difference Between a Stock Market and a Stock Exchange? A stock exchange is a specific organization/marketplace that facilitates equity trading. For example, the New York Stock Exchange and Nasdaq. A stock market is used as an umbrella term to refer to all of the stocks that trade in a particular country or region. Such as all of the companies that trade on both the New York Stock Exchange and the Nasdaq. The Bottom Line The Financial Times Stock Exchange, now known as the FTSE Russell Group, provides a variety of indices that track different segments of the U.K. financial markets. Its most popular index, the FTSE 100, tracks the top 100 companies by market cap in the United Kingdom, similarly to how the S&P 500 works in the U.S. Investors looking to gain exposure to these indices can invest in funds that track the indices, such as the iShares Core FTSE 100.

https://www.investopedia.com/terms/c/capitalgainsdistribution.asp

Capital Gains Distribution: What It Is and How It's Taxed

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-capital-gains-distribution"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Capital Gains Distribution? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A capital gains distribution is a payment by a mutual fund or an exchange-traded fund (ETF) of a portion of the proceeds from the fund's sales of stocks and other assets from within its portfolio. It is the investor's pro-rata share of the proceeds from the fund's transactions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> It is <em>not, </em>however, a share of the fund's overall profit. The fund may gain or lose money over the course of a year, and your balance will rise or fall accordingly. But if the fund gained from the sale of any of its stocks during that year, it will make capital gains distributions to its shareholders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Mutual funds are required by law to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/07/mfdistribution.asp">make regular capital gains distributions to their shareholders</a>. The owners of mutual fund shares have the option to take the capital gains distribution in the form of immediate payments or to reinvest it in additional fund shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_9-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A capital gains distribution is the investor's share of the proceeds of a fund's sale of stocks and other assets.</li><li>The investor must pay capital gains taxes on distributions, whether they are taken as cash or reinvested in the fund.</li><li>The taxes on distributions are due in that tax year unless the fund is part of a tax-deferred retirement account.</li><li>Under current IRS regulations, capital gains distributions from mutual fund or ETF holdings are taxed as long-term capital gains, no matter how long the individual has owned shares of the fund.</li><li>Capital gains distributions from pooled investments are treated as long-term capital gains, but buying and selling fund or ETF shares with a holding period of less than one year results in short-term capital gains or losses.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-capital-gains-distributions"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Understanding Capital Gains Distributions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Generally, a mutual fund or ETF makes a capital gains distribution at the end of each year. The distribution represents the proceeds of the sales of stock or other assets by the fund's managers throughout the course of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiscalyear.asp">tax year</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The investor should keep in mind that cashing in on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/taxes/capital-gains-tax-101/">capital gains</a> distribution rather than reinvesting it in the fund is effectively a withdrawal. It reduces the net amount you have invested in the fund by the amount of the distribution. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-subheading__text"> Tax Considerations of Capital Gains Distributions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Holders of mutual fund shares are required to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/071316/how-are-you-taxed-after-selling-mutual-fund-ira.asp">pay taxes on capital gains distributions</a> made by the funds they own, whether or not the money is reinvested in additional shares. There is an exception for municipal bond funds, which are tax-exempt at the federal level and usually at the state level. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The taxes are not due for that tax year if the investor owns the fund as part of an IRA, 401(k), or another tax-deferred retirement plan. The taxes will be due when the funds are withdrawn after retirement. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> If the fund is not in a retirement plan, the taxes are due for that tax reporting period. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>While capital gains distributions from pooled investments are treated as long-term capital gains, an individual may buy and sell fund or ETF shares with a holding period of less than one year, which would result in short-term capital gains or losses for those shares. Note that capital gains distributions are therefore different than the actual holding period of the fund shares.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-subheading__text"> Current IRS Regulations </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Under current IRS regulations, capital gains distributions from mutual fund or ETF holdings are taxed as long-term capital gains, no matter how long the individual has owned shares of the fund.<span class="ql-inline-citation" data-cite="1"></span> That means a tax rate of 0%, 15%, or 20%, depending on the individual's ordinary income tax rate.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> People who really hate paying taxes might consider looking at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/11/intro-tax-efficient-investing.asp">tax-efficient investments</a>, including tax-efficient funds. Tax-efficient funds identify themselves as such in their descriptions. They tend to buy and sell stocks less frequently than aggressive growth funds and may hold some municipal bond funds for tax-free income. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Capital gains distributions may be made even when a fund's overall value has dropped during the year. That is, a fund may have sold some stocks that had appreciated in price, but these gains might be offset or even erased by other investments that lost money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-capital-gains-distributions-and-net-asset-value"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Capital Gains Distributions and Net Asset Value </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> As is the case with common stocks, the distribution of capital gains and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a> decreases the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nav.asp">net asset value</a> (NAV) of the fund by the amount distributed. For instance, the fund manager of a fund with a net asset value of $20 per share may pay a $5 distribution to shareholders. This would result in the fund's net asset value declining by $5 to $15. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Although this appears on a mutual fund's price chart as a decline in price on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ex-dividend.asp">ex-dividend</a> date, the total return of the fund has not changed. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unrealizedgain.asp">Unrealized gains</a> on securities determine the mutual fund's net asset value until they are sold. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_36-0"><span class="heading-toc" id="toc-how-are-capital-gains-distributions-taxed"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Are Capital Gains Distributions Taxed?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Holders of mutual fund shares are required to pay taxes on capital gains distributions made by the funds they own. Capital gains distributions from mutual fund or ETF holdings are taxed as long-term capital gains, no matter how long the individual has owned shares of the fund, which means a tax rate of 0%, 15%, or 20%, depending on the individual's income tax rate.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_38-0"><span class="heading-toc" id="toc-where-can-i-report-capital-gain-distributions-on-a-1040"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Can I Report Capital Gain Distributions on a 1040?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>According to the IRS, taxpayers are to report capital gains distributions on line 13 of Schedule D (Form 1040), Capital Gains and Losses.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_40-0"><span class="heading-toc" id="toc-what-is-the-difference-between-a-capital-gain-distribution-and-a-capital-gain"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a Capital Gain Distribution and a Capital Gain?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Capital gains are any <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgainsyield.asp">increase in a capital asset's value</a>. Capital gains distributions are payments a mutual fund or an exchange-traded fund makes to its holders that are a portion of proceeds from the fund's sales of stocks or other portfolio assets.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_42-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Investing in mutual or exchange-traded funds means you might receive a capital gains distribution, regardless of whether you sold any shares. Be prepared to pay taxes on any capital gains distributions you receive; you could consider switching to a tax-efficient fund if you find those payments too much of a hassle. </p></div>

## What Is a Capital Gains Distribution? A capital gains distribution is a payment by a mutual fund or an exchange-traded fund (ETF) of a portion of the proceeds from the fund's sales of stocks and other assets from within its portfolio. It is the investor's pro-rata share of the proceeds from the fund's transactions. It is *not,* however, a share of the fund's overall profit. The fund may gain or lose money over the course of a year, and your balance will rise or fall accordingly. But if the fund gained from the sale of any of its stocks during that year, it will make capital gains distributions to its shareholders. Mutual funds are required by law to [make regular capital gains distributions to their shareholders](https://www.investopedia.com/ask/answers/07/mfdistribution.asp). The owners of mutual fund shares have the option to take the capital gains distribution in the form of immediate payments or to reinvest it in additional fund shares. ### Key Takeaways * A capital gains distribution is the investor's share of the proceeds of a fund's sale of stocks and other assets. * The investor must pay capital gains taxes on distributions, whether they are taken as cash or reinvested in the fund. * The taxes on distributions are due in that tax year unless the fund is part of a tax-deferred retirement account. * Under current IRS regulations, capital gains distributions from mutual fund or ETF holdings are taxed as long-term capital gains, no matter how long the individual has owned shares of the fund. * Capital gains distributions from pooled investments are treated as long-term capital gains, but buying and selling fund or ETF shares with a holding period of less than one year results in short-term capital gains or losses. ## Understanding Capital Gains Distributions Generally, a mutual fund or ETF makes a capital gains distribution at the end of each year. The distribution represents the proceeds of the sales of stock or other assets by the fund's managers throughout the course of the [tax year](https://www.investopedia.com/terms/f/fiscalyear.asp). The investor should keep in mind that cashing in on the [capital gains](https://www.investopedia.com/taxes/capital-gains-tax-101/) distribution rather than reinvesting it in the fund is effectively a withdrawal. It reduces the net amount you have invested in the fund by the amount of the distribution. ### Tax Considerations of Capital Gains Distributions Holders of mutual fund shares are required to [pay taxes on capital gains distributions](https://www.investopedia.com/ask/answers/071316/how-are-you-taxed-after-selling-mutual-fund-ira.asp) made by the funds they own, whether or not the money is reinvested in additional shares. There is an exception for municipal bond funds, which are tax-exempt at the federal level and usually at the state level. The taxes are not due for that tax year if the investor owns the fund as part of an IRA, 401(k), or another tax-deferred retirement plan. The taxes will be due when the funds are withdrawn after retirement. If the fund is not in a retirement plan, the taxes are due for that tax reporting period. ### While capital gains distributions from pooled investments are treated as long-term capital gains, an individual may buy and sell fund or ETF shares with a holding period of less than one year, which would result in short-term capital gains or losses for those shares. Note that capital gains distributions are therefore different than the actual holding period of the fund shares. ### Current IRS Regulations Under current IRS regulations, capital gains distributions from mutual fund or ETF holdings are taxed as long-term capital gains, no matter how long the individual has owned shares of the fund. That means a tax rate of 0%, 15%, or 20%, depending on the individual's ordinary income tax rate. People who really hate paying taxes might consider looking at [tax-efficient investments](https://www.investopedia.com/articles/stocks/11/intro-tax-efficient-investing.asp), including tax-efficient funds. Tax-efficient funds identify themselves as such in their descriptions. They tend to buy and sell stocks less frequently than aggressive growth funds and may hold some municipal bond funds for tax-free income. Capital gains distributions may be made even when a fund's overall value has dropped during the year. That is, a fund may have sold some stocks that had appreciated in price, but these gains might be offset or even erased by other investments that lost money. ## Capital Gains Distributions and Net Asset Value As is the case with common stocks, the distribution of capital gains and [dividends](https://www.investopedia.com/terms/d/dividend.asp) decreases the [net asset value](https://www.investopedia.com/terms/n/nav.asp) (NAV) of the fund by the amount distributed. For instance, the fund manager of a fund with a net asset value of $20 per share may pay a $5 distribution to shareholders. This would result in the fund's net asset value declining by $5 to $15. Although this appears on a mutual fund's price chart as a decline in price on the [ex-dividend](https://www.investopedia.com/terms/e/ex-dividend.asp) date, the total return of the fund has not changed. [Unrealized gains](https://www.investopedia.com/terms/u/unrealizedgain.asp) on securities determine the mutual fund's net asset value until they are sold. ## How Are Capital Gains Distributions Taxed? Holders of mutual fund shares are required to pay taxes on capital gains distributions made by the funds they own. Capital gains distributions from mutual fund or ETF holdings are taxed as long-term capital gains, no matter how long the individual has owned shares of the fund, which means a tax rate of 0%, 15%, or 20%, depending on the individual's income tax rate. ## Where Can I Report Capital Gain Distributions on a 1040? According to the IRS, taxpayers are to report capital gains distributions on line 13 of Schedule D (Form 1040), Capital Gains and Losses. ## What Is the Difference Between a Capital Gain Distribution and a Capital Gain? Capital gains are any [increase in a capital asset's value](https://www.investopedia.com/terms/c/capitalgainsyield.asp). Capital gains distributions are payments a mutual fund or an exchange-traded fund makes to its holders that are a portion of proceeds from the fund's sales of stocks or other portfolio assets. ## The Bottom Line Investing in mutual or exchange-traded funds means you might receive a capital gains distribution, regardless of whether you sold any shares. Be prepared to pay taxes on any capital gains distributions you receive; you could consider switching to a tax-efficient fund if you find those payments too much of a hassle.

What Is a Capital Gains Distribution? A capital gains distribution is a payment by a mutual fund or an exchange-traded fund (ETF) of a portion of the proceeds from the fund's sales of stocks and other assets from within its portfolio. It is the investor's pro-rata share of the proceeds from the fund's transactions. It is not, however, a share of the fund's overall profit. The fund may gain or lose money over the course of a year, and your balance will rise or fall accordingly. But if the fund gained from the sale of any of its stocks during that year, it will make capital gains distributions to its shareholders. Mutual funds are required by law to make regular capital gains distributions to their shareholders. The owners of mutual fund shares have the option to take the capital gains distribution in the form of immediate payments or to reinvest it in additional fund shares. Key Takeaways A capital gains distribution is the investor's share of the proceeds of a fund's sale of stocks and other assets.The investor must pay capital gains taxes on distributions, whether they are taken as cash or reinvested in the fund.The taxes on distributions are due in that tax year unless the fund is part of a tax-deferred retirement account.Under current IRS regulations, capital gains distributions from mutual fund or ETF holdings are taxed as long-term capital gains, no matter how long the individual has owned shares of the fund.Capital gains distributions from pooled investments are treated as long-term capital gains, but buying and selling fund or ETF shares with a holding period of less than one year results in short-term capital gains or losses. Understanding Capital Gains Distributions Generally, a mutual fund or ETF makes a capital gains distribution at the end of each year. The distribution represents the proceeds of the sales of stock or other assets by the fund's managers throughout the course of the tax year. The investor should keep in mind that cashing in on the capital gains distribution rather than reinvesting it in the fund is effectively a withdrawal. It reduces the net amount you have invested in the fund by the amount of the distribution. Tax Considerations of Capital Gains Distributions Holders of mutual fund shares are required to pay taxes on capital gains distributions made by the funds they own, whether or not the money is reinvested in additional shares. There is an exception for municipal bond funds, which are tax-exempt at the federal level and usually at the state level. The taxes are not due for that tax year if the investor owns the fund as part of an IRA, 401(k), or another tax-deferred retirement plan. The taxes will be due when the funds are withdrawn after retirement. If the fund is not in a retirement plan, the taxes are due for that tax reporting period. While capital gains distributions from pooled investments are treated as long-term capital gains, an individual may buy and sell fund or ETF shares with a holding period of less than one year, which would result in short-term capital gains or losses for those shares. Note that capital gains distributions are therefore different than the actual holding period of the fund shares. Current IRS Regulations Under current IRS regulations, capital gains distributions from mutual fund or ETF holdings are taxed as long-term capital gains, no matter how long the individual has owned shares of the fund. That means a tax rate of 0%, 15%, or 20%, depending on the individual's ordinary income tax rate. People who really hate paying taxes might consider looking at tax-efficient investments, including tax-efficient funds. Tax-efficient funds identify themselves as such in their descriptions. They tend to buy and sell stocks less frequently than aggressive growth funds and may hold some municipal bond funds for tax-free income. Capital gains distributions may be made even when a fund's overall value has dropped during the year. That is, a fund may have sold some stocks that had appreciated in price, but these gains might be offset or even erased by other investments that lost money. Capital Gains Distributions and Net Asset Value As is the case with common stocks, the distribution of capital gains and dividends decreases the net asset value (NAV) of the fund by the amount distributed. For instance, the fund manager of a fund with a net asset value of $20 per share may pay a $5 distribution to shareholders. This would result in the fund's net asset value declining by $5 to $15. Although this appears on a mutual fund's price chart as a decline in price on the ex-dividend date, the total return of the fund has not changed. Unrealized gains on securities determine the mutual fund's net asset value until they are sold. How Are Capital Gains Distributions Taxed? Holders of mutual fund shares are required to pay taxes on capital gains distributions made by the funds they own. Capital gains distributions from mutual fund or ETF holdings are taxed as long-term capital gains, no matter how long the individual has owned shares of the fund, which means a tax rate of 0%, 15%, or 20%, depending on the individual's income tax rate. Where Can I Report Capital Gain Distributions on a 1040? According to the IRS, taxpayers are to report capital gains distributions on line 13 of Schedule D (Form 1040), Capital Gains and Losses. What Is the Difference Between a Capital Gain Distribution and a Capital Gain? Capital gains are any increase in a capital asset's value. Capital gains distributions are payments a mutual fund or an exchange-traded fund makes to its holders that are a portion of proceeds from the fund's sales of stocks or other portfolio assets. The Bottom Line Investing in mutual or exchange-traded funds means you might receive a capital gains distribution, regardless of whether you sold any shares. Be prepared to pay taxes on any capital gains distributions you receive; you could consider switching to a tax-efficient fund if you find those payments too much of a hassle.

https://www.investopedia.com/articles/stocks/10/the-four-rs-of-retail.asp

The Four Rs of Investing in Retail

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Ranging from food to electronics, from luxury specialists to discounters, the retail sector is a diverse and dynamic one—and extremely susceptible to changing consumer tastes, as well. Yet the industry seems to grow every year, regardless of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economic-cycle.asp">economic cycles</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/costofcapital.asp">capital costs</a>. Investors can find a lot to like (and dislike) in <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/07/retail_stocks.asp">retail stocks</a>. In doing their <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/duediligence.asp">due diligence</a> on companies, they should focus on performance in four particular areas. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Investors looking to own retail stocks should focus on the four Rs.</li><li>These include return on revenues, return on invested capital, return on total assets, and return on capital employed.</li><li>Retailers face a number of key issues, which include poor economic conditions, increased regulation and competition, and channel disruption.</li><li>Retail stocks tend to be more volatile than the broader market.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-four-rs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> The Four Rs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> No matter what a store is selling, successfully managing performance, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/returnoninvestment.asp">return on investment (ROI)</a>, and other financial indicators are the key to a healthy retail business. Expansion is an important part of retail growth but only when generating positive <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp">cash flow</a> from <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalexpenditure.asp">capital expenditures</a>. Without a positive ROI, retailers are throwing good money after bad. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> It's critical for retail managers to quantify as much as possible the metrics of their business so that they may better understand the profitability and financial health. When combined with other financial metrics like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/samestoresales.asp">same-store sales</a>, the four Rs of retail should paint a financial picture that's vibrant and constantly get stronger. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-1-return-on-revenues-ror"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> 1. Return on Revenues (ROR) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/returnonrevenue.asp">Return on revenues (ROR)</a> is the first R and the cornerstone of any retail operation. Also called net profit margin, it tells you how much net income is made from those <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/topline.asp">top-line</a> revenues.<span class="ql-inline-citation" data-cite="2"></span> Nearly as important is <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gmroi.asp">gross margin return on investment</a>, which is the gross margin profit on the cost of your inventory.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The more you make per unit sold, the easier it is to produce <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bottomline.asp">bottom-line</a> net profits. ROR has two basic building blocks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-subheading__text"> Balance Sheet </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> First is the balance sheet. Every retail store maintains <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inventory.asp">inventory</a>. Considered an asset on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balancesheet.asp">balance sheet</a>, when combined with the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/plstatement.asp">P&amp;L statement</a>, it can tell you a lot about how the product is selling.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Dividing inventory into the trailing-12-months' revenue, you arrive at the number of inventory turns (called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inventoryturnover.asp">inventory turnover</a>) in those 12 months (the higher the number the better).<span class="ql-inline-citation" data-cite="4"></span> Grocery stores traditionally have lower margins, and thus need to turn inventory many more times than luxury retailers who make far more per transaction but far less in overall <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unitsales.asp">unit sales</a>. Ultimately, the two retailers may deliver the same net income, but from many different volumes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-subheading__text"> Cash Flow Statement </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Did you know it's possible to be profitable and yet generate negative <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp">cash flow</a>? Well, it's true and the converse happens as well. This is when a business losing money generates positive cash flow. Often it can be as simple as the payment terms you have with your suppliers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> For instance, the profitable retailer might get 30 days to pay its bills while the money-loser gets 60. Although this catches up with the money-losing retailer eventually, it can carry on for some time. Look for companies that make money and generate positive cash flow. Even better are those that generate <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/freecashflow.asp">free cash flow</a>, which is the cash from operations after taking into account capital expenditures. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-2-return-on-invested-capital-roic"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> 2. Return on Invested Capital (ROIC) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Moving from the big picture to a frontline individual store's operations for a moment, the second R comes into play. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/returnoninvestmentcapital.asp">Return on invested capital (ROIC)</a> – sometimes referred to as "four-wall cash contribution" – is the amount of profit generated per store. The speed at which each store can return the invested capital required to open it, the faster the retailer can grow its overall profits.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> For example, if a new store in a home improvement chain averages $2 million in annual sales in the first year open and its four-wall contribution is $200,000, a $300,000 investment to build and open the store is repaid in 18 months. Its return on invested capital is 67%. Successful retailers look for store revenues and four-wall contribution to grow in years two and three. If not, there's a problem.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-3-return-on-total-assets-roa"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> 3. Return on Total Assets (ROA) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Going back to the big picture: the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return_on_total_assets.asp">return on total assets (ROA)</a> indicates how much <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/operating_profit.asp">operating profit</a> is made from its <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a>.<span class="ql-inline-citation" data-cite="6"></span> Here again, bigger is better. In the retail industry, this number will vary depending on the business. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Specialty retailers require less retail space, fixtures, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inventory.asp">inventory</a> and so on. Home improvement stores, on the other hand, operate in much larger retail footprints and thus require greater assets. Having to use more doesn't necessarily make these stores inferior. It's simply the cost of doing business in that particular industry. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> What's important is how a retailer's return on total assets compares with the competition. If it's generating a return on total assets of 10% and its competitor across the street does 20%, it's an indication that the competitor is operating more efficiently. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-4-return-on-capital-employed-roce"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> 4. Return on Capital Employed (ROCE) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> This tells us how efficiently retailers use their capital. It is defined as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ebit.asp">earnings before interest and taxes (EBIT)</a> divided by capital employed, which generally is represented by total assets less current liabilities. However, a more appropriate definition of capital employed would be shareholders' equity plus net debt. After all, ROCE is a pretax look at its return on <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt.asp">debt</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equity</a>, which is different from ROIC, which is an after-tax (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a> paid) look at its profitability.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> While ROCE is a more telling number than the return on equity, it too has its limits. For instance, if a retailer in the auto parts business repurchased $1 billion of its own stock in a given year and as a result, its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bookvalue.asp">book value</a> turned negative, both the ROE and ROCE are adversely affected, despite the fact it made close to $1 billion in net profit. Financial metrics can only take you so far. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-risks-of-retail-investing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_42-0"> <span class="mntl-sc-block-heading__text"> Risks of Retail Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Retail investing can be affected by many systematic and idiosyncratic risks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-subheading__text"> Economic Conditions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> If there is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recession.asp">recession</a> and many companies lay off workers, cut their budgets and implement a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/salaryfreeze.asp">salary freeze</a>, consumer spending tends to slow down or even decrease, which has an immediate negative effect on the retail industry. Individual retailers and specific sub-sectors can really struggle during an economic downturn; home improvement stores saw sales tank after the collapse of the housing bubble in 2007-2008, for example.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> But the retail sector as a whole is largely insulated from the effects of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/businesscycle.asp">business cycles</a>. Consumers still shop during hard times. Obviously, they continue to need staples such as food and clothing. However, the recessions of 2000-2001 and 2007-2008 demonstrated that Americans will still spend money on <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumer-discretionary.asp">discretionary items</a> like used cars, travel, and even dining out but at reduced levels.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Another insulating factor: Retailers are not limited to their local areas nowadays. In fact, they tend to be among the first companies to share in the growth of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergingmarketeconomy.asp">emerging economies</a>. The low labor costs and lack of existing competition make it feasible for retailers to increase margins by shipping cheap goods to the developed world. And the internet has made it easier for low-capital, low-cost companies to service even poor nations. Goods produced in Malaysia, South Korea or India can be marketed and sold all around the world without a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brickandmortar.asp">brick-and-mortar</a> presence. However, retail <em>is</em> a notoriously seasonal business. First-quarter performance is typically dominated by fourth-quarter numbers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-subheading__text"> Regulation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Federal and state regulations pose another significant risk to the retail sector. As many retailers rely on labor that earns hourly salaries close to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/minimum_wage.asp">minimum wage</a> rate, any increases in the minimum wage can adversely affect profitability in the retail sector. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-subheading__text"> Competition and Consolidation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> High competition and consolidation in the retail sector is also a big risk that investors should consider. Because of the proliferation of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ecommerce.asp">e-commerce</a>, a person does not necessarily need a brick-and-mortar store to start a retail business. As some retailers have been slow in embracing e-commerce, their sales and profitability have suffered as a result of consumers shifting away from competitors that offer goods through the internet that can be shipped anywhere. Also, as the retail sector consolidates, there are more <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/insights/050116/walmart-stock-analyzing-5-key-suppliers-wmt.asp">concentrated companies with very large resources</a> and increased competitive advantages. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_58-0"> <span class="mntl-sc-block-subheading__text"> Channel Disruption </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Disruption or failure of the supply channel represents another important risk in the retail sector. For example, the labor strikes of 2014-2015 at the U.S. West Coast ports disrupted the supply of inventory for many retailers, negatively affecting their sales.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-investing-in-retail"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> Investing in Retail </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Retail may not be the best bet for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueinvesting.asp">value investor</a>. If there is one area where the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/berkshire-hathaway.asp">Berkshire Hathaway</a> boys—<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/071801.asp">Warren Buffett and Charlie Munger</a>—have struggled, it is in retail. The Omaha, Nebraska-based duo famously avoided the trappings of the internet bubble in the late 1990s, but their aversion to technical disruption has also kept them from accurately assessing retail successes. When it comes to retailers, Buffett specifically identifies a lack of "economic moats" (competitive advantages that keep other businesses at bay and protects margins).<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> On the other hand, retail is an attractive sector for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/growthinvesting.asp">growth investor</a> due to its propensity for turning in bigger-than-average gains when the market is rising. Retail securities typically fall into one of seven segments: automotive, building supply, distributors, grocery and food, online, general, and special line or specialty retailers.<span class="ql-inline-citation" data-cite="13"></span> All of them tend to track the market as a whole, but with a degree of greater volatility, which means stronger gains during bull runs, but larger losses when the bears roar.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> More specifically, six of retail's seven sectors carry <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beta.asp">betas</a> that range from 1.10, indicating 1% greater volatility than the market, to 1.52, a whopping 52% more volatile than the market as a whole.<span class="ql-inline-citation" data-cite="13"></span> That means when a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bullmarket.asp">bull market</a> is on, a retail investor can expect gains that beat the market by anywhere from 1% to 52%, depending on how he divides his investment dollars between the sector's various segments.The potential for such aggressive gains makes retail a sector that is closely monitored by growth investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <span class="heading-toc" id="toc-utilizing-the-price-to-book-pb-ratio"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-heading__text"> Utilizing the Price-to-Book (P/B) Ratio </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> Before selecting which retail sub-sector or company to invest in, one important calculation used to understand a sector's or company's value is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-to-bookratio.asp">price-to-book (P/B) ratio</a>. According to data published by the NYU Leonard N. Stern School of Business, as of January 2022, the average P/B ratio of the retail sector is 22.15.<span class="ql-inline-citation" data-cite="14"></span> The average is calculated using an arithmetic mean of all the retail segments' P/B ratios. By sub-sector, it breaks down like this: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_71-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td>Retail (Automotive)</td> <td>7.06</td> </tr> <tr> <td>Retail (Building Supply)</td> <td>116.15</td> </tr> <tr> <td>Retail (Distributors)</td> <td>4.23</td> </tr> <tr> <td>Retail (General)</td> <td>5.89</td> </tr> <tr> <td>Retail (Grocery and Food)</td> <td>3.35</td> </tr> <tr> <td>Retail (Online)</td> <td>12.90</td> </tr> <tr> <td>Retail (Special Lines)</td> <td>5.45</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Companies with P/B ratios greater than 1 are typically thought to be overvalued, while companies with P/B ratios less than 1 are thought to be undervalued. This is why value-investment gurus like Buffett tend to shy away from the sector. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <span class="heading-toc" id="toc-factors-that-affect-stock-prices"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-heading__text"> Factors that Affect Stock Prices </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> Retail companies have to match their products with their consumer demographics and tastes. If you are looking at a multinational retailer, for example, check its exposure and direct investment in emerging markets, such as Mexico, Indonesia, Brazil, India, and China. This is where the most aggressive growth is likely to take place.<span class="ql-inline-citation" data-cite="16"></span><span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sectors-and-industries-analysis-4689756">Online retail</a> is the fastest-growing segment in the industry, but it also has the lowest profit margins of any sub-sector, retail or otherwise.<span class="ql-inline-citation" data-cite="17"></span> Internet companies aren't necessarily valued more highly, but businesses that ignore the internet do so at their own risk. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> Many retailers offer credit for purchases. One dramatic example is the retail car market. Most American and Japanese car manufacturers, like GM and Toyota, make a lot of their money through financing and not from making cars.<span class="ql-inline-citation" data-cite="19"></span><span class="ql-inline-citation" data-cite="18"></span> Accounts receivable can be extra important for these companies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> Inventory is often the largest investment for retailers, so look at inventory efficiency as a key differentiation among similar companies.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <span class="heading-toc" id="toc-retail-investing-strategies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_84-0"> <span class="mntl-sc-block-heading__text"> Retail Investing Strategies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> Growth investors who are especially savvy employ a strategy called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/05/020305.asp">sector rotation</a>. This technique enables them to make the most of retail gains while mitigating its risks. Sector rotation requires an investor to monitor the economic cycle closely. The investor puts his money in retail and other volatile sectors during the expansionary phase. When he projects a transition to a period of contraction, he shifts out of retail and into more stable sectors, such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/utilities_sector.asp">utilities</a>, that are known for holding their value during <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bearmarket.asp">bear markets</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> Other retail investors employ options strategies that take advantage of the sector's volatility by rewarding big market moves, regardless of direction. Two popular ones are the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/longstraddle.asp">long straddle</a> and long <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/strangle.asp">strangle</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_89-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> Although <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/customer-service.asp">customer service</a> is an important component of successful retail, it's just one of the many things that must be executed flawlessly in order to continue growing. At the top of the list should be financial discipline. If a retail business doesn't possess this trait, it likely won't be around very long. The strongest retailers understand that every store should be profitable. Otherwise, there is no justification for tying up the capital required to open them. The faster a store is able to recover the initial investment, the faster it's able to please the four Rs of retail. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> The retail sector is divided into seven segments, all of which confer greater risk than the broader market. Retail securities tend to track the market as a whole but with a greater degree of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a>, resulting in stronger gains during bull markets but larger losses during bear markets. For this reason, savvy investors hedge exposure to the retail sector by investing in noncyclical or countercyclical sectors that outperform the broader market during periods of decline. </p></div>

Ranging from food to electronics, from luxury specialists to discounters, the retail sector is a diverse and dynamic one—and extremely susceptible to changing consumer tastes, as well. Yet the industry seems to grow every year, regardless of [economic cycles](https://www.investopedia.com/terms/e/economic-cycle.asp) or [capital costs](https://www.investopedia.com/terms/c/costofcapital.asp). Investors can find a lot to like (and dislike) in [retail stocks](https://www.investopedia.com/articles/stocks/07/retail_stocks.asp). In doing their [due diligence](https://www.investopedia.com/terms/d/duediligence.asp) on companies, they should focus on performance in four particular areas. ### Key Takeaways * Investors looking to own retail stocks should focus on the four Rs. * These include return on revenues, return on invested capital, return on total assets, and return on capital employed. * Retailers face a number of key issues, which include poor economic conditions, increased regulation and competition, and channel disruption. * Retail stocks tend to be more volatile than the broader market. ## The Four Rs No matter what a store is selling, successfully managing performance, [return on investment (ROI)](https://www.investopedia.com/terms/r/returnoninvestment.asp), and other financial indicators are the key to a healthy retail business. Expansion is an important part of retail growth but only when generating positive [cash flow](https://www.investopedia.com/terms/c/cashflow.asp) from [capital expenditures](https://www.investopedia.com/terms/c/capitalexpenditure.asp). Without a positive ROI, retailers are throwing good money after bad. It's critical for retail managers to quantify as much as possible the metrics of their business so that they may better understand the profitability and financial health. When combined with other financial metrics like [same-store sales](https://www.investopedia.com/terms/s/samestoresales.asp), the four Rs of retail should paint a financial picture that's vibrant and constantly get stronger. ## 1. Return on Revenues (ROR) [Return on revenues (ROR)](https://www.investopedia.com/terms/r/returnonrevenue.asp) is the first R and the cornerstone of any retail operation. Also called net profit margin, it tells you how much net income is made from those [top-line](https://www.investopedia.com/terms/t/topline.asp) revenues. Nearly as important is [gross margin return on investment](https://www.investopedia.com/terms/g/gmroi.asp), which is the gross margin profit on the cost of your inventory. The more you make per unit sold, the easier it is to produce [bottom-line](https://www.investopedia.com/terms/b/bottomline.asp) net profits. ROR has two basic building blocks. ### Balance Sheet First is the balance sheet. Every retail store maintains [inventory](https://www.investopedia.com/terms/i/inventory.asp). Considered an asset on the [balance sheet](https://www.investopedia.com/terms/b/balancesheet.asp), when combined with the [P&L statement](https://www.investopedia.com/terms/p/plstatement.asp), it can tell you a lot about how the product is selling. Dividing inventory into the trailing-12-months' revenue, you arrive at the number of inventory turns (called [inventory turnover](https://www.investopedia.com/terms/i/inventoryturnover.asp)) in those 12 months (the higher the number the better). Grocery stores traditionally have lower margins, and thus need to turn inventory many more times than luxury retailers who make far more per transaction but far less in overall [unit sales](https://www.investopedia.com/terms/u/unitsales.asp). Ultimately, the two retailers may deliver the same net income, but from many different volumes. ### Cash Flow Statement Did you know it's possible to be profitable and yet generate negative [cash flow](https://www.investopedia.com/terms/c/cashflow.asp)? Well, it's true and the converse happens as well. This is when a business losing money generates positive cash flow. Often it can be as simple as the payment terms you have with your suppliers. For instance, the profitable retailer might get 30 days to pay its bills while the money-loser gets 60. Although this catches up with the money-losing retailer eventually, it can carry on for some time. Look for companies that make money and generate positive cash flow. Even better are those that generate [free cash flow](https://www.investopedia.com/terms/f/freecashflow.asp), which is the cash from operations after taking into account capital expenditures. ## 2. Return on Invested Capital (ROIC) Moving from the big picture to a frontline individual store's operations for a moment, the second R comes into play. [Return on invested capital (ROIC)](https://www.investopedia.com/terms/r/returnoninvestmentcapital.asp) – sometimes referred to as "four-wall cash contribution" – is the amount of profit generated per store. The speed at which each store can return the invested capital required to open it, the faster the retailer can grow its overall profits. For example, if a new store in a home improvement chain averages $2 million in annual sales in the first year open and its four-wall contribution is $200,000, a $300,000 investment to build and open the store is repaid in 18 months. Its return on invested capital is 67%. Successful retailers look for store revenues and four-wall contribution to grow in years two and three. If not, there's a problem.  ## 3. Return on Total Assets (ROA) Going back to the big picture: the [return on total assets (ROA)](https://www.investopedia.com/terms/r/return_on_total_assets.asp) indicates how much [operating profit](https://www.investopedia.com/terms/o/operating_profit.asp) is made from its [assets](https://www.investopedia.com/terms/a/asset.asp). Here again, bigger is better. In the retail industry, this number will vary depending on the business. Specialty retailers require less retail space, fixtures, [inventory](https://www.investopedia.com/terms/i/inventory.asp) and so on. Home improvement stores, on the other hand, operate in much larger retail footprints and thus require greater assets. Having to use more doesn't necessarily make these stores inferior. It's simply the cost of doing business in that particular industry. What's important is how a retailer's return on total assets compares with the competition. If it's generating a return on total assets of 10% and its competitor across the street does 20%, it's an indication that the competitor is operating more efficiently. ## 4. Return on Capital Employed (ROCE) This tells us how efficiently retailers use their capital. It is defined as [earnings before interest and taxes (EBIT)](https://www.investopedia.com/terms/e/ebit.asp) divided by capital employed, which generally is represented by total assets less current liabilities. However, a more appropriate definition of capital employed would be shareholders' equity plus net debt. After all, ROCE is a pretax look at its return on [debt](https://www.investopedia.com/terms/d/debt.asp) and [equity](https://www.investopedia.com/terms/e/equity.asp), which is different from ROIC, which is an after-tax ([dividends](https://www.investopedia.com/terms/d/dividend.asp) paid) look at its profitability. While ROCE is a more telling number than the return on equity, it too has its limits. For instance, if a retailer in the auto parts business repurchased $1 billion of its own stock in a given year and as a result, its [book value](https://www.investopedia.com/terms/b/bookvalue.asp) turned negative, both the ROE and ROCE are adversely affected, despite the fact it made close to $1 billion in net profit. Financial metrics can only take you so far. ## Risks of Retail Investing Retail investing can be affected by many systematic and idiosyncratic risks. ### Economic Conditions If there is a [recession](https://www.investopedia.com/terms/r/recession.asp) and many companies lay off workers, cut their budgets and implement a [salary freeze](https://www.investopedia.com/terms/s/salaryfreeze.asp), consumer spending tends to slow down or even decrease, which has an immediate negative effect on the retail industry. Individual retailers and specific sub-sectors can really struggle during an economic downturn; home improvement stores saw sales tank after the collapse of the housing bubble in 2007-2008, for example. But the retail sector as a whole is largely insulated from the effects of [business cycles](https://www.investopedia.com/terms/b/businesscycle.asp). Consumers still shop during hard times. Obviously, they continue to need staples such as food and clothing. However, the recessions of 2000-2001 and 2007-2008 demonstrated that Americans will still spend money on [discretionary items](https://www.investopedia.com/terms/c/consumer-discretionary.asp) like used cars, travel, and even dining out but at reduced levels. Another insulating factor: Retailers are not limited to their local areas nowadays. In fact, they tend to be among the first companies to share in the growth of [emerging economies](https://www.investopedia.com/terms/e/emergingmarketeconomy.asp). The low labor costs and lack of existing competition make it feasible for retailers to increase margins by shipping cheap goods to the developed world. And the internet has made it easier for low-capital, low-cost companies to service even poor nations. Goods produced in Malaysia, South Korea or India can be marketed and sold all around the world without a [brick-and-mortar](https://www.investopedia.com/terms/b/brickandmortar.asp) presence. However, retail *is* a notoriously seasonal business. First-quarter performance is typically dominated by fourth-quarter numbers. ### Regulation Federal and state regulations pose another significant risk to the retail sector. As many retailers rely on labor that earns hourly salaries close to the [minimum wage](https://www.investopedia.com/terms/m/minimum_wage.asp) rate, any increases in the minimum wage can adversely affect profitability in the retail sector. ### Competition and Consolidation High competition and consolidation in the retail sector is also a big risk that investors should consider. Because of the proliferation of [e-commerce](https://www.investopedia.com/terms/e/ecommerce.asp), a person does not necessarily need a brick-and-mortar store to start a retail business. As some retailers have been slow in embracing e-commerce, their sales and profitability have suffered as a result of consumers shifting away from competitors that offer goods through the internet that can be shipped anywhere. Also, as the retail sector consolidates, there are more [concentrated companies with very large resources](https://www.investopedia.com/articles/insights/050116/walmart-stock-analyzing-5-key-suppliers-wmt.asp) and increased competitive advantages. ### Channel Disruption Disruption or failure of the supply channel represents another important risk in the retail sector. For example, the labor strikes of 2014-2015 at the U.S. West Coast ports disrupted the supply of inventory for many retailers, negatively affecting their sales. ## Investing in Retail Retail may not be the best bet for the [value investor](https://www.investopedia.com/terms/v/valueinvesting.asp). If there is one area where the [Berkshire Hathaway](https://www.investopedia.com/terms/b/berkshire-hathaway.asp) boys—[Warren Buffett and Charlie Munger](https://www.investopedia.com/articles/01/071801.asp)—have struggled, it is in retail. The Omaha, Nebraska-based duo famously avoided the trappings of the internet bubble in the late 1990s, but their aversion to technical disruption has also kept them from accurately assessing retail successes. When it comes to retailers, Buffett specifically identifies a lack of "economic moats" (competitive advantages that keep other businesses at bay and protects margins). On the other hand, retail is an attractive sector for a [growth investor](https://www.investopedia.com/terms/g/growthinvesting.asp) due to its propensity for turning in bigger-than-average gains when the market is rising. Retail securities typically fall into one of seven segments: automotive, building supply, distributors, grocery and food, online, general, and special line or specialty retailers. All of them tend to track the market as a whole, but with a degree of greater volatility, which means stronger gains during bull runs, but larger losses when the bears roar. More specifically, six of retail's seven sectors carry [betas](https://www.investopedia.com/terms/b/beta.asp) that range from 1.10, indicating 1% greater volatility than the market, to 1.52, a whopping 52% more volatile than the market as a whole. That means when a [bull market](https://www.investopedia.com/terms/b/bullmarket.asp) is on, a retail investor can expect gains that beat the market by anywhere from 1% to 52%, depending on how he divides his investment dollars between the sector's various segments.The potential for such aggressive gains makes retail a sector that is closely monitored by growth investors. ## Utilizing the Price-to-Book (P/B) Ratio Before selecting which retail sub-sector or company to invest in, one important calculation used to understand a sector's or company's value is the [price-to-book (P/B) ratio](https://www.investopedia.com/terms/p/price-to-bookratio.asp). According to data published by the NYU Leonard N. Stern School of Business, as of January 2022, the average P/B ratio of the retail sector is 22.15. The average is calculated using an arithmetic mean of all the retail segments' P/B ratios. By sub-sector, it breaks down like this: | Retail (Automotive) | 7.06 | | --- | --- | | Retail (Building Supply) | 116.15 | | Retail (Distributors) | 4.23 | | Retail (General) | 5.89 | | Retail (Grocery and Food) | 3.35 | | Retail (Online) | 12.90 | | Retail (Special Lines) | 5.45 | Companies with P/B ratios greater than 1 are typically thought to be overvalued, while companies with P/B ratios less than 1 are thought to be undervalued. This is why value-investment gurus like Buffett tend to shy away from the sector. ## Factors that Affect Stock Prices Retail companies have to match their products with their consumer demographics and tastes. If you are looking at a multinational retailer, for example, check its exposure and direct investment in emerging markets, such as Mexico, Indonesia, Brazil, India, and China. This is where the most aggressive growth is likely to take place. [Online retail](https://www.investopedia.com/sectors-and-industries-analysis-4689756) is the fastest-growing segment in the industry, but it also has the lowest profit margins of any sub-sector, retail or otherwise. Internet companies aren't necessarily valued more highly, but businesses that ignore the internet do so at their own risk. Many retailers offer credit for purchases. One dramatic example is the retail car market. Most American and Japanese car manufacturers, like GM and Toyota, make a lot of their money through financing and not from making cars. Accounts receivable can be extra important for these companies. Inventory is often the largest investment for retailers, so look at inventory efficiency as a key differentiation among similar companies. ## Retail Investing Strategies Growth investors who are especially savvy employ a strategy called [sector rotation](https://www.investopedia.com/articles/trading/05/020305.asp). This technique enables them to make the most of retail gains while mitigating its risks. Sector rotation requires an investor to monitor the economic cycle closely. The investor puts his money in retail and other volatile sectors during the expansionary phase. When he projects a transition to a period of contraction, he shifts out of retail and into more stable sectors, such as [utilities](https://www.investopedia.com/terms/u/utilities_sector.asp), that are known for holding their value during [bear markets](https://www.investopedia.com/terms/b/bearmarket.asp). Other retail investors employ options strategies that take advantage of the sector's volatility by rewarding big market moves, regardless of direction. Two popular ones are the [long straddle](https://www.investopedia.com/terms/l/longstraddle.asp) and long [strangle](https://www.investopedia.com/terms/s/strangle.asp). ## The Bottom Line Although [customer service](https://www.investopedia.com/terms/c/customer-service.asp) is an important component of successful retail, it's just one of the many things that must be executed flawlessly in order to continue growing. At the top of the list should be financial discipline. If a retail business doesn't possess this trait, it likely won't be around very long. The strongest retailers understand that every store should be profitable. Otherwise, there is no justification for tying up the capital required to open them. The faster a store is able to recover the initial investment, the faster it's able to please the four Rs of retail. The retail sector is divided into seven segments, all of which confer greater risk than the broader market. Retail securities tend to track the market as a whole but with a greater degree of [volatility](https://www.investopedia.com/terms/v/volatility.asp), resulting in stronger gains during bull markets but larger losses during bear markets. For this reason, savvy investors hedge exposure to the retail sector by investing in noncyclical or countercyclical sectors that outperform the broader market during periods of decline.

Ranging from food to electronics, from luxury specialists to discounters, the retail sector is a diverse and dynamic one—and extremely susceptible to changing consumer tastes, as well. Yet the industry seems to grow every year, regardless of economic cycles or capital costs. Investors can find a lot to like (and dislike) in retail stocks. In doing their due diligence on companies, they should focus on performance in four particular areas. Key Takeaways Investors looking to own retail stocks should focus on the four Rs.These include return on revenues, return on invested capital, return on total assets, and return on capital employed.Retailers face a number of key issues, which include poor economic conditions, increased regulation and competition, and channel disruption.Retail stocks tend to be more volatile than the broader market. The Four Rs No matter what a store is selling, successfully managing performance, return on investment (ROI), and other financial indicators are the key to a healthy retail business. Expansion is an important part of retail growth but only when generating positive cash flow from capital expenditures. Without a positive ROI, retailers are throwing good money after bad. It's critical for retail managers to quantify as much as possible the metrics of their business so that they may better understand the profitability and financial health. When combined with other financial metrics like same-store sales, the four Rs of retail should paint a financial picture that's vibrant and constantly get stronger. 1. Return on Revenues (ROR) Return on revenues (ROR) is the first R and the cornerstone of any retail operation. Also called net profit margin, it tells you how much net income is made from those top-line revenues. Nearly as important is gross margin return on investment, which is the gross margin profit on the cost of your inventory. The more you make per unit sold, the easier it is to produce bottom-line net profits. ROR has two basic building blocks. Balance Sheet First is the balance sheet. Every retail store maintains inventory. Considered an asset on the balance sheet, when combined with the P&L statement, it can tell you a lot about how the product is selling. Dividing inventory into the trailing-12-months' revenue, you arrive at the number of inventory turns (called inventory turnover) in those 12 months (the higher the number the better). Grocery stores traditionally have lower margins, and thus need to turn inventory many more times than luxury retailers who make far more per transaction but far less in overall unit sales. Ultimately, the two retailers may deliver the same net income, but from many different volumes. Cash Flow Statement Did you know it's possible to be profitable and yet generate negative cash flow? Well, it's true and the converse happens as well. This is when a business losing money generates positive cash flow. Often it can be as simple as the payment terms you have with your suppliers. For instance, the profitable retailer might get 30 days to pay its bills while the money-loser gets 60. Although this catches up with the money-losing retailer eventually, it can carry on for some time. Look for companies that make money and generate positive cash flow. Even better are those that generate free cash flow, which is the cash from operations after taking into account capital expenditures. 2. Return on Invested Capital (ROIC) Moving from the big picture to a frontline individual store's operations for a moment, the second R comes into play. Return on invested capital (ROIC) – sometimes referred to as "four-wall cash contribution" – is the amount of profit generated per store. The speed at which each store can return the invested capital required to open it, the faster the retailer can grow its overall profits. For example, if a new store in a home improvement chain averages $2 million in annual sales in the first year open and its four-wall contribution is $200,000, a $300,000 investment to build and open the store is repaid in 18 months. Its return on invested capital is 67%. Successful retailers look for store revenues and four-wall contribution to grow in years two and three. If not, there's a problem.  3. Return on Total Assets (ROA) Going back to the big picture: the return on total assets (ROA) indicates how much operating profit is made from its assets. Here again, bigger is better. In the retail industry, this number will vary depending on the business. Specialty retailers require less retail space, fixtures, inventory and so on. Home improvement stores, on the other hand, operate in much larger retail footprints and thus require greater assets. Having to use more doesn't necessarily make these stores inferior. It's simply the cost of doing business in that particular industry. What's important is how a retailer's return on total assets compares with the competition. If it's generating a return on total assets of 10% and its competitor across the street does 20%, it's an indication that the competitor is operating more efficiently. 4. Return on Capital Employed (ROCE) This tells us how efficiently retailers use their capital. It is defined as earnings before interest and taxes (EBIT) divided by capital employed, which generally is represented by total assets less current liabilities. However, a more appropriate definition of capital employed would be shareholders' equity plus net debt. After all, ROCE is a pretax look at its return on debt and equity, which is different from ROIC, which is an after-tax (dividends paid) look at its profitability. While ROCE is a more telling number than the return on equity, it too has its limits. For instance, if a retailer in the auto parts business repurchased $1 billion of its own stock in a given year and as a result, its book value turned negative, both the ROE and ROCE are adversely affected, despite the fact it made close to $1 billion in net profit. Financial metrics can only take you so far. Risks of Retail Investing Retail investing can be affected by many systematic and idiosyncratic risks. Economic Conditions If there is a recession and many companies lay off workers, cut their budgets and implement a salary freeze, consumer spending tends to slow down or even decrease, which has an immediate negative effect on the retail industry. Individual retailers and specific sub-sectors can really struggle during an economic downturn; home improvement stores saw sales tank after the collapse of the housing bubble in 2007-2008, for example. But the retail sector as a whole is largely insulated from the effects of business cycles. Consumers still shop during hard times. Obviously, they continue to need staples such as food and clothing. However, the recessions of 2000-2001 and 2007-2008 demonstrated that Americans will still spend money on discretionary items like used cars, travel, and even dining out but at reduced levels. Another insulating factor: Retailers are not limited to their local areas nowadays. In fact, they tend to be among the first companies to share in the growth of emerging economies. The low labor costs and lack of existing competition make it feasible for retailers to increase margins by shipping cheap goods to the developed world. And the internet has made it easier for low-capital, low-cost companies to service even poor nations. Goods produced in Malaysia, South Korea or India can be marketed and sold all around the world without a brick-and-mortar presence. However, retail is a notoriously seasonal business. First-quarter performance is typically dominated by fourth-quarter numbers. Regulation Federal and state regulations pose another significant risk to the retail sector. As many retailers rely on labor that earns hourly salaries close to the minimum wage rate, any increases in the minimum wage can adversely affect profitability in the retail sector. Competition and Consolidation High competition and consolidation in the retail sector is also a big risk that investors should consider. Because of the proliferation of e-commerce, a person does not necessarily need a brick-and-mortar store to start a retail business. As some retailers have been slow in embracing e-commerce, their sales and profitability have suffered as a result of consumers shifting away from competitors that offer goods through the internet that can be shipped anywhere. Also, as the retail sector consolidates, there are more concentrated companies with very large resources and increased competitive advantages. Channel Disruption Disruption or failure of the supply channel represents another important risk in the retail sector. For example, the labor strikes of 2014-2015 at the U.S. West Coast ports disrupted the supply of inventory for many retailers, negatively affecting their sales. Investing in Retail Retail may not be the best bet for the value investor. If there is one area where the Berkshire Hathaway boys—Warren Buffett and Charlie Munger—have struggled, it is in retail. The Omaha, Nebraska-based duo famously avoided the trappings of the internet bubble in the late 1990s, but their aversion to technical disruption has also kept them from accurately assessing retail successes. When it comes to retailers, Buffett specifically identifies a lack of "economic moats" (competitive advantages that keep other businesses at bay and protects margins). On the other hand, retail is an attractive sector for a growth investor due to its propensity for turning in bigger-than-average gains when the market is rising. Retail securities typically fall into one of seven segments: automotive, building supply, distributors, grocery and food, online, general, and special line or specialty retailers. All of them tend to track the market as a whole, but with a degree of greater volatility, which means stronger gains during bull runs, but larger losses when the bears roar. More specifically, six of retail's seven sectors carry betas that range from 1.10, indicating 1% greater volatility than the market, to 1.52, a whopping 52% more volatile than the market as a whole. That means when a bull market is on, a retail investor can expect gains that beat the market by anywhere from 1% to 52%, depending on how he divides his investment dollars between the sector's various segments.The potential for such aggressive gains makes retail a sector that is closely monitored by growth investors. Utilizing the Price-to-Book (P/B) Ratio Before selecting which retail sub-sector or company to invest in, one important calculation used to understand a sector's or company's value is the price-to-book (P/B) ratio. According to data published by the NYU Leonard N. Stern School of Business, as of January 2022, the average P/B ratio of the retail sector is 22.15. The average is calculated using an arithmetic mean of all the retail segments' P/B ratios. By sub-sector, it breaks down like this: Retail (Automotive) 7.06 Retail (Building Supply) 116.15 Retail (Distributors) 4.23 Retail (General) 5.89 Retail (Grocery and Food) 3.35 Retail (Online) 12.90 Retail (Special Lines) 5.45 Companies with P/B ratios greater than 1 are typically thought to be overvalued, while companies with P/B ratios less than 1 are thought to be undervalued. This is why value-investment gurus like Buffett tend to shy away from the sector. Factors that Affect Stock Prices Retail companies have to match their products with their consumer demographics and tastes. If you are looking at a multinational retailer, for example, check its exposure and direct investment in emerging markets, such as Mexico, Indonesia, Brazil, India, and China. This is where the most aggressive growth is likely to take place. Online retail is the fastest-growing segment in the industry, but it also has the lowest profit margins of any sub-sector, retail or otherwise. Internet companies aren't necessarily valued more highly, but businesses that ignore the internet do so at their own risk. Many retailers offer credit for purchases. One dramatic example is the retail car market. Most American and Japanese car manufacturers, like GM and Toyota, make a lot of their money through financing and not from making cars. Accounts receivable can be extra important for these companies. Inventory is often the largest investment for retailers, so look at inventory efficiency as a key differentiation among similar companies. Retail Investing Strategies Growth investors who are especially savvy employ a strategy called sector rotation. This technique enables them to make the most of retail gains while mitigating its risks. Sector rotation requires an investor to monitor the economic cycle closely. The investor puts his money in retail and other volatile sectors during the expansionary phase. When he projects a transition to a period of contraction, he shifts out of retail and into more stable sectors, such as utilities, that are known for holding their value during bear markets. Other retail investors employ options strategies that take advantage of the sector's volatility by rewarding big market moves, regardless of direction. Two popular ones are the long straddle and long strangle. The Bottom Line Although customer service is an important component of successful retail, it's just one of the many things that must be executed flawlessly in order to continue growing. At the top of the list should be financial discipline. If a retail business doesn't possess this trait, it likely won't be around very long. The strongest retailers understand that every store should be profitable. Otherwise, there is no justification for tying up the capital required to open them. The faster a store is able to recover the initial investment, the faster it's able to please the four Rs of retail. The retail sector is divided into seven segments, all of which confer greater risk than the broader market. Retail securities tend to track the market as a whole but with a greater degree of volatility, resulting in stronger gains during bull markets but larger losses during bear markets. For this reason, savvy investors hedge exposure to the retail sector by investing in noncyclical or countercyclical sectors that outperform the broader market during periods of decline.

https://www.investopedia.com/terms/i/inapp-purchasing.asp

In-App Purchasing: Definition, Conveniences, and Securities Risks

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-in-app-purchasing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is In-App Purchasing? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> In-app purchasing refers to the buying of goods and services from inside an application on a mobile device, such as a smartphone or tablet. In-app purchases allow developers to provide their applications for free. The developer then advertises upgrades to the paid version, paid feature unlocks, special items for sale, or even <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mobile-advertising.asp">ads</a> other apps and services to anyone who downloads the free version. This allows the developer to profit despite giving the basic app itself away for free. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>In-app purchasing refers to the buying of goods and services from inside an application on a mobile device, such as a smartphone or tablet.</li><li>In-app purchases allow developers to provide their applications for free.</li><li>Because in-app purchases are conducted through a mobile device, unauthorized purchases can result in security issues.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-in-app-purchasing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding In-App Purchasing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> In-app purchasing allows application owners the ability to upsell​ application users from within the application itself, rather than through other marketing channels. For example, a game application may offer the user the ability to skip a particularly difficult level for a fee or the owner may provide consumers with the ability to view premium content that is behind a pay-wall. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The developer hopes to make enough money from these small transactions and the advertising revenue to cover the costs of creating and maintaining the app. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The most common type of in-app purchase is to pay for the ad-free version or the full version of an app.</p></div></div></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Application stores, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-google-plans-to-beat-apple-in-video-games-4771543">Google Play</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/company-profiles-4689825">iTunes</a>, allow users to download applications with in-app purchasing, but they typically let the user know that an application has this feature. Some have policies allowing refunds if they are requested soon after a purchase is made. Application stores often take a percentage of the in-app sale. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> In-app purchases are part of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/freemium.asp">freemium</a> model for monetizing mobile applications or content. Consumers making purchases through an application do not have to visit a separate website to conduct the transaction. In fact, attempting to conduct a sale by redirecting to an external website violates the terms of most application stores as it prevents them from collecting a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commission.asp">commission</a>.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-criticism-of-in-app-purchasing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Criticism of In-App Purchasing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Because in-app purchases are conducted through a mobile device, unauthorized purchases can result in security issues. This is especially the case if the username and password used in the application are not strong or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-card-encryption.asp">credit card information</a> is stored in the app in an insecure manner. Many applications will email a receipt after a purchase is made, which can allow a fraudulent purchase to be stopped. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> There are no overarching guidelines for in-app purchasing, but regulators have taken a keen interest in in-app purchasing. One of the primary reasons for this is that many children have access to smartphones. Many of the optimization schemes in these apps result in children making in-app purchases that their parents do not want or may not immediately notice in time to reverse. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Parents, and by extension regulators, have noticed that the optimization of these in-app purchasing ads appears to target children in particular. Advertising in a way designed to take advantage of kids for a profit tends to be frowned upon, but it is governed more by ethics and codes than specific regulations or laws. </p></div>

## What Is In-App Purchasing? In-app purchasing refers to the buying of goods and services from inside an application on a mobile device, such as a smartphone or tablet. In-app purchases allow developers to provide their applications for free. The developer then advertises upgrades to the paid version, paid feature unlocks, special items for sale, or even [ads](https://www.investopedia.com/terms/m/mobile-advertising.asp) other apps and services to anyone who downloads the free version. This allows the developer to profit despite giving the basic app itself away for free. ### Key Takeaways * In-app purchasing refers to the buying of goods and services from inside an application on a mobile device, such as a smartphone or tablet. * In-app purchases allow developers to provide their applications for free. * Because in-app purchases are conducted through a mobile device, unauthorized purchases can result in security issues. ## Understanding In-App Purchasing In-app purchasing allows application owners the ability to upsell​ application users from within the application itself, rather than through other marketing channels. For example, a game application may offer the user the ability to skip a particularly difficult level for a fee or the owner may provide consumers with the ability to view premium content that is behind a pay-wall. The developer hopes to make enough money from these small transactions and the advertising revenue to cover the costs of creating and maintaining the app. ### The most common type of in-app purchase is to pay for the ad-free version or the full version of an app. ## Special Considerations Application stores, such as [Google Play](https://www.investopedia.com/how-google-plans-to-beat-apple-in-video-games-4771543) or [iTunes](https://www.investopedia.com/company-profiles-4689825), allow users to download applications with in-app purchasing, but they typically let the user know that an application has this feature. Some have policies allowing refunds if they are requested soon after a purchase is made. Application stores often take a percentage of the in-app sale. In-app purchases are part of a [freemium](https://www.investopedia.com/terms/f/freemium.asp) model for monetizing mobile applications or content. Consumers making purchases through an application do not have to visit a separate website to conduct the transaction. In fact, attempting to conduct a sale by redirecting to an external website violates the terms of most application stores as it prevents them from collecting a [commission](https://www.investopedia.com/terms/c/commission.asp).  ## Criticism of In-App Purchasing Because in-app purchases are conducted through a mobile device, unauthorized purchases can result in security issues. This is especially the case if the username and password used in the application are not strong or [credit card information](https://www.investopedia.com/terms/c/credit-card-encryption.asp) is stored in the app in an insecure manner. Many applications will email a receipt after a purchase is made, which can allow a fraudulent purchase to be stopped. There are no overarching guidelines for in-app purchasing, but regulators have taken a keen interest in in-app purchasing. One of the primary reasons for this is that many children have access to smartphones. Many of the optimization schemes in these apps result in children making in-app purchases that their parents do not want or may not immediately notice in time to reverse. Parents, and by extension regulators, have noticed that the optimization of these in-app purchasing ads appears to target children in particular. Advertising in a way designed to take advantage of kids for a profit tends to be frowned upon, but it is governed more by ethics and codes than specific regulations or laws.

What Is In-App Purchasing? In-app purchasing refers to the buying of goods and services from inside an application on a mobile device, such as a smartphone or tablet. In-app purchases allow developers to provide their applications for free. The developer then advertises upgrades to the paid version, paid feature unlocks, special items for sale, or even ads other apps and services to anyone who downloads the free version. This allows the developer to profit despite giving the basic app itself away for free. Key Takeaways In-app purchasing refers to the buying of goods and services from inside an application on a mobile device, such as a smartphone or tablet.In-app purchases allow developers to provide their applications for free.Because in-app purchases are conducted through a mobile device, unauthorized purchases can result in security issues. Understanding In-App Purchasing In-app purchasing allows application owners the ability to upsell​ application users from within the application itself, rather than through other marketing channels. For example, a game application may offer the user the ability to skip a particularly difficult level for a fee or the owner may provide consumers with the ability to view premium content that is behind a pay-wall. The developer hopes to make enough money from these small transactions and the advertising revenue to cover the costs of creating and maintaining the app. The most common type of in-app purchase is to pay for the ad-free version or the full version of an app. Special Considerations Application stores, such as Google Play or iTunes, allow users to download applications with in-app purchasing, but they typically let the user know that an application has this feature. Some have policies allowing refunds if they are requested soon after a purchase is made. Application stores often take a percentage of the in-app sale. In-app purchases are part of a freemium model for monetizing mobile applications or content. Consumers making purchases through an application do not have to visit a separate website to conduct the transaction. In fact, attempting to conduct a sale by redirecting to an external website violates the terms of most application stores as it prevents them from collecting a commission.  Criticism of In-App Purchasing Because in-app purchases are conducted through a mobile device, unauthorized purchases can result in security issues. This is especially the case if the username and password used in the application are not strong or credit card information is stored in the app in an insecure manner. Many applications will email a receipt after a purchase is made, which can allow a fraudulent purchase to be stopped. There are no overarching guidelines for in-app purchasing, but regulators have taken a keen interest in in-app purchasing. One of the primary reasons for this is that many children have access to smartphones. Many of the optimization schemes in these apps result in children making in-app purchases that their parents do not want or may not immediately notice in time to reverse. Parents, and by extension regulators, have noticed that the optimization of these in-app purchasing ads appears to target children in particular. Advertising in a way designed to take advantage of kids for a profit tends to be frowned upon, but it is governed more by ethics and codes than specific regulations or laws.

https://www.investopedia.com/terms/l/loan-grading.asp

Loan Grading: What it is and how it Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-loan-grading"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Loan Grading? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Loan grading is a classification system that involves assigning a quality score to a loan based on a borrower's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a>, quality of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a>, and the likelihood of repayment of the principal and interest. A score can also be applied to a portfolio of loans. Loan grading is part of a lending institution's loan review or credit risk system and is usually an aspect of the credit underwriting and approval processes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> There are many purposes for a loan review system, such as identifying loans with credit weaknesses so banks can take steps to minimize credit risk, identifying trends affecting the collectability of the loan portfolio, and for financial and regulatory reporting purposes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Loan grading is a classification system that involves assigning a quality score to a loan based on a borrower's credit history, quality of the collateral, and the likelihood of repayment of the principal and interest.</li><li>Loan grading is part of a lending institution's loan review or credit risk system and is usually an aspect of the credit underwriting and approval processes.</li><li>The score takes into account not only the borrower's credit score but also a combination of several indicators of credit risk from the credit report and loan application, such as the level of guarantor support, repayment history, cash flow, projected yearly expenses, etc.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-loan-grading-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How Loan Grading Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Being able to manage their lending capacity effectively is central to the success of a bank. So, banks must come up with a loan grading system that accurately evaluates credit risk, or the probability of loss due to a borrower’s failure to make payments. The processes that banks use to grade loans help examiners and management make good lending decisions. There is no one correct system for grading loans, although the Federal Deposit Insurance Corporation (FDIC) requires that all lending institutions have a loan review system. Larger institutions may maintain separate departments specifically for loan reviewing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Depending on the size and complexity, banks develop different approaches. Community banks often use more broad factors to judge the risk of a loan, whereas larger, more complex institutions may rely on more quantitative approaches to measure and monitor credit risk. When assigning a score to a loan, the examiner will review the loan documentation, collateral, and the borrower's financial statements. The score takes into account not only the borrower's credit score but also a combination of several indicators of credit risk from the credit report and loan application. These factors may include the level of guarantor support, repayment history, cash flow, projected yearly expenses, etc. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Smaller institutions typically use an expert judgment system. In this system, a loan officer is entrusted with assigning a grade based on their judgment and knowledge. Other banks may use quantitative scorecards, or other modeled approaches, that allow for adjustments based on qualitative judgments. Since there are no regulatory requirements that mandate how a loan grading system is structured, it is up to banks to develop a system that is suitable for their size and complexity. </p></div>

## What Is Loan Grading? Loan grading is a classification system that involves assigning a quality score to a loan based on a borrower's [credit history](https://www.investopedia.com/terms/c/credit-history.asp), quality of the [collateral](https://www.investopedia.com/terms/c/collateral.asp), and the likelihood of repayment of the principal and interest. A score can also be applied to a portfolio of loans. Loan grading is part of a lending institution's loan review or credit risk system and is usually an aspect of the credit underwriting and approval processes. There are many purposes for a loan review system, such as identifying loans with credit weaknesses so banks can take steps to minimize credit risk, identifying trends affecting the collectability of the loan portfolio, and for financial and regulatory reporting purposes. ### Key Takeaways * Loan grading is a classification system that involves assigning a quality score to a loan based on a borrower's credit history, quality of the collateral, and the likelihood of repayment of the principal and interest. * Loan grading is part of a lending institution's loan review or credit risk system and is usually an aspect of the credit underwriting and approval processes. * The score takes into account not only the borrower's credit score but also a combination of several indicators of credit risk from the credit report and loan application, such as the level of guarantor support, repayment history, cash flow, projected yearly expenses, etc. ## How Loan Grading Works Being able to manage their lending capacity effectively is central to the success of a bank. So, banks must come up with a loan grading system that accurately evaluates credit risk, or the probability of loss due to a borrower’s failure to make payments. The processes that banks use to grade loans help examiners and management make good lending decisions. There is no one correct system for grading loans, although the Federal Deposit Insurance Corporation (FDIC) requires that all lending institutions have a loan review system. Larger institutions may maintain separate departments specifically for loan reviewing. Depending on the size and complexity, banks develop different approaches. Community banks often use more broad factors to judge the risk of a loan, whereas larger, more complex institutions may rely on more quantitative approaches to measure and monitor credit risk. When assigning a score to a loan, the examiner will review the loan documentation, collateral, and the borrower's financial statements. The score takes into account not only the borrower's credit score but also a combination of several indicators of credit risk from the credit report and loan application. These factors may include the level of guarantor support, repayment history, cash flow, projected yearly expenses, etc. Smaller institutions typically use an expert judgment system. In this system, a loan officer is entrusted with assigning a grade based on their judgment and knowledge. Other banks may use quantitative scorecards, or other modeled approaches, that allow for adjustments based on qualitative judgments. Since there are no regulatory requirements that mandate how a loan grading system is structured, it is up to banks to develop a system that is suitable for their size and complexity.

What Is Loan Grading? Loan grading is a classification system that involves assigning a quality score to a loan based on a borrower's credit history, quality of the collateral, and the likelihood of repayment of the principal and interest. A score can also be applied to a portfolio of loans. Loan grading is part of a lending institution's loan review or credit risk system and is usually an aspect of the credit underwriting and approval processes. There are many purposes for a loan review system, such as identifying loans with credit weaknesses so banks can take steps to minimize credit risk, identifying trends affecting the collectability of the loan portfolio, and for financial and regulatory reporting purposes. Key Takeaways Loan grading is a classification system that involves assigning a quality score to a loan based on a borrower's credit history, quality of the collateral, and the likelihood of repayment of the principal and interest.Loan grading is part of a lending institution's loan review or credit risk system and is usually an aspect of the credit underwriting and approval processes.The score takes into account not only the borrower's credit score but also a combination of several indicators of credit risk from the credit report and loan application, such as the level of guarantor support, repayment history, cash flow, projected yearly expenses, etc. How Loan Grading Works Being able to manage their lending capacity effectively is central to the success of a bank. So, banks must come up with a loan grading system that accurately evaluates credit risk, or the probability of loss due to a borrower’s failure to make payments. The processes that banks use to grade loans help examiners and management make good lending decisions. There is no one correct system for grading loans, although the Federal Deposit Insurance Corporation (FDIC) requires that all lending institutions have a loan review system. Larger institutions may maintain separate departments specifically for loan reviewing. Depending on the size and complexity, banks develop different approaches. Community banks often use more broad factors to judge the risk of a loan, whereas larger, more complex institutions may rely on more quantitative approaches to measure and monitor credit risk. When assigning a score to a loan, the examiner will review the loan documentation, collateral, and the borrower's financial statements. The score takes into account not only the borrower's credit score but also a combination of several indicators of credit risk from the credit report and loan application. These factors may include the level of guarantor support, repayment history, cash flow, projected yearly expenses, etc. Smaller institutions typically use an expert judgment system. In this system, a loan officer is entrusted with assigning a grade based on their judgment and knowledge. Other banks may use quantitative scorecards, or other modeled approaches, that allow for adjustments based on qualitative judgments. Since there are no regulatory requirements that mandate how a loan grading system is structured, it is up to banks to develop a system that is suitable for their size and complexity.

https://www.investopedia.com/average-credit-card-interest-rate-5076674

Average Credit Card Interest Rate for May 2024: 24.37% APR

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The median average credit card interest rate for May 2024 is 24.37%. Investopedia tracks over 300 credit card interest rates every month, and the rate for May was unchanged for the fifth straight month after moving up 25 basis points in October and November 2023. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Credit card interest rates tracked by Investopedia are based on median advertised rates across several hundred of the most popular card offers. Investopedia’s average rates differ from the rates tracked by the Federal Reserve (the Fed), most recently projected to be 21.47% for the fourth quarter of 2023 because the Fed tracks <em>average stated</em> interest rates across all accounts at each reporting bank.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>The median average credit card interest rate for May 2024 is 24.37%.</li> <li>Your credit card interest rate will largely be determined by your credit score and credit history.</li> <li>If you have an excellent credit score, you'll likely get a lower credit card interest rate.</li> <li>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-cards-4801582">best credit cards</a> on the market come with rewards, balance transfer offers, and more, and the right card for you will depend on your situation.</li> </ul></div></div></div> <span class="heading-toc" id="toc-how-are-credit-card-interest-rates-determined"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> How Are Credit Card Interest Rates Determined? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Credit card interest rates have been unchanged in the first two quarters of 2024. A wide variety of consumer loans, including credit cards, are tied to movements of the Fed funds rate, which is the mechanism the Fed employs to stimulate or slow the magnitude of lending, depending on economic conditions. The Fed has held the fed funds rate steady after raising rates in 2022 and 2023 to combat record-high inflation that began in 2021. The Fed held rates steady in the last five months of 2023 as inflation began to decrease and that trend has continued during the first two months of 2024. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The Fed announced it would keep rates steady at its most recent meeting on May 1, 2024, and that it remains open to keeping rates unchanged or potentially reducing them at its next meeting in March and in future meetings this year depending on economic conditions. Currently, 92% of interest rate traders are betting that the Fed will hold rates steady at its next meeting on June 12.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Most credit card issuers employ variable interest rates that are indexed to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/primerate.asp">Federal Reserve’s prime rate</a>, so Fed rate policy largely impacts card interest rates directly. However, the lower and upper ends of available card rates can change from month to month depending on competitive pressures and individual banks' risk policies.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Several factors influence how individual credit card rates are set, the most important of which is credit quality, with those with excellent credit receiving the lowest rates and those with no credit or bad credit receiving the highest rates. Other factors include the type of credit card and the risk-based pricing policies of the specific credit card issuer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Investopedia tracks average advertised rates for new applicants, which are typically quoted as a range for each card product, across more than 300 card offers, which are shown below broken out by credit quality, card type, and card issuer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-credit-card-interest-rates-vs-personal-loan-interest-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Credit Card Interest Rates vs. Personal Loan Interest Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Interest rates for credit cards tend to run in a similar range to those <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-the-average-personal-loan-interest-rate-8558877">interest rates for personal loans</a>. Credit cards are a type of revolving credit with variable interest rates whereas personal loan rates are typically fixed for a specific amount and repayment term. Many consumers use balance transfer credit card offers to consolidate higher-interest credit card debt. Additionally, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">best personal loans</a> can also be used for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-for-debt-consolidation-4779764">debt consolidation</a> involving credit card debt and other types of consumer debt. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Debt consolidation was the most popular reason for using a personal loan, according to a survey conducted by Investopedia in September 2023. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_23-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/T6dEU/6/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Debt Consolidation the Most Common Use for a Personal Loan"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-interest-rates-by-credit-quality-types"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> Interest Rates by Credit Quality Types </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Different ranges of credit quality can vary depending on the type of score used, but the most popular credit score used by credit card lenders is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ficoscore.asp">FICO score</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_28-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/rY4JV/21/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Available APRs by Credit Score"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Credit quality is defined according to the FICO score ranges for each credit quality level: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_32-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">FICO Credit Score Ranges</th> </tr> </thead> <tbody data-check="-1"> <tr> <td>Very Good to Excellent</td> <td>740–850</td> </tr> <tr> <td>Good </td> <td>670–739</td> </tr> <tr> <td>Fair</td> <td>580–669</td> </tr> <tr> <td>Poor or No Credit</td> <td>350–579</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_34-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_35-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>For those needing to build or rebuild their credit, it's critical to begin actively using credit responsibly—which means always paying bills on time and keeping <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-utilization-rate.asp">credit utilization</a> below 30% of credit lines. A secured credit card can be a good place to start if you don't already have credit in your name. It can take time, but responsible credit use can produce positive results after as little as six months and builds over time.</p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_36-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/pAV8x/2/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Quality Breakdown"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-interest-rates-by-credit-card-types"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> Interest Rates by Credit Card Types </span> </h2> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_39-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/HVx7c/22/" frameborder="0" id="mntl-sc-block-iframe__uri_4-0" title="By Type Range"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <li><strong>Balance transfer</strong>: Credit cards that offer a promotional rate, often 0%, for a year or more.</li><li><strong>Business</strong>:<strong> </strong>Credit cards designed for small business owners, providing segregation of business expenses, working capital, and often rewards and discounts on business-related purchase categories.</li><li><strong>Low cost</strong>: Credit cards for those with bad credit or no credit history that often have no annual fee but charge higher interest rates to offset higher credit risk.</li><li><strong>Rewards</strong>: Credit cards that offer points, miles, or cash back on purchases.<br/></li><li><strong>Secured</strong>:<strong> </strong>Credit cards that require a security deposit that serves as an initial credit line.</li><li><strong>Student</strong>:<strong> </strong>Credit cards for those with limited credit history and credit education, often for college students.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <span class="heading-toc" id="toc-interest-rates-by-issuer"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_43-0"> <span class="mntl-sc-block-heading__text"> Interest Rates by Issuer </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Credit card issuers have different risk-based pricing policies that cause variation in the ranges of interest rates they advertise and eventually assign to customers based on approved applicants' credit scores. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_46-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/1tWny/20/" frameborder="0" id="mntl-sc-block-iframe__uri_5-0" title="Available APRs by Credit Issuer"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-prime-rate-trend"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-heading__text"> Prime Rate Trend </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Credit card interest rates are predominantly indexed to the prime rate along with a margin which varies at the card product level and individual account holder's credit quality. The prime rate was 8.50% in May 2024, having risen 525 basis points since the beginning of 2022 following several rate increases by the Federal Reserve, which ended with an increase of 0.25% in July of 2023. In each of the subsequent fed meetings the FOMC has held rates unchanged, however. The next Fed rate-setting meeting will conclude on June 12, 2024, and is likely to result in the fed funds rate remaining unchanged once again amid stubborn, though diminished, inflation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_51-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/7XxnQ/36/" frameborder="0" id="mntl-sc-block-iframe__uri_6-0" title="Prime Rate"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <span class="heading-toc" id="toc-delinquency-rate-trend"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-heading__text"> Delinquency Rate Trend </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Credit card delinquency rates, defined as accounts that are 90 days or more overdue, have been below 3% in recent years. However, during the pandemic the delinquency rate fell to a low of 1.48%, bottoming out in April of 2021. Since that time the delinquency rate has more than doubled due to increased revolving debt incurred by consumers in the past two years, reaching 3.01% at the end of 2023, marking its highest level since the start of 2012. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_56-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/1kjNZ/30/" frameborder="0" id="mntl-sc-block-iframe__uri_7-0" title="Delinquency Rate"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <span class="heading-toc" id="toc-credit-card-debt-trend"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_58-0"> <span class="mntl-sc-block-heading__text"> Credit Card Debt Trend </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Total consumer revolving credit card debt passed the $1 trillion mark just before the pandemic and then fell sharply to a low of $970 billion in January 2021. Since then, revolving debt has climbed back beyond pre-pandemic levels to over $1.33 trillion for the most recent month reported by the Federal Reserve, February 2024.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_61-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/xThOm/5/" frameborder="0" id="mntl-sc-block-iframe__uri_8-0" title="Debt"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <span class="heading-toc" id="toc-how-we-find-the-average-credit-card-interest-rate"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-heading__text"> How We Find the Average Credit Card Interest Rate </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> Investopedia tracks individual credit card rates on more than 300 network-branded cards offered to the public from 43 of the nation’s largest banks and issuers. Most credit card rates are advertised in the form of a range from low to high depending on the applicant’s credit score. In determining average rates by credit quality, card type, or card issuer, Investopedia calculates the average midpoint of advertised interest rate ranges and also calculates the average of the lower and upper ends of rates that are expressed in ranges. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

The median average credit card interest rate for May 2024 is 24.37%. Investopedia tracks over 300 credit card interest rates every month, and the rate for May was unchanged for the fifth straight month after moving up 25 basis points in October and November 2023. Credit card interest rates tracked by Investopedia are based on median advertised rates across several hundred of the most popular card offers. Investopedia’s average rates differ from the rates tracked by the Federal Reserve (the Fed), most recently projected to be 21.47% for the fourth quarter of 2023 because the Fed tracks *average stated* interest rates across all accounts at each reporting bank. ### Key Takeaways * The median average credit card interest rate for May 2024 is 24.37%. * Your credit card interest rate will largely be determined by your credit score and credit history. * If you have an excellent credit score, you'll likely get a lower credit card interest rate. * The [best credit cards](https://www.investopedia.com/best-credit-cards-4801582) on the market come with rewards, balance transfer offers, and more, and the right card for you will depend on your situation. ## How Are Credit Card Interest Rates Determined? Credit card interest rates have been unchanged in the first two quarters of 2024. A wide variety of consumer loans, including credit cards, are tied to movements of the Fed funds rate, which is the mechanism the Fed employs to stimulate or slow the magnitude of lending, depending on economic conditions. The Fed has held the fed funds rate steady after raising rates in 2022 and 2023 to combat record-high inflation that began in 2021. The Fed held rates steady in the last five months of 2023 as inflation began to decrease and that trend has continued during the first two months of 2024. The Fed announced it would keep rates steady at its most recent meeting on May 1, 2024, and that it remains open to keeping rates unchanged or potentially reducing them at its next meeting in March and in future meetings this year depending on economic conditions. Currently, 92% of interest rate traders are betting that the Fed will hold rates steady at its next meeting on June 12. Most credit card issuers employ variable interest rates that are indexed to the [Federal Reserve’s prime rate](https://www.investopedia.com/terms/p/primerate.asp), so Fed rate policy largely impacts card interest rates directly. However, the lower and upper ends of available card rates can change from month to month depending on competitive pressures and individual banks' risk policies. Several factors influence how individual credit card rates are set, the most important of which is credit quality, with those with excellent credit receiving the lowest rates and those with no credit or bad credit receiving the highest rates. Other factors include the type of credit card and the risk-based pricing policies of the specific credit card issuer. Investopedia tracks average advertised rates for new applicants, which are typically quoted as a range for each card product, across more than 300 card offers, which are shown below broken out by credit quality, card type, and card issuer. ## Credit Card Interest Rates vs. Personal Loan Interest Rates Interest rates for credit cards tend to run in a similar range to those [interest rates for personal loans](https://www.investopedia.com/what-is-the-average-personal-loan-interest-rate-8558877). Credit cards are a type of revolving credit with variable interest rates whereas personal loan rates are typically fixed for a specific amount and repayment term. Many consumers use balance transfer credit card offers to consolidate higher-interest credit card debt. Additionally, the [best personal loans](https://www.investopedia.com/best-personal-loans-4773300) can also be used for [debt consolidation](https://www.investopedia.com/best-personal-loans-for-debt-consolidation-4779764) involving credit card debt and other types of consumer debt. Debt consolidation was the most popular reason for using a personal loan, according to a survey conducted by Investopedia in September 2023. ## Interest Rates by Credit Quality Types Different ranges of credit quality can vary depending on the type of score used, but the most popular credit score used by credit card lenders is the [FICO score](https://www.investopedia.com/terms/f/ficoscore.asp). Credit quality is defined according to the FICO score ranges for each credit quality level: | FICO Credit Score Ranges | | | --- | --- | | Very Good to Excellent | 740–850 | | Good | 670–739 | | Fair | 580–669 | | Poor or No Credit | 350–579 | ### Tip For those needing to build or rebuild their credit, it's critical to begin actively using credit responsibly—which means always paying bills on time and keeping [credit utilization](https://www.investopedia.com/terms/c/credit-utilization-rate.asp) below 30% of credit lines. A secured credit card can be a good place to start if you don't already have credit in your name. It can take time, but responsible credit use can produce positive results after as little as six months and builds over time. ## Interest Rates by Credit Card Types * **Balance transfer**: Credit cards that offer a promotional rate, often 0%, for a year or more. * **Business**:Credit cards designed for small business owners, providing segregation of business expenses, working capital, and often rewards and discounts on business-related purchase categories. * **Low cost**: Credit cards for those with bad credit or no credit history that often have no annual fee but charge higher interest rates to offset higher credit risk. * **Rewards**: Credit cards that offer points, miles, or cash back on purchases. * **Secured**:Credit cards that require a security deposit that serves as an initial credit line. * **Student**:Credit cards for those with limited credit history and credit education, often for college students. ## Interest Rates by Issuer Credit card issuers have different risk-based pricing policies that cause variation in the ranges of interest rates they advertise and eventually assign to customers based on approved applicants' credit scores. ## Prime Rate Trend Credit card interest rates are predominantly indexed to the prime rate along with a margin which varies at the card product level and individual account holder's credit quality. The prime rate was 8.50% in May 2024, having risen 525 basis points since the beginning of 2022 following several rate increases by the Federal Reserve, which ended with an increase of 0.25% in July of 2023. In each of the subsequent fed meetings the FOMC has held rates unchanged, however. The next Fed rate-setting meeting will conclude on June 12, 2024, and is likely to result in the fed funds rate remaining unchanged once again amid stubborn, though diminished, inflation. ## Delinquency Rate Trend Credit card delinquency rates, defined as accounts that are 90 days or more overdue, have been below 3% in recent years. However, during the pandemic the delinquency rate fell to a low of 1.48%, bottoming out in April of 2021. Since that time the delinquency rate has more than doubled due to increased revolving debt incurred by consumers in the past two years, reaching 3.01% at the end of 2023, marking its highest level since the start of 2012. ## Credit Card Debt Trend Total consumer revolving credit card debt passed the $1 trillion mark just before the pandemic and then fell sharply to a low of $970 billion in January 2021. Since then, revolving debt has climbed back beyond pre-pandemic levels to over $1.33 trillion for the most recent month reported by the Federal Reserve, February 2024. ## How We Find the Average Credit Card Interest Rate Investopedia tracks individual credit card rates on more than 300 network-branded cards offered to the public from 43 of the nation’s largest banks and issuers. Most credit card rates are advertised in the form of a range from low to high depending on the applicant’s credit score. In determining average rates by credit quality, card type, or card issuer, Investopedia calculates the average midpoint of advertised interest rate ranges and also calculates the average of the lower and upper ends of rates that are expressed in ranges. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

The median average credit card interest rate for May 2024 is 24.37%. Investopedia tracks over 300 credit card interest rates every month, and the rate for May was unchanged for the fifth straight month after moving up 25 basis points in October and November 2023. Credit card interest rates tracked by Investopedia are based on median advertised rates across several hundred of the most popular card offers. Investopedia’s average rates differ from the rates tracked by the Federal Reserve (the Fed), most recently projected to be 21.47% for the fourth quarter of 2023 because the Fed tracks average stated interest rates across all accounts at each reporting bank. Key Takeaways The median average credit card interest rate for May 2024 is 24.37%. Your credit card interest rate will largely be determined by your credit score and credit history. If you have an excellent credit score, you'll likely get a lower credit card interest rate. The best credit cards on the market come with rewards, balance transfer offers, and more, and the right card for you will depend on your situation. How Are Credit Card Interest Rates Determined? Credit card interest rates have been unchanged in the first two quarters of 2024. A wide variety of consumer loans, including credit cards, are tied to movements of the Fed funds rate, which is the mechanism the Fed employs to stimulate or slow the magnitude of lending, depending on economic conditions. The Fed has held the fed funds rate steady after raising rates in 2022 and 2023 to combat record-high inflation that began in 2021. The Fed held rates steady in the last five months of 2023 as inflation began to decrease and that trend has continued during the first two months of 2024. The Fed announced it would keep rates steady at its most recent meeting on May 1, 2024, and that it remains open to keeping rates unchanged or potentially reducing them at its next meeting in March and in future meetings this year depending on economic conditions. Currently, 92% of interest rate traders are betting that the Fed will hold rates steady at its next meeting on June 12. Most credit card issuers employ variable interest rates that are indexed to the Federal Reserve’s prime rate, so Fed rate policy largely impacts card interest rates directly. However, the lower and upper ends of available card rates can change from month to month depending on competitive pressures and individual banks' risk policies. Several factors influence how individual credit card rates are set, the most important of which is credit quality, with those with excellent credit receiving the lowest rates and those with no credit or bad credit receiving the highest rates. Other factors include the type of credit card and the risk-based pricing policies of the specific credit card issuer. Investopedia tracks average advertised rates for new applicants, which are typically quoted as a range for each card product, across more than 300 card offers, which are shown below broken out by credit quality, card type, and card issuer. Credit Card Interest Rates vs. Personal Loan Interest Rates Interest rates for credit cards tend to run in a similar range to those interest rates for personal loans. Credit cards are a type of revolving credit with variable interest rates whereas personal loan rates are typically fixed for a specific amount and repayment term. Many consumers use balance transfer credit card offers to consolidate higher-interest credit card debt. Additionally, the best personal loans can also be used for debt consolidation involving credit card debt and other types of consumer debt. Debt consolidation was the most popular reason for using a personal loan, according to a survey conducted by Investopedia in September 2023. Interest Rates by Credit Quality Types Different ranges of credit quality can vary depending on the type of score used, but the most popular credit score used by credit card lenders is the FICO score. Credit quality is defined according to the FICO score ranges for each credit quality level: FICO Credit Score Ranges Very Good to Excellent 740–850 Good  670–739 Fair 580–669 Poor or No Credit 350–579 Tip For those needing to build or rebuild their credit, it's critical to begin actively using credit responsibly—which means always paying bills on time and keeping credit utilization below 30% of credit lines. A secured credit card can be a good place to start if you don't already have credit in your name. It can take time, but responsible credit use can produce positive results after as little as six months and builds over time. Interest Rates by Credit Card Types Balance transfer: Credit cards that offer a promotional rate, often 0%, for a year or more.Business: Credit cards designed for small business owners, providing segregation of business expenses, working capital, and often rewards and discounts on business-related purchase categories.Low cost: Credit cards for those with bad credit or no credit history that often have no annual fee but charge higher interest rates to offset higher credit risk.Rewards: Credit cards that offer points, miles, or cash back on purchases.Secured: Credit cards that require a security deposit that serves as an initial credit line.Student: Credit cards for those with limited credit history and credit education, often for college students. Interest Rates by Issuer Credit card issuers have different risk-based pricing policies that cause variation in the ranges of interest rates they advertise and eventually assign to customers based on approved applicants' credit scores. Prime Rate Trend Credit card interest rates are predominantly indexed to the prime rate along with a margin which varies at the card product level and individual account holder's credit quality. The prime rate was 8.50% in May 2024, having risen 525 basis points since the beginning of 2022 following several rate increases by the Federal Reserve, which ended with an increase of 0.25% in July of 2023. In each of the subsequent fed meetings the FOMC has held rates unchanged, however. The next Fed rate-setting meeting will conclude on June 12, 2024, and is likely to result in the fed funds rate remaining unchanged once again amid stubborn, though diminished, inflation. Delinquency Rate Trend Credit card delinquency rates, defined as accounts that are 90 days or more overdue, have been below 3% in recent years. However, during the pandemic the delinquency rate fell to a low of 1.48%, bottoming out in April of 2021. Since that time the delinquency rate has more than doubled due to increased revolving debt incurred by consumers in the past two years, reaching 3.01% at the end of 2023, marking its highest level since the start of 2012. Credit Card Debt Trend Total consumer revolving credit card debt passed the $1 trillion mark just before the pandemic and then fell sharply to a low of $970 billion in January 2021. Since then, revolving debt has climbed back beyond pre-pandemic levels to over $1.33 trillion for the most recent month reported by the Federal Reserve, February 2024. How We Find the Average Credit Card Interest Rate Investopedia tracks individual credit card rates on more than 300 network-branded cards offered to the public from 43 of the nation’s largest banks and issuers. Most credit card rates are advertised in the form of a range from low to high depending on the applicant’s credit score. In determining average rates by credit quality, card type, or card issuer, Investopedia calculates the average midpoint of advertised interest rate ranges and also calculates the average of the lower and upper ends of rates that are expressed in ranges. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/terms/i/interest_cost.asp

Interest Cost: What it Means, How it Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-interest-cost"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Interest Cost? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Interest cost is the cumulative amount of interest a borrower pays on a debt obligation over the life of the borrowing. Interest is paid on the debt in addition to repayment of principal. However, any <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/negative_points.asp" rel="noopener noreferrer">negative points</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rebate.asp" rel="noopener noreferrer">rebates</a> a lender pays to a borrower should be subtracted from the interest cost as they are in effect a refund of future interest. In consumer mortgage loans, this amount should include any points paid to reduce the interest rate on a loan, since points are in effect pre-paid interest. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Interest cost is the amount of interest a borrower pays over the life of the debt. </li><li>Negative points and rebates should be subtracted from interest costs. </li><li>Interest costs are only one factor in a loan analysis, other things to consider include opportunity costs, tax benefits, and closing costs, among others. </li><li>Certain types of interest can have tax benefits, such as mortgage and student loan interest. </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-interest-cost"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Interest Cost </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Interest cost is one measure of a loan’s economics or internal rate of return. However, other measures—such as lender fees and upfront costs including loan closing costs, tax benefits and consequences, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal-reduction.asp" rel="noopener noreferrer">principal reduction</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/opportunitycost.asp" rel="noopener noreferrer">opportunity costs</a> in the form of re-investment rates—should also be included in a thorough analysis of the loan choices. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Interest cost comes into play in a variety of consumer financial obligations including mortgage, student and auto loans, and credit cards. Interest cost is also an important consideration for corporate borrowings such as commercial paper, revolving lines of credit and long-term bank loans, bonds, and lease costs are also very much affected by interest cost. Banks also incur interest costs when they credit depositors' interest on their bank accounts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> Special Considerations  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Interest cost may be quoted as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp" rel="noopener noreferrer">annual percentage rate</a> (APR). But in order to have an accurate understanding of your financial obligation, it is important to understand how lenders calculate the interest that accumulates on your loan. Interest might accrue on a daily or monthly, or quarterly basis. Additionally, some lenders offer loans for which the interest cost is not payable for an initial period but instead is added to the outstanding amount the borrower owes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Interest cost may be fixed to a reference security, such as the 10-year U.S. Treasury bond, for the life of the loan or floating (also called a variable). The interest cost on debt with rates that adjust periodically is tied by a formula to an interest rate benchmark, such as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/libor.asp" rel="noopener noreferrer">London Interbank Offered Rate (LIBOR)</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> For debt with variable interest rates, lenders often include provisions that provide some measure of protection from extreme fluctuations in interest costs by offering interest rate caps. These usually also contain floors, to assure the lender a minimum acceptable rate of interest. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-interest-cost-vs-taxes"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Interest Cost vs. Taxes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Certain types of interest costs are treated favorably for tax purposes in several jurisdictions. These include interest payments on home mortgage debt and student loan interest payments (both are subject to limitations and exclusions),<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="2"></span> and for corporations, interest payments on debts such as loans and bonds.<span class="ql-inline-citation" data-cite="3"></span> </p></div>

## What Is Interest Cost? Interest cost is the cumulative amount of interest a borrower pays on a debt obligation over the life of the borrowing. Interest is paid on the debt in addition to repayment of principal. However, any [negative points](https://www.investopedia.com/terms/n/negative_points.asp) or [rebates](https://www.investopedia.com/terms/r/rebate.asp) a lender pays to a borrower should be subtracted from the interest cost as they are in effect a refund of future interest. In consumer mortgage loans, this amount should include any points paid to reduce the interest rate on a loan, since points are in effect pre-paid interest. ### Key Takeaways * Interest cost is the amount of interest a borrower pays over the life of the debt. * Negative points and rebates should be subtracted from interest costs. * Interest costs are only one factor in a loan analysis, other things to consider include opportunity costs, tax benefits, and closing costs, among others. * Certain types of interest can have tax benefits, such as mortgage and student loan interest. ## Understanding Interest Cost Interest cost is one measure of a loan’s economics or internal rate of return. However, other measures—such as lender fees and upfront costs including loan closing costs, tax benefits and consequences, [principal reduction](https://www.investopedia.com/terms/p/principal-reduction.asp) and [opportunity costs](https://www.investopedia.com/terms/o/opportunitycost.asp) in the form of re-investment rates—should also be included in a thorough analysis of the loan choices. Interest cost comes into play in a variety of consumer financial obligations including mortgage, student and auto loans, and credit cards. Interest cost is also an important consideration for corporate borrowings such as commercial paper, revolving lines of credit and long-term bank loans, bonds, and lease costs are also very much affected by interest cost. Banks also incur interest costs when they credit depositors' interest on their bank accounts. ## Special Considerations Interest cost may be quoted as an [annual percentage rate](https://www.investopedia.com/terms/a/apr.asp) (APR). But in order to have an accurate understanding of your financial obligation, it is important to understand how lenders calculate the interest that accumulates on your loan. Interest might accrue on a daily or monthly, or quarterly basis. Additionally, some lenders offer loans for which the interest cost is not payable for an initial period but instead is added to the outstanding amount the borrower owes. Interest cost may be fixed to a reference security, such as the 10-year U.S. Treasury bond, for the life of the loan or floating (also called a variable). The interest cost on debt with rates that adjust periodically is tied by a formula to an interest rate benchmark, such as the [London Interbank Offered Rate (LIBOR)](https://www.investopedia.com/terms/l/libor.asp). For debt with variable interest rates, lenders often include provisions that provide some measure of protection from extreme fluctuations in interest costs by offering interest rate caps. These usually also contain floors, to assure the lender a minimum acceptable rate of interest. ## Interest Cost vs. Taxes Certain types of interest costs are treated favorably for tax purposes in several jurisdictions. These include interest payments on home mortgage debt and student loan interest payments (both are subject to limitations and exclusions), and for corporations, interest payments on debts such as loans and bonds.

What Is Interest Cost? Interest cost is the cumulative amount of interest a borrower pays on a debt obligation over the life of the borrowing. Interest is paid on the debt in addition to repayment of principal. However, any negative points or rebates a lender pays to a borrower should be subtracted from the interest cost as they are in effect a refund of future interest. In consumer mortgage loans, this amount should include any points paid to reduce the interest rate on a loan, since points are in effect pre-paid interest. Key Takeaways Interest cost is the amount of interest a borrower pays over the life of the debt. Negative points and rebates should be subtracted from interest costs. Interest costs are only one factor in a loan analysis, other things to consider include opportunity costs, tax benefits, and closing costs, among others. Certain types of interest can have tax benefits, such as mortgage and student loan interest.  Understanding Interest Cost Interest cost is one measure of a loan’s economics or internal rate of return. However, other measures—such as lender fees and upfront costs including loan closing costs, tax benefits and consequences, principal reduction and opportunity costs in the form of re-investment rates—should also be included in a thorough analysis of the loan choices. Interest cost comes into play in a variety of consumer financial obligations including mortgage, student and auto loans, and credit cards. Interest cost is also an important consideration for corporate borrowings such as commercial paper, revolving lines of credit and long-term bank loans, bonds, and lease costs are also very much affected by interest cost. Banks also incur interest costs when they credit depositors' interest on their bank accounts. Special Considerations  Interest cost may be quoted as an annual percentage rate (APR). But in order to have an accurate understanding of your financial obligation, it is important to understand how lenders calculate the interest that accumulates on your loan. Interest might accrue on a daily or monthly, or quarterly basis. Additionally, some lenders offer loans for which the interest cost is not payable for an initial period but instead is added to the outstanding amount the borrower owes. Interest cost may be fixed to a reference security, such as the 10-year U.S. Treasury bond, for the life of the loan or floating (also called a variable). The interest cost on debt with rates that adjust periodically is tied by a formula to an interest rate benchmark, such as the London Interbank Offered Rate (LIBOR). For debt with variable interest rates, lenders often include provisions that provide some measure of protection from extreme fluctuations in interest costs by offering interest rate caps. These usually also contain floors, to assure the lender a minimum acceptable rate of interest. Interest Cost vs. Taxes Certain types of interest costs are treated favorably for tax purposes in several jurisdictions. These include interest payments on home mortgage debt and student loan interest payments (both are subject to limitations and exclusions), and for corporations, interest payments on debts such as loans and bonds.

https://www.investopedia.com/the-new-york-city-economy-tracker-7104393

The New York City Economy Tracker

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The New York City Economy Tracker is a joint project between Investopedia and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.ny1.com/nyc/all-boroughs">NY1</a>, using publicly available data to evaluate the economic health of the city across a variety of metrics. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> For the week of May 6, 2024, we’re looking at the cost of childcare in New York City and how it is one of the biggest expenses for New Yorkers.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <span class="heading-toc" id="toc-childcare-is-a-massive-cost-burden-for-new-yorkers"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Childcare Is a Massive Cost Burden for New Yorkers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Living in NYC comes with a lot of uniquely high living expenses, but one of the biggest is the cost of taking care of children. Overall, the costs of raising two Pre-K kids in the NYC metro area can run an estimated $55,647 per year. This is about 60% of the annual median household income.<span class="ql-inline-citation" data-cite="128"></span> Taken together the expenses needed for having kids can be one of the largest line-items in a family’s budget in NYC.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_8-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/v2nGu/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Extra Costs for 2 Pre-K Kids in NYC Metro Area"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Living in NYC comes with a lot of uniquely high living expenses, but one of the biggest is the cost of taking care of children. Overall, the costs of raising two Pre-K kids in the NYC metro area can run an estimated $55,647 per year. This is about 60% of the annual median household income. Taken together the expenses needed for having kids can be one of the largest line-items in a family’s budget in NYC.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Although there are a variety of expenses kids can incur for their parents or guardians, the most expensive one by far is the cost of child care. Especially for the Pre-K ages, full-time, center-based child care costs can cost around $20,000 per year for each child in New York State, according to data from the ChildCare Aware.<span class="ql-inline-citation" data-cite="129"></span> Childcare costs alone end up being about 72% of the total extra cost of raising Pre-K children in the New York City metro area.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Although childcare costs decline substantially once children enter elementary school, there are still expenses associated with taking care of them outside of the school day and school year. The NYC Parks Summer Day Camp program for children ages 6 to 13 for seven weeks this summer costs between $500 to $575 per child.<span class="ql-inline-citation" data-cite="130"></span> The average two-week traditional summer day camp at YMCAs across the five boroughs average out to $782 per child.<span class="ql-inline-citation" data-cite="131"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Outside of childcare, other major expenses that increase for New Yorkers with kids are food, transportation, and rent. According to data from the MIT Living Wage Calculator, a two-earner household with two children will have to spend an extra $5,391 on food, $4,120 on transportation, and $3,983 on rent per year compared to the same household without kids.<span class="ql-inline-citation" data-cite="132"></span> Although not as expensive as childcare, these costs are more steady throughout a child’s life and can even increase with age. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Data from the BLS Consumer Expenditure Survey show that the average household in the NYC metro area will spend about $214 on children’s clothing alone in a given year, when adjusting prices for the NYC area.<span class="ql-inline-citation" data-cite="134"></span><span class="ql-inline-citation" data-cite="133"></span> Additionally, prices for group health insurance premiums can cost approximately $1,909 per year higher than individual plans, according to the Kaiser Family Foundation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-overall-cost-of-raising-a-child-in-nyc-actually-lower-than-boston-and-dc"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Overall Cost of Raising a Child in NYC Actually Lower Than Boston and DC </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Surprisingly, New York isn’t the most expensive place to raise a child on the East Coast. The cost of two Pre-K kids in the NYC metro area is about 7.6% less expensive than the Washington DC metro area and a full 10% lower than the Boston metro area. However, NYC is still almost 40% more expensive than the Philadelphia metro area. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_23-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/Epk9U/2/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Cost of Kids Higher in Boston and DC Than NYC"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Two of the main drivers for the difference between NYC and Boston and DC are the differences between the cost of childcare and health insurance premiums. In Massachusetts the annual cost of two Pre-K kids in full-time center-based care is an estimated $43,228 and in Washington DC it’s $43,214. These are about 8% higher than the approximate cost in New York of $40,031. Additionally, the difference between family and individual health insurance premiums in Massachusetts is about $2,263 and in Washington, DC is about $3,276, substantially higher than New York’s $1,909.<br/> </p></div>

The New York City Economy Tracker is a joint project between Investopedia and [NY1](https://www.ny1.com/nyc/all-boroughs), using publicly available data to evaluate the economic health of the city across a variety of metrics. For the week of May 6, 2024, we’re looking at the cost of childcare in New York City and how it is one of the biggest expenses for New Yorkers. ## Childcare Is a Massive Cost Burden for New Yorkers Living in NYC comes with a lot of uniquely high living expenses, but one of the biggest is the cost of taking care of children. Overall, the costs of raising two Pre-K kids in the NYC metro area can run an estimated $55,647 per year. This is about 60% of the annual median household income. Taken together the expenses needed for having kids can be one of the largest line-items in a family’s budget in NYC.  Living in NYC comes with a lot of uniquely high living expenses, but one of the biggest is the cost of taking care of children. Overall, the costs of raising two Pre-K kids in the NYC metro area can run an estimated $55,647 per year. This is about 60% of the annual median household income. Taken together the expenses needed for having kids can be one of the largest line-items in a family’s budget in NYC.  Although there are a variety of expenses kids can incur for their parents or guardians, the most expensive one by far is the cost of child care. Especially for the Pre-K ages, full-time, center-based child care costs can cost around $20,000 per year for each child in New York State, according to data from the ChildCare Aware. Childcare costs alone end up being about 72% of the total extra cost of raising Pre-K children in the New York City metro area.  Although childcare costs decline substantially once children enter elementary school, there are still expenses associated with taking care of them outside of the school day and school year. The NYC Parks Summer Day Camp program for children ages 6 to 13 for seven weeks this summer costs between $500 to $575 per child. The average two-week traditional summer day camp at YMCAs across the five boroughs average out to $782 per child. Outside of childcare, other major expenses that increase for New Yorkers with kids are food, transportation, and rent. According to data from the MIT Living Wage Calculator, a two-earner household with two children will have to spend an extra $5,391 on food, $4,120 on transportation, and $3,983 on rent per year compared to the same household without kids. Although not as expensive as childcare, these costs are more steady throughout a child’s life and can even increase with age. Data from the BLS Consumer Expenditure Survey show that the average household in the NYC metro area will spend about $214 on children’s clothing alone in a given year, when adjusting prices for the NYC area. Additionally, prices for group health insurance premiums can cost approximately $1,909 per year higher than individual plans, according to the Kaiser Family Foundation. ## Overall Cost of Raising a Child in NYC Actually Lower Than Boston and DC Surprisingly, New York isn’t the most expensive place to raise a child on the East Coast. The cost of two Pre-K kids in the NYC metro area is about 7.6% less expensive than the Washington DC metro area and a full 10% lower than the Boston metro area. However, NYC is still almost 40% more expensive than the Philadelphia metro area. Two of the main drivers for the difference between NYC and Boston and DC are the differences between the cost of childcare and health insurance premiums. In Massachusetts the annual cost of two Pre-K kids in full-time center-based care is an estimated $43,228 and in Washington DC it’s $43,214. These are about 8% higher than the approximate cost in New York of $40,031. Additionally, the difference between family and individual health insurance premiums in Massachusetts is about $2,263 and in Washington, DC is about $3,276, substantially higher than New York’s $1,909.

The New York City Economy Tracker is a joint project between Investopedia and NY1, using publicly available data to evaluate the economic health of the city across a variety of metrics. For the week of May 6, 2024, we’re looking at the cost of childcare in New York City and how it is one of the biggest expenses for New Yorkers. Childcare Is a Massive Cost Burden for New Yorkers Living in NYC comes with a lot of uniquely high living expenses, but one of the biggest is the cost of taking care of children. Overall, the costs of raising two Pre-K kids in the NYC metro area can run an estimated $55,647 per year. This is about 60% of the annual median household income. Taken together the expenses needed for having kids can be one of the largest line-items in a family’s budget in NYC.  Living in NYC comes with a lot of uniquely high living expenses, but one of the biggest is the cost of taking care of children. Overall, the costs of raising two Pre-K kids in the NYC metro area can run an estimated $55,647 per year. This is about 60% of the annual median household income. Taken together the expenses needed for having kids can be one of the largest line-items in a family’s budget in NYC.  Although there are a variety of expenses kids can incur for their parents or guardians, the most expensive one by far is the cost of child care. Especially for the Pre-K ages, full-time, center-based child care costs can cost around $20,000 per year for each child in New York State, according to data from the ChildCare Aware. Childcare costs alone end up being about 72% of the total extra cost of raising Pre-K children in the New York City metro area.  Although childcare costs decline substantially once children enter elementary school, there are still expenses associated with taking care of them outside of the school day and school year. The NYC Parks Summer Day Camp program for children ages 6 to 13 for seven weeks this summer costs between $500 to $575 per child. The average two-week traditional summer day camp at YMCAs across the five boroughs average out to $782 per child. Outside of childcare, other major expenses that increase for New Yorkers with kids are food, transportation, and rent. According to data from the MIT Living Wage Calculator, a two-earner household with two children will have to spend an extra $5,391 on food, $4,120 on transportation, and $3,983 on rent per year compared to the same household without kids. Although not as expensive as childcare, these costs are more steady throughout a child’s life and can even increase with age. Data from the BLS Consumer Expenditure Survey show that the average household in the NYC metro area will spend about $214 on children’s clothing alone in a given year, when adjusting prices for the NYC area. Additionally, prices for group health insurance premiums can cost approximately $1,909 per year higher than individual plans, according to the Kaiser Family Foundation. Overall Cost of Raising a Child in NYC Actually Lower Than Boston and DC Surprisingly, New York isn’t the most expensive place to raise a child on the East Coast. The cost of two Pre-K kids in the NYC metro area is about 7.6% less expensive than the Washington DC metro area and a full 10% lower than the Boston metro area. However, NYC is still almost 40% more expensive than the Philadelphia metro area. Two of the main drivers for the difference between NYC and Boston and DC are the differences between the cost of childcare and health insurance premiums. In Massachusetts the annual cost of two Pre-K kids in full-time center-based care is an estimated $43,228 and in Washington DC it’s $43,214. These are about 8% higher than the approximate cost in New York of $40,031. Additionally, the difference between family and individual health insurance premiums in Massachusetts is about $2,263 and in Washington, DC is about $3,276, substantially higher than New York’s $1,909.

https://www.investopedia.com/5-things-to-know-before-the-stock-market-opens-may-20-2024-8650941

5 Things to Know Before the Stock Market Opens

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Metals prices are soaring, with gold and copper hitting records and silver breaching multi-year highs; U.S. stock futures are rising after the Dow closed over the 40,000 threshold Friday; Palo Alto Networks (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW">PANW</a>) is expected to post gains in fiscal third-quarter results after the closing bell; Li Auto (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LI">LI</a>) shares are slumping in premarket trading after the Chinese electric vehicle manufacturer posted a 36% drop in first-quarter profit; and Johnson Controls (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=jci">JCI</a>) is on the rise on a report that Elliott Investment Management has taken a stake in the company. Here’s what investors need to know today. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <span class="heading-toc" id="toc-1-silver-gold-copper-surge-as-investors-pile-into-safe-havens"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> 1. Silver, Gold, Copper Surge as Investors Pile Into Safe Havens  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Metals prices are soaring as investors pile into safe-haven commodities following the death of Iranian President Ebrahim Raisi in a helicopter crash.<span class="ql-inline-citation" data-cite="6"></span> Gold is surging beyond its April record, while silver also is gaining after it <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/silver-price-climbs-11-year-high-above-usd30-watch-this-level-8650919">climbed to an 11-year high</a> above the closely watched <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/technical/02/061802.asp">psychological</a> $30 mark. Copper, meanwhile, continues to rise after <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/https-www-investopedia-com-s-and-p-500-gains-and-losses-today-8650448-8650448?hid=8e6700c1a0c3a7e8150effc5f412ac221a2616b4&amp;did=13062073-20240517&amp;utm_campaign=investopedia-daily-post_newsletter&amp;utm_source=investopedia&amp;utm_medium=email&amp;utm_content=051724&amp;lctg=8e6700c1a0c3a7e8150effc5f412ac221a2616b4&amp;lr_input=359fd785d1bbf0599c276fd0c126a1d73ce72dc4006d51bd0ef9700ad6a4e186">hitting record highs </a>last week. Also boosting the metals is the softness in the U.S. dollar, which makes these dollar-denominated metals cheaper for foreign buyers, as well as their utilities in industrial applications. Silver is <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/silver.asp#:~:text=Key%20Takeaways,physical%20silver%20through%20commodities%20markets.">highly conductive</a>, for instance, which gives it many industrial uses, while <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/09/precious-metals-gold-silver-platinum.asp#:~:text=Gold%20is%20unique%20for%20its,as%20a%20form%20of%20currency.">gold’s durability</a> also has utility in areas like dentistry. Copper, meanwhile, has gained from rising demand for <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI</a>), which <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ai-thirst-for-data-center-power-feeds-renewed-demand-for-copper-8646160">feeds on power</a> from increasingly large data centers that commonly use copper wiring.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <span class="heading-toc" id="toc-2-us-stock-futures-gain-dow-set-to-rise-after-closing-above-40000"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> 2. US Stock Futures Gain, Dow Set to Rise After Closing Above 40,000 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> U.S. stock futures are rising in premarket trading, with the Dow—which notched its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-dow-hit-40000-heres-how-long-it-took-to-get-there-8649767">first close in history</a> above 40,000 points on Friday—set for more gains as investors increasingly expect the Federal Reserve to cut interest rates. Recent data has shown that <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737">inflation is cooling</a>, which may prompt sooner-rather-than later policy easing by the Fed, which has said it wants to see price pressures decrease before lowering interest rates. <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-expect-in-the-markets-this-week-may-20-2024-8650191">Remarks due</a> by Atlanta Fed President Raphael Bostic and Fed Vice Chair Michael S. Barr today could offer insights into how officials are looking at inflation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-3-palo-alto-expected-to-post-strong-resultscustomer-spending-in-focus"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> 3. Palo Alto Expected to Post Strong Results—Customer Spending in Focus </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Palo Alto Networks (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW">PANW</a>) is expected to post year-over-year gains in fiscal third-quarter results after the closing bell today, although <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/palo-alto-networks-q3-fy-2024-earnings-preview-8649133">investors’ sights will be on its sales</a> after the cybersecurity company earlier lowered its outlook amid consumer “spending fatigue.”  The cybersecurity company could also provide updates on its "platformization" strategy in its efforts to become a "one-stop shop" for cybersecurity. Analysts project Palo Alto Networks' third-quarter revenue to rise to $1.97 billion from $1.72 billion in the same period in 2023, and diluted <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eps.asp">earnings per share (EPS</a>) of 40 cents, up from 31 cents last year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-4-chinese-ev-maker-li-auto-posts-q1-profit-slump-as-it-lowered-car-prices"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> 4. Chinese EV Maker Li Auto Posts Q1 Profit Slump as It Lowered Car Prices  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American depositary receipts (ADRs)</a> of Li Auto (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LI">LI</a>) are down more than 4% in premarket trading after the Chinese EV manufacturer posted a 36% year-over-year drop in first-quarter net income as it lowered car prices.<span class="ql-inline-citation" data-cite="7"></span> The company said its profit attributed to shareholders was 592.6 million yuan ($82.0 million), versus CNY929.7 million in the same period last year, and well below analysts’ forecasts of CNY1.63 billion.<span class="ql-inline-citation" data-cite="2"></span> Revenue was up, however, by 36% at CNY25.63 billion, including a 32% jump in vehicle sales to CNY24.3 billion. “The increase in revenue from vehicle sales over the first quarter of 2023 was mainly attributable to the increase in vehicle deliveries, partially offset by the lower average selling price due to different product mix and pricing strategy changes between two quarters,” Li Auto said. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-5-johnson-controls-shares-gain-as-elliott-reportedly-builds-up-stake"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> 5. Johnson Controls Shares Gain as Elliott Reportedly Builds Up Stake </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Shares in Johnson Controls International (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=jci">JCI</a>) rose 5% in premarket trading after <em>Bloomberg</em> reported late Sunday that <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activist-investor.asp">activist investor</a> Elliott Investment Management has <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/johnson-controls-stock-rises-as-elliott-reportedly-takes-usd1-billion-plus-stake-8650947">taken a significant stake</a> in the industrial conglomerate. The New York-based <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/102113/what-are-hedge-funds.asp">hedge fund</a> has built a position in the company valued at over $1 billion, though the intentions for taking the stake couldn’t be immediately learned, the report said. Elliott’s investment in Johnson Controls comes several months after reports surfaced that the industrial conglomerate was considering <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/divestment.asp">divesting</a> several non-core businesses. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

Metals prices are soaring, with gold and copper hitting records and silver breaching multi-year highs; U.S. stock futures are rising after the Dow closed over the 40,000 threshold Friday; Palo Alto Networks ([PANW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW)) is expected to post gains in fiscal third-quarter results after the closing bell; Li Auto ([LI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LI)) shares are slumping in premarket trading after the Chinese electric vehicle manufacturer posted a 36% drop in first-quarter profit; and Johnson Controls ([JCI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=jci)) is on the rise on a report that Elliott Investment Management has taken a stake in the company. Here’s what investors need to know today. ## 1. Silver, Gold, Copper Surge as Investors Pile Into Safe Havens Metals prices are soaring as investors pile into safe-haven commodities following the death of Iranian President Ebrahim Raisi in a helicopter crash. Gold is surging beyond its April record, while silver also is gaining after it [climbed to an 11-year high](https://www.investopedia.com/silver-price-climbs-11-year-high-above-usd30-watch-this-level-8650919) above the closely watched [psychological](https://www.investopedia.com/articles/technical/02/061802.asp) $30 mark. Copper, meanwhile, continues to rise after [hitting record highs](https://www.investopedia.com/https-www-investopedia-com-s-and-p-500-gains-and-losses-today-8650448-8650448?hid=8e6700c1a0c3a7e8150effc5f412ac221a2616b4&did=13062073-20240517&utm_campaign=investopedia-daily-post_newsletter&utm_source=investopedia&utm_medium=email&utm_content=051724&lctg=8e6700c1a0c3a7e8150effc5f412ac221a2616b4&lr_input=359fd785d1bbf0599c276fd0c126a1d73ce72dc4006d51bd0ef9700ad6a4e186) last week. Also boosting the metals is the softness in the U.S. dollar, which makes these dollar-denominated metals cheaper for foreign buyers, as well as their utilities in industrial applications. Silver is [highly conductive](https://www.investopedia.com/terms/s/silver.asp#:~:text=Key%20Takeaways,physical%20silver%20through%20commodities%20markets.), for instance, which gives it many industrial uses, while [gold’s durability](https://www.investopedia.com/articles/basics/09/precious-metals-gold-silver-platinum.asp#:~:text=Gold%20is%20unique%20for%20its,as%20a%20form%20of%20currency.) also has utility in areas like dentistry. Copper, meanwhile, has gained from rising demand for [artificial intelligence (AI](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp)), which [feeds on power](https://www.investopedia.com/ai-thirst-for-data-center-power-feeds-renewed-demand-for-copper-8646160) from increasingly large data centers that commonly use copper wiring. ## 2. US Stock Futures Gain, Dow Set to Rise After Closing Above 40,000 U.S. stock futures are rising in premarket trading, with the Dow—which notched its [first close in history](https://www.investopedia.com/the-dow-hit-40000-heres-how-long-it-took-to-get-there-8649767) above 40,000 points on Friday—set for more gains as investors increasingly expect the Federal Reserve to cut interest rates. Recent data has shown that [inflation is cooling](https://www.investopedia.com/inflation-ticked-downward-in-april-2024-8648737), which may prompt sooner-rather-than later policy easing by the Fed, which has said it wants to see price pressures decrease before lowering interest rates. [Remarks due](https://www.investopedia.com/what-to-expect-in-the-markets-this-week-may-20-2024-8650191) by Atlanta Fed President Raphael Bostic and Fed Vice Chair Michael S. Barr today could offer insights into how officials are looking at inflation. ## 3. Palo Alto Expected to Post Strong Results—Customer Spending in Focus Palo Alto Networks ([PANW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PANW)) is expected to post year-over-year gains in fiscal third-quarter results after the closing bell today, although [investors’ sights will be on its sales](https://www.investopedia.com/palo-alto-networks-q3-fy-2024-earnings-preview-8649133) after the cybersecurity company earlier lowered its outlook amid consumer “spending fatigue.”  The cybersecurity company could also provide updates on its "platformization" strategy in its efforts to become a "one-stop shop" for cybersecurity. Analysts project Palo Alto Networks' third-quarter revenue to rise to $1.97 billion from $1.72 billion in the same period in 2023, and diluted [earnings per share (EPS](https://www.investopedia.com/terms/e/eps.asp)) of 40 cents, up from 31 cents last year. ## 4. Chinese EV Maker Li Auto Posts Q1 Profit Slump as It Lowered Car Prices [American depositary receipts (ADRs)](https://www.investopedia.com/terms/a/adr.asp) of Li Auto ([LI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LI)) are down more than 4% in premarket trading after the Chinese EV manufacturer posted a 36% year-over-year drop in first-quarter net income as it lowered car prices. The company said its profit attributed to shareholders was 592.6 million yuan ($82.0 million), versus CNY929.7 million in the same period last year, and well below analysts’ forecasts of CNY1.63 billion. Revenue was up, however, by 36% at CNY25.63 billion, including a 32% jump in vehicle sales to CNY24.3 billion. “The increase in revenue from vehicle sales over the first quarter of 2023 was mainly attributable to the increase in vehicle deliveries, partially offset by the lower average selling price due to different product mix and pricing strategy changes between two quarters,” Li Auto said. ## 5. Johnson Controls Shares Gain as Elliott Reportedly Builds Up Stake Shares in Johnson Controls International ([JCI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=jci)) rose 5% in premarket trading after *Bloomberg* reported late Sunday that [activist investor](https://www.investopedia.com/terms/a/activist-investor.asp) Elliott Investment Management has [taken a significant stake](https://www.investopedia.com/johnson-controls-stock-rises-as-elliott-reportedly-takes-usd1-billion-plus-stake-8650947) in the industrial conglomerate. The New York-based [hedge fund](https://www.investopedia.com/articles/investing/102113/what-are-hedge-funds.asp) has built a position in the company valued at over $1 billion, though the intentions for taking the stake couldn’t be immediately learned, the report said. Elliott’s investment in Johnson Controls comes several months after reports surfaced that the industrial conglomerate was considering [divesting](https://www.investopedia.com/terms/d/divestment.asp) several non-core businesses. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Metals prices are soaring, with gold and copper hitting records and silver breaching multi-year highs; U.S. stock futures are rising after the Dow closed over the 40,000 threshold Friday; Palo Alto Networks (PANW) is expected to post gains in fiscal third-quarter results after the closing bell; Li Auto (LI) shares are slumping in premarket trading after the Chinese electric vehicle manufacturer posted a 36% drop in first-quarter profit; and Johnson Controls (JCI) is on the rise on a report that Elliott Investment Management has taken a stake in the company. Here’s what investors need to know today. 1. Silver, Gold, Copper Surge as Investors Pile Into Safe Havens  Metals prices are soaring as investors pile into safe-haven commodities following the death of Iranian President Ebrahim Raisi in a helicopter crash. Gold is surging beyond its April record, while silver also is gaining after it climbed to an 11-year high above the closely watched psychological $30 mark. Copper, meanwhile, continues to rise after hitting record highs last week. Also boosting the metals is the softness in the U.S. dollar, which makes these dollar-denominated metals cheaper for foreign buyers, as well as their utilities in industrial applications. Silver is highly conductive, for instance, which gives it many industrial uses, while gold’s durability also has utility in areas like dentistry. Copper, meanwhile, has gained from rising demand for artificial intelligence (AI), which feeds on power from increasingly large data centers that commonly use copper wiring. 2. US Stock Futures Gain, Dow Set to Rise After Closing Above 40,000 U.S. stock futures are rising in premarket trading, with the Dow—which notched its first close in history above 40,000 points on Friday—set for more gains as investors increasingly expect the Federal Reserve to cut interest rates. Recent data has shown that inflation is cooling, which may prompt sooner-rather-than later policy easing by the Fed, which has said it wants to see price pressures decrease before lowering interest rates. Remarks due by Atlanta Fed President Raphael Bostic and Fed Vice Chair Michael S. Barr today could offer insights into how officials are looking at inflation. 3. Palo Alto Expected to Post Strong Results—Customer Spending in Focus Palo Alto Networks (PANW) is expected to post year-over-year gains in fiscal third-quarter results after the closing bell today, although investors’ sights will be on its sales after the cybersecurity company earlier lowered its outlook amid consumer “spending fatigue.”  The cybersecurity company could also provide updates on its "platformization" strategy in its efforts to become a "one-stop shop" for cybersecurity. Analysts project Palo Alto Networks' third-quarter revenue to rise to $1.97 billion from $1.72 billion in the same period in 2023, and diluted earnings per share (EPS) of 40 cents, up from 31 cents last year. 4. Chinese EV Maker Li Auto Posts Q1 Profit Slump as It Lowered Car Prices  American depositary receipts (ADRs) of Li Auto (LI) are down more than 4% in premarket trading after the Chinese EV manufacturer posted a 36% year-over-year drop in first-quarter net income as it lowered car prices. The company said its profit attributed to shareholders was 592.6 million yuan ($82.0 million), versus CNY929.7 million in the same period last year, and well below analysts’ forecasts of CNY1.63 billion. Revenue was up, however, by 36% at CNY25.63 billion, including a 32% jump in vehicle sales to CNY24.3 billion. “The increase in revenue from vehicle sales over the first quarter of 2023 was mainly attributable to the increase in vehicle deliveries, partially offset by the lower average selling price due to different product mix and pricing strategy changes between two quarters,” Li Auto said. 5. Johnson Controls Shares Gain as Elliott Reportedly Builds Up Stake Shares in Johnson Controls International (JCI) rose 5% in premarket trading after Bloomberg reported late Sunday that activist investor Elliott Investment Management has taken a significant stake in the industrial conglomerate. The New York-based hedge fund has built a position in the company valued at over $1 billion, though the intentions for taking the stake couldn’t be immediately learned, the report said. Elliott’s investment in Johnson Controls comes several months after reports surfaced that the industrial conglomerate was considering divesting several non-core businesses. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/top-cds-today-lock-in-a-rate-of-5-27-or-better-for-up-to-2-years-8608339

Top CDs Today: Lock in a Rate of 5.27% or Better for Up to 2 Years

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>Rates of 5.27% APY or better are available in every term up to 2 years, letting you lock in a stellar return as long as 2026.</li> <li>The top nationwide rate in our daily CD rankings continues to be 5.75% APY on a 6-month offer from <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.andrewsfcu.org/Learn/Resources/Rates/Share-Certificate-Rates&amp;lender=Andrews%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Andrews Federal Credit Union</a>.</li> <li>For anyone wanting to stretch to a year, you can score up to 5.50% APY with <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://t.bank/current-rates/&amp;lender=T%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">T Bank</a>.</li> <li>Able to make a jumbo deposit? <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.hughesfcu.org/products/detail/certificate-accounts&amp;lender=Hughes%20Federal%20Credit%20Uniontype=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Hughes Federal Credit Union</a> is paying 5.65% for 17 months.</li> <li>CD rates have been gradually inching down for the past few months. But they'll probably start to fall faster once the Fed appears ready to make a rate cut.</li> </ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Here are today's best CD rates available nationwide, followed by featured CDs from our partners. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_5-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 91px;"></colgroup> <colgroup span="1" style="width: 109px;"></colgroup> <colgroup span="1" style="width: 110px;"></colgroup> <colgroup span="1" style="width: 111px;"></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Terms</b></td> <td><b>Yesterday's Top National Rate</b></td> <td><b>Today's Top National Rate</b></td> <td><b>Day's Change </b>(percentage points)</td> <td><b>Top Rate Provider</b></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-month-cd-rates-5272288" rel="noopener noreferrer">3 months</a></td> <td>5.42% APY</td> <td>5.42% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.totaldirectbank.com/personal/cds&amp;lender=TotalDirectBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">TotalDirectBank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267" rel="noopener noreferrer">6 months</a></td> <td>5.75% APY</td> <td>5.75% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.andrewsfcu.org/Learn/Resources/Rates/Share-Certificate-Rates&amp;lender=Andrews%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Andrews Federal Credit Union</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650" rel="noopener noreferrer">1 year</a></td> <td>5.50% APY</td> <td>5.50% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://t.bank/current-rates/&amp;lender=T%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">T Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348" rel="noopener noreferrer">18 months</a></td> <td>5.35% APY</td> <td>5.35% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://forteracu.com/banking/personal/savings/certificates/fixed-rate-share-certificate&amp;lender=Fortera%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Fortera Credit Union</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&amp;lender=XCEL%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">2 years</a></td> <td>5.27% APY</td> <td>5.27% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.pelicanstatecu.com/rates&amp;lender=Pelican%20State%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Pelican State Credit Union</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-year-cd-rates-4782938" rel="noopener noreferrer">3 years</a></td> <td>5.00% APY</td> <td>5.00% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&amp;lender=DollarSavingsDirect&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">DollarSavingsDirect</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&amp;lender=Lafayette%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">4 years</a></td> <td>4.60% APY</td> <td>4.60% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473" rel="noopener noreferrer">5 years</a></td> <td>4.60% APY</td> <td>4.60% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&amp;lender=BMO%20Alto&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="noopener noreferrer nofollow">BMO Alto</a></td> </tr> </tbody> </table> <figcaption>To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_7-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-cds-are-still-paying-historically-high-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> CDs Are Still Paying Historically High Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The top yields among standard CDs held their ground in every term again today, with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">the overall nationwide rate</a> remaining 5.75% APY on a 6-month certificate from Andrews Federal Credit Union. Term leaders from 1 to 3 years are paying top rates from 5.00% to 5.50% APY, while 4-year and 5-year CDs are topping out at 4.60% APY. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> It's true that certificate of deposit (CD) rates have softened since climbing to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that pay a least 5.50% APY was 30. For most of the last week, the count has been 10. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> But don't lose sight of how high CD returns still are relative to the past 20 years. Being able to lock in a return in the 4% to 5% range for a year or more down the road is still a great opportunity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Also keep in mind that snagging the <em>highest</em> APY isn't the only way to win with today's CDs. Since CD rates could fall much further in 2024 and 2025, locking in a rate soon that's guaranteed far into the future could prove to be a smart move.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_18-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/HWgWd/2/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Ranges of Top 15 CD Rates by Term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-todays-top-bank-credit-union-and-jumbo-cd-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Today's Top Bank, Credit Union, and Jumbo CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Our rate leaders held their ground in every CD term today, for both standard and jumbo certificates. The best jumbo CD rate remains 5.65% APY on a 17-month term, available from Hughes Federal Credit Union. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> As always, beware that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766">the best jumbo CD rates</a> don't <em>always</em> pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in every term but two below, so it's always wise to shop both certificate types before making a final decision. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_25-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 98px;"></colgroup> <colgroup span="1" style="width: 149px;"></colgroup> <colgroup span="1" style="width: 150px;"></colgroup> <colgroup span="1" style="width: 146px;"></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Term</b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bank-cd-rates-4801462" rel="noopener noreferrer">Today's Top National Bank Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214" rel="noopener noreferrer">Today's Top National Credit Union Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766" rel="noopener noreferrer">Today's Top National Jumbo Rate</a></b></td> </tr> <tr> <td>3 months</td> <td>5.42% APY*</td> <td>5.30% APY</td> <td>5.20% APY</td> </tr> <tr> <td>6 months</td> <td>5.55% APY</td> <td>5.75% APY*</td> <td>5.51% APY</td> </tr> <tr> <td>1 year</td> <td>5.50% APY</td> <td>5.43% APY</td> <td>5.51% APY*</td> </tr> <tr> <td>18 months</td> <td>5.08% APY</td> <td>5.35% APY</td> <td>5.65% APY*</td> </tr> <tr> <td>2 years</td> <td>4.91% APY</td> <td>5.27% APY*</td> <td>5.06% APY</td> </tr> <tr> <td>3 years</td> <td>5.00% APY*</td> <td>5.00% APY*</td> <td>4.97% APY</td> </tr> <tr> <td>4 years</td> <td>4.60% APY*</td> <td>4.60% APY*</td> <td>4.52% APY</td> </tr> <tr> <td>5 years</td> <td>4.60% APY*</td> <td>4.60% APY*</td> <td>4.42% APY</td> </tr> </tbody> </table> <figcaption>*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <span class="heading-toc" id="toc-where-are-cd-rates-headed-in-2024"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> Where Are CD Rates Headed in 2024? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The Federal Reserve announced at its Jan. 31 meeting that it is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-interest-rate-decision-january-2024-8553695">maintaining rates at their current level</a>, the fourth meeting in a row it's done so.<span class="ql-inline-citation" data-cite="32"></span> To combat decades-high inflation, the Fed had aggressively hiked interest rates between March 2022 and July 2023, raising the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> to its highest level in 22 years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> This in turn created historically favorable conditions for CD shoppers, as well as for anyone holding cash in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">money market account</a>. Rates on CDs continued rising to a peak this fall, reaching their highest levels in two decades. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_32-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/dmHLF/1" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Top CD Rates Since December 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> But inflation has been cooling, putting the Fed in a holding pattern since July. The central bank also signaled after its January meeting that it was most likely finished with its rate-hike campaign.<span class="ql-inline-citation" data-cite="32"></span> This means we've entered a new phase, where the Fed committee is focused on deciding the right timing to pull the trigger on a first rate cut. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Financial markets are currently forecasting more than one rate cut in 2024, according to the CME Group's FedWatch Tool, with a majority of traders believing the first cut will arrive by June.<span class="ql-inline-citation" data-cite="39"></span> But what markets predict and what the Fed ultimately does may or may not align. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Indeed, Fed Chair <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/jerome-powell-5210572">Jerome Powell</a> testified to Congress last week and indicated the rate-setting committee still thinks it's likely they will cut their benchmark rate this year. But his remarks also <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-chair-powell-sticks-to-script-in-first-congress-appearance-this-week-8605176">conveyed caution</a> that predictions at this time are merely best guesses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> "The economic outlook is uncertain, and ongoing progress toward our 2% objective for inflation is not assured," Powell said in his prepared comments. "Reducing policy restraint too soon or too much could result in a reversal of progress we have seen." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Indeed, inflation is proving more stubborn than the Fed and most economists have been anticipating. Inflation data released today showed February's reading was <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/february-2024-cpi-8607820">higher than expected</a> and slightly above January's reading, which itself came in ahead of expectations last month.<span class="ql-inline-citation" data-cite="40"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> The Fed's next rate-setting meeting is next week, and the central bank will almost certainly announce another rate hold Wednesday. But this announcement will also come with the release of a new "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dot-plot-4581755">dot plot</a>" chart, which indicates how many rate cuts—if any—each Fed member expects we'll see by the end of 2024. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> If the dot plot shows that central bankers still expect to make multiple rate cuts this year, CD rates would probably continue drifting gradually lower. But if instead next week's dot plot shows that rate cuts are far less certain by the end of 2024, then CD rates may plateau until it seems a Fed rate decrease is more forthcoming.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_49-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Best High-Yield Savings Accounts for May 2024—Up to 5.55%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_51-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-cd-rates-4770214" id="mntl-sc-block-featuredlink__link_2-0" rel="nocaes"><span class="link__wrapper">Best CD Rates for May 2024: Up to 5.51%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_53-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-money-market-accounts-5096917" id="mntl-sc-block-featuredlink__link_3-0" rel="nocaes"><span class="link__wrapper">Best Money Market Account Rates for May 2024—Up to 5.35%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_55-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_56-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher.</p></div></div></div> <span class="heading-toc" id="toc-how-we-find-the-best-cd-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-heading__text"> How We Find the Best CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">FDIC</a> for banks, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua-insured-institution.asp">NCUA</a> for credit unions), and the CD's minimum initial deposit must not exceed $25,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>.<br/> </p></div>

### Key Takeaways * Rates of 5.27% APY or better are available in every term up to 2 years, letting you lock in a stellar return as long as 2026. * The top nationwide rate in our daily CD rankings continues to be 5.75% APY on a 6-month offer from [Andrews Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.andrewsfcu.org/Learn/Resources/Rates/Share-Certificate-Rates&lender=Andrews%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ). * For anyone wanting to stretch to a year, you can score up to 5.50% APY with [T Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://t.bank/current-rates/&lender=T%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ). * Able to make a jumbo deposit? [Hughes Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.hughesfcu.org/products/detail/certificate-accounts&lender=Hughes%20Federal%20Credit%20Uniontype=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) is paying 5.65% for 17 months. * CD rates have been gradually inching down for the past few months. But they'll probably start to fall faster once the Fed appears ready to make a rate cut. Here are today's best CD rates available nationwide, followed by featured CDs from our partners. | **CD Terms** | **Yesterday's Top National Rate** | **Today's Top National Rate** | **Day's Change** (percentage points) | **Top Rate Provider** | | --- | --- | --- | --- | --- | | [3 months](https://www.investopedia.com/best-3-month-cd-rates-5272288) | 5.42% APY | 5.42% APY | No change | [TotalDirectBank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.totaldirectbank.com/personal/cds&lender=TotalDirectBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [6 months](https://www.investopedia.com/best-6-month-cd-rates-4783267) | 5.75% APY | 5.75% APY | No change | [Andrews Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.andrewsfcu.org/Learn/Resources/Rates/Share-Certificate-Rates&lender=Andrews%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [1 year](https://www.investopedia.com/best-1-year-cd-rates-4796650) | 5.50% APY | 5.50% APY | No change | [T Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://t.bank/current-rates/&lender=T%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [18 months](https://www.investopedia.com/best-18-month-cd-rates-5272348) | 5.35% APY | 5.35% APY | No change | [Fortera Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://forteracu.com/banking/personal/savings/certificates/fixed-rate-share-certificate&lender=Fortera%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [2 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 5.27% APY | 5.27% APY | No change | [Pelican State Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.pelicanstatecu.com/rates&lender=Pelican%20State%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [3 years](https://www.investopedia.com/best-3-year-cd-rates-4782938) | 5.00% APY | 5.00% APY | No change | [DollarSavingsDirect](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&lender=DollarSavingsDirect&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [4 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&lender=Lafayette%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.60% APY | 4.60% APY | No change | [Credit Human](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [5 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) | 4.60% APY | 4.60% APY | No change | [BMO Alto](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://alto.bmo.com/en-us/high-yield-cd/&lender=BMO%20Alto&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. ## CDs Are Still Paying Historically High Rates The top yields among standard CDs held their ground in every term again today, with [the overall nationwide rate](https://www.investopedia.com/best-cd-rates-4770214) remaining 5.75% APY on a 6-month certificate from Andrews Federal Credit Union. Term leaders from 1 to 3 years are paying top rates from 5.00% to 5.50% APY, while 4-year and 5-year CDs are topping out at 4.60% APY. It's true that certificate of deposit (CD) rates have softened since climbing to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that pay a least 5.50% APY was 30. For most of the last week, the count has been 10. But don't lose sight of how high CD returns still are relative to the past 20 years. Being able to lock in a return in the 4% to 5% range for a year or more down the road is still a great opportunity. Also keep in mind that snagging the *highest* APY isn't the only way to win with today's CDs. Since CD rates could fall much further in 2024 and 2025, locking in a rate soon that's guaranteed far into the future could prove to be a smart move. ## Today's Top Bank, Credit Union, and Jumbo CD Rates Our rate leaders held their ground in every CD term today, for both standard and jumbo certificates. The best jumbo CD rate remains 5.65% APY on a 17-month term, available from Hughes Federal Credit Union. As always, beware that [the best jumbo CD rates](https://www.investopedia.com/best-jumbo-cd-rates-4797766) don't *always* pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in every term but two below, so it's always wise to shop both certificate types before making a final decision. | **CD Term** | **[Today's Top National Bank Rate](https://www.investopedia.com/best-bank-cd-rates-4801462)** | **[Today's Top National Credit Union Rate](https://www.investopedia.com/best-cd-rates-4770214)** | **[Today's Top National Jumbo Rate](https://www.investopedia.com/best-jumbo-cd-rates-4797766)** | | --- | --- | --- | --- | | 3 months | 5.42% APY\* | 5.30% APY | 5.20% APY | | 6 months | 5.55% APY | 5.75% APY\* | 5.51% APY | | 1 year | 5.50% APY | 5.43% APY | 5.51% APY\* | | 18 months | 5.08% APY | 5.35% APY | 5.65% APY\* | | 2 years | 4.91% APY | 5.27% APY\* | 5.06% APY | | 3 years | 5.00% APY\* | 5.00% APY\* | 4.97% APY | | 4 years | 4.60% APY\* | 4.60% APY\* | 4.52% APY | | 5 years | 4.60% APY\* | 4.60% APY\* | 4.42% APY | \*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. ## Where Are CD Rates Headed in 2024? The Federal Reserve announced at its Jan. 31 meeting that it is [maintaining rates at their current level](https://www.investopedia.com/fed-interest-rate-decision-january-2024-8553695), the fourth meeting in a row it's done so. To combat decades-high inflation, the Fed had aggressively hiked interest rates between March 2022 and July 2023, raising the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) to its highest level in 22 years. This in turn created historically favorable conditions for CD shoppers, as well as for anyone holding cash in a [high-yield savings](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) or [money market account](https://www.investopedia.com/best-money-market-accounts-5096917). Rates on CDs continued rising to a peak this fall, reaching their highest levels in two decades. But inflation has been cooling, putting the Fed in a holding pattern since July. The central bank also signaled after its January meeting that it was most likely finished with its rate-hike campaign. This means we've entered a new phase, where the Fed committee is focused on deciding the right timing to pull the trigger on a first rate cut. Financial markets are currently forecasting more than one rate cut in 2024, according to the CME Group's FedWatch Tool, with a majority of traders believing the first cut will arrive by June. But what markets predict and what the Fed ultimately does may or may not align. Indeed, Fed Chair [Jerome Powell](https://www.investopedia.com/jerome-powell-5210572) testified to Congress last week and indicated the rate-setting committee still thinks it's likely they will cut their benchmark rate this year. But his remarks also [conveyed caution](https://www.investopedia.com/fed-chair-powell-sticks-to-script-in-first-congress-appearance-this-week-8605176) that predictions at this time are merely best guesses. "The economic outlook is uncertain, and ongoing progress toward our 2% objective for inflation is not assured," Powell said in his prepared comments. "Reducing policy restraint too soon or too much could result in a reversal of progress we have seen." Indeed, inflation is proving more stubborn than the Fed and most economists have been anticipating. Inflation data released today showed February's reading was [higher than expected](https://www.investopedia.com/february-2024-cpi-8607820) and slightly above January's reading, which itself came in ahead of expectations last month. The Fed's next rate-setting meeting is next week, and the central bank will almost certainly announce another rate hold Wednesday. But this announcement will also come with the release of a new "[dot plot](https://www.investopedia.com/dot-plot-4581755)" chart, which indicates how many rate cuts—if any—each Fed member expects we'll see by the end of 2024. If the dot plot shows that central bankers still expect to make multiple rate cuts this year, CD rates would probably continue drifting gradually lower. But if instead next week's dot plot shows that rate cuts are far less certain by the end of 2024, then CD rates may plateau until it seems a Fed rate decrease is more forthcoming. [Best High-Yield Savings Accounts for May 2024—Up to 5.55%](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) [Best CD Rates for May 2024: Up to 5.51%](https://www.investopedia.com/best-cd-rates-4770214) [Best Money Market Account Rates for May 2024—Up to 5.35%](https://www.investopedia.com/best-money-market-accounts-5096917) ### Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. ## How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured ([FDIC](https://www.investopedia.com/terms/f/fdic-insured-account.asp) for banks, [NCUA](https://www.investopedia.com/terms/n/ncua-insured-institution.asp) for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, [read our full methodology](https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816).

Key Takeaways Rates of 5.27% APY or better are available in every term up to 2 years, letting you lock in a stellar return as long as 2026. The top nationwide rate in our daily CD rankings continues to be 5.75% APY on a 6-month offer from Andrews Federal Credit Union. For anyone wanting to stretch to a year, you can score up to 5.50% APY with T Bank. Able to make a jumbo deposit? Hughes Federal Credit Union is paying 5.65% for 17 months. CD rates have been gradually inching down for the past few months. But they'll probably start to fall faster once the Fed appears ready to make a rate cut. Here are today's best CD rates available nationwide, followed by featured CDs from our partners. CD Terms Yesterday's Top National Rate Today's Top National Rate Day's Change (percentage points) Top Rate Provider 3 months 5.42% APY 5.42% APY No change TotalDirectBank 6 months 5.75% APY 5.75% APY No change Andrews Federal Credit Union 1 year 5.50% APY 5.50% APY No change T Bank 18 months 5.35% APY 5.35% APY No change Fortera Credit Union 2 years 5.27% APY 5.27% APY No change Pelican State Credit Union 3 years 5.00% APY 5.00% APY No change DollarSavingsDirect 4 years 4.60% APY 4.60% APY No change Credit Human 5 years 4.60% APY 4.60% APY No change BMO Alto To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. CDs Are Still Paying Historically High Rates The top yields among standard CDs held their ground in every term again today, with the overall nationwide rate remaining 5.75% APY on a 6-month certificate from Andrews Federal Credit Union. Term leaders from 1 to 3 years are paying top rates from 5.00% to 5.50% APY, while 4-year and 5-year CDs are topping out at 4.60% APY. It's true that certificate of deposit (CD) rates have softened since climbing to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that pay a least 5.50% APY was 30. For most of the last week, the count has been 10. But don't lose sight of how high CD returns still are relative to the past 20 years. Being able to lock in a return in the 4% to 5% range for a year or more down the road is still a great opportunity. Also keep in mind that snagging the highest APY isn't the only way to win with today's CDs. Since CD rates could fall much further in 2024 and 2025, locking in a rate soon that's guaranteed far into the future could prove to be a smart move. Today's Top Bank, Credit Union, and Jumbo CD Rates Our rate leaders held their ground in every CD term today, for both standard and jumbo certificates. The best jumbo CD rate remains 5.65% APY on a 17-month term, available from Hughes Federal Credit Union. As always, beware that the best jumbo CD rates don't always pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in every term but two below, so it's always wise to shop both certificate types before making a final decision. CD Term Today's Top National Bank Rate Today's Top National Credit Union Rate Today's Top National Jumbo Rate 3 months 5.42% APY* 5.30% APY 5.20% APY 6 months 5.55% APY 5.75% APY* 5.51% APY 1 year 5.50% APY 5.43% APY 5.51% APY* 18 months 5.08% APY 5.35% APY 5.65% APY* 2 years 4.91% APY 5.27% APY* 5.06% APY 3 years 5.00% APY* 5.00% APY* 4.97% APY 4 years 4.60% APY* 4.60% APY* 4.52% APY 5 years 4.60% APY* 4.60% APY* 4.42% APY *Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. Where Are CD Rates Headed in 2024? The Federal Reserve announced at its Jan. 31 meeting that it is maintaining rates at their current level, the fourth meeting in a row it's done so. To combat decades-high inflation, the Fed had aggressively hiked interest rates between March 2022 and July 2023, raising the federal funds rate to its highest level in 22 years. This in turn created historically favorable conditions for CD shoppers, as well as for anyone holding cash in a high-yield savings or money market account. Rates on CDs continued rising to a peak this fall, reaching their highest levels in two decades. But inflation has been cooling, putting the Fed in a holding pattern since July. The central bank also signaled after its January meeting that it was most likely finished with its rate-hike campaign. This means we've entered a new phase, where the Fed committee is focused on deciding the right timing to pull the trigger on a first rate cut. Financial markets are currently forecasting more than one rate cut in 2024, according to the CME Group's FedWatch Tool, with a majority of traders believing the first cut will arrive by June. But what markets predict and what the Fed ultimately does may or may not align. Indeed, Fed Chair Jerome Powell testified to Congress last week and indicated the rate-setting committee still thinks it's likely they will cut their benchmark rate this year. But his remarks also conveyed caution that predictions at this time are merely best guesses. "The economic outlook is uncertain, and ongoing progress toward our 2% objective for inflation is not assured," Powell said in his prepared comments. "Reducing policy restraint too soon or too much could result in a reversal of progress we have seen." Indeed, inflation is proving more stubborn than the Fed and most economists have been anticipating. Inflation data released today showed February's reading was higher than expected and slightly above January's reading, which itself came in ahead of expectations last month. The Fed's next rate-setting meeting is next week, and the central bank will almost certainly announce another rate hold Wednesday. But this announcement will also come with the release of a new "dot plot" chart, which indicates how many rate cuts—if any—each Fed member expects we'll see by the end of 2024. If the dot plot shows that central bankers still expect to make multiple rate cuts this year, CD rates would probably continue drifting gradually lower. But if instead next week's dot plot shows that rate cuts are far less certain by the end of 2024, then CD rates may plateau until it seems a Fed rate decrease is more forthcoming. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

https://www.investopedia.com/ask/answers/050815/how-does-share-premium-account-appear-balance-sheet.asp

How Does a Share Premium Account Appear on the Balance Sheet?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sharepremiumaccount.asp">share premium account</a> shows up in the shareholders’ equity portion of the balance sheet. The share premium account represents the difference between the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/parvalue.asp">par value</a> of the shares issued and the subscription or issue price. It's also known as additional paid-in capital, or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/contributedsurplus.asp">contributed surplus</a> and can be called paid-in capital in excess of par value. This account is a statutory reserve account, one that's non-distributable. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> The share premium can be money received for the sale of either common or <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/06/preferredstock.asp">preferred stock</a>. A balance is recorded in this account only when there's a direct share sale from the company, usually from a capital raise or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering</a>. Secondary trading between investors does not impact the share premium account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Share premium is the credited difference in price between the par value, or face value, of shares, and the total price a company received for recently-issued shares.</li><li>The amount credited in the share premium account typically fluctuates quarter-to-quarter as a company issues new shares at market value, rather than at the par value.</li><li>The share premium cannot be used for distributing dividends or any other payouts and can only be used for whatever has been expressly laid out in the company's bylaws.</li><li>A share premium account appears in the shareholders' equity section of the balance sheet.</li></ul></div></div></div> <span class="heading-toc" id="toc-example-of-share-premium-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Example of Share Premium Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Many companies issue shares at nominal par value, such as $0.01 per share, meaning many companies will have a share premium account balance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> For example, say a company issues 1,000 shares at a par value of $0.01 per share. The company actually received $15 per share during an offering. The difference between the par value and the subscription amount is the share premium. Ten dollars is credited to the common stock account and the additional $14,990 is credited to the share premium or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/073015/how-do-dividend-distributions-affect-additional-paid-capital.asp">additional paid-in capital account</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_12-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_13-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>A share premium account can be used to write off certain expenses, such as the cost of underwriting, commissions paid, and certain discounts. The accounts can also be used to issue bonus shares.</p></div></div></div> <span class="heading-toc" id="toc-uses-of-share-premium-account-funds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-heading__text"> Uses of Share Premium Account Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The value of a share premium account likely changes over time as a company issues new shares <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/atthemarket.asp" rel="noopener noreferrer">at the market</a> value as opposed to the par value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The funds in the share premium account cannot be distributed as dividends and may only be used for purposes outlined in the company’s bylaws or other governing documents. Often, the share premium can be used to pay the expenses of issuing equity, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwriting-fees.asp" rel="noopener noreferrer">underwriter fees</a> or for issuing bonus shares to shareholders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Beyond selling shares above par, the share premium account can be credited if the government donates land to the company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Such expenses that can be written off include commissions paid and discounts allowed. Buybacks can also reduce this account—that is, if the sale price was less than the repurchase price, the difference is debited to additional paid-in capital. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <span class="heading-toc" id="toc-share-premium-example"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> Share Premium Example </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> For example, a company buys back 1,000 shares at $10 a share, where the par value is $0.01. The original price from the initial sale of this stock was $5 a share. The transaction would be a $10 debit to common stock, $4,990 debit to additional paid-in capital, and a $5,000 debit to retained earnings. Plus, the $10,000 credit to the cash account used for the purchase. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-share-premium-and-shareholders-equity"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> Share Premium and Shareholders' Equity </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/101713/balance-sheet-analyzing-owners-equity.asp" rel="noopener noreferrer">shareholders’ equity</a> portion of the balance sheet shows the initial amount of money invested in the business. The shareholders’ equity also lists <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retainedearnings.asp" rel="noopener noreferrer">retained earnings</a> as the value of net earnings not paid out as dividends. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Retained earnings are often used to pay off debt, reinvest back into the company for research and development purposes, or for a new business or capital acquisitions. A company’s net earnings, after taxes, and its retained earnings represent the total <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/networth.asp" rel="noopener noreferrer">net worth</a> of the company. If a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/netloss.asp" rel="noopener noreferrer">net loss</a> is greater than the retained earnings, there are negative retained earnings shown as a deficit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> The share premium, or the additional paid-in capital account, and retained earnings are usually the two biggest components of shareholders’ equity. In terms of the shareholders’ equity, the first account is usually the common stock account followed by the additional paid-in capital account. Other accounts appearing in the shareholders’ equity section of the balance sheet can include accumulated other comprehensive income, treasury stock, and unearned compensation. </p></div>

A [share premium account](https://www.investopedia.com/terms/s/sharepremiumaccount.asp) shows up in the shareholders’ equity portion of the balance sheet. The share premium account represents the difference between the [par value](https://www.investopedia.com/terms/p/parvalue.asp) of the shares issued and the subscription or issue price. It's also known as additional paid-in capital, or [contributed surplus](https://www.investopedia.com/terms/c/contributedsurplus.asp) and can be called paid-in capital in excess of par value. This account is a statutory reserve account, one that's non-distributable. The share premium can be money received for the sale of either common or [preferred stock](https://www.investopedia.com/articles/stocks/06/preferredstock.asp). A balance is recorded in this account only when there's a direct share sale from the company, usually from a capital raise or [initial public offering](https://www.investopedia.com/terms/i/ipo.asp). Secondary trading between investors does not impact the share premium account. ### Key Takeaways * Share premium is the credited difference in price between the par value, or face value, of shares, and the total price a company received for recently-issued shares. * The amount credited in the share premium account typically fluctuates quarter-to-quarter as a company issues new shares at market value, rather than at the par value. * The share premium cannot be used for distributing dividends or any other payouts and can only be used for whatever has been expressly laid out in the company's bylaws. * A share premium account appears in the shareholders' equity section of the balance sheet. ## Example of Share Premium Account Many companies issue shares at nominal par value, such as $0.01 per share, meaning many companies will have a share premium account balance. For example, say a company issues 1,000 shares at a par value of $0.01 per share. The company actually received $15 per share during an offering. The difference between the par value and the subscription amount is the share premium. Ten dollars is credited to the common stock account and the additional $14,990 is credited to the share premium or [additional paid-in capital account](https://www.investopedia.com/ask/answers/073015/how-do-dividend-distributions-affect-additional-paid-capital.asp). ### A share premium account can be used to write off certain expenses, such as the cost of underwriting, commissions paid, and certain discounts. The accounts can also be used to issue bonus shares. ## Uses of Share Premium Account Funds The value of a share premium account likely changes over time as a company issues new shares [at the market](https://www.investopedia.com/terms/a/atthemarket.asp) value as opposed to the par value. The funds in the share premium account cannot be distributed as dividends and may only be used for purposes outlined in the company’s bylaws or other governing documents. Often, the share premium can be used to pay the expenses of issuing equity, such as [underwriter fees](https://www.investopedia.com/terms/u/underwriting-fees.asp) or for issuing bonus shares to shareholders. Beyond selling shares above par, the share premium account can be credited if the government donates land to the company. Such expenses that can be written off include commissions paid and discounts allowed. Buybacks can also reduce this account—that is, if the sale price was less than the repurchase price, the difference is debited to additional paid-in capital. ## Share Premium Example For example, a company buys back 1,000 shares at $10 a share, where the par value is $0.01. The original price from the initial sale of this stock was $5 a share. The transaction would be a $10 debit to common stock, $4,990 debit to additional paid-in capital, and a $5,000 debit to retained earnings. Plus, the $10,000 credit to the cash account used for the purchase. ## Share Premium and Shareholders' Equity The [shareholders’ equity](https://www.investopedia.com/articles/investing/101713/balance-sheet-analyzing-owners-equity.asp) portion of the balance sheet shows the initial amount of money invested in the business. The shareholders’ equity also lists [retained earnings](https://www.investopedia.com/terms/r/retainedearnings.asp) as the value of net earnings not paid out as dividends. Retained earnings are often used to pay off debt, reinvest back into the company for research and development purposes, or for a new business or capital acquisitions. A company’s net earnings, after taxes, and its retained earnings represent the total [net worth](https://www.investopedia.com/terms/n/networth.asp) of the company. If a [net loss](https://www.investopedia.com/terms/n/netloss.asp) is greater than the retained earnings, there are negative retained earnings shown as a deficit. The share premium, or the additional paid-in capital account, and retained earnings are usually the two biggest components of shareholders’ equity. In terms of the shareholders’ equity, the first account is usually the common stock account followed by the additional paid-in capital account. Other accounts appearing in the shareholders’ equity section of the balance sheet can include accumulated other comprehensive income, treasury stock, and unearned compensation.

A share premium account shows up in the shareholders’ equity portion of the balance sheet. The share premium account represents the difference between the par value of the shares issued and the subscription or issue price. It's also known as additional paid-in capital, or contributed surplus and can be called paid-in capital in excess of par value. This account is a statutory reserve account, one that's non-distributable. The share premium can be money received for the sale of either common or preferred stock. A balance is recorded in this account only when there's a direct share sale from the company, usually from a capital raise or initial public offering. Secondary trading between investors does not impact the share premium account. Key Takeaways Share premium is the credited difference in price between the par value, or face value, of shares, and the total price a company received for recently-issued shares.The amount credited in the share premium account typically fluctuates quarter-to-quarter as a company issues new shares at market value, rather than at the par value.The share premium cannot be used for distributing dividends or any other payouts and can only be used for whatever has been expressly laid out in the company's bylaws.A share premium account appears in the shareholders' equity section of the balance sheet. Example of Share Premium Account Many companies issue shares at nominal par value, such as $0.01 per share, meaning many companies will have a share premium account balance. For example, say a company issues 1,000 shares at a par value of $0.01 per share. The company actually received $15 per share during an offering. The difference between the par value and the subscription amount is the share premium. Ten dollars is credited to the common stock account and the additional $14,990 is credited to the share premium or additional paid-in capital account. A share premium account can be used to write off certain expenses, such as the cost of underwriting, commissions paid, and certain discounts. The accounts can also be used to issue bonus shares. Uses of Share Premium Account Funds The value of a share premium account likely changes over time as a company issues new shares at the market value as opposed to the par value. The funds in the share premium account cannot be distributed as dividends and may only be used for purposes outlined in the company’s bylaws or other governing documents. Often, the share premium can be used to pay the expenses of issuing equity, such as underwriter fees or for issuing bonus shares to shareholders. Beyond selling shares above par, the share premium account can be credited if the government donates land to the company. Such expenses that can be written off include commissions paid and discounts allowed. Buybacks can also reduce this account—that is, if the sale price was less than the repurchase price, the difference is debited to additional paid-in capital. Share Premium Example For example, a company buys back 1,000 shares at $10 a share, where the par value is $0.01. The original price from the initial sale of this stock was $5 a share. The transaction would be a $10 debit to common stock, $4,990 debit to additional paid-in capital, and a $5,000 debit to retained earnings. Plus, the $10,000 credit to the cash account used for the purchase. Share Premium and Shareholders' Equity The shareholders’ equity portion of the balance sheet shows the initial amount of money invested in the business. The shareholders’ equity also lists retained earnings as the value of net earnings not paid out as dividends. Retained earnings are often used to pay off debt, reinvest back into the company for research and development purposes, or for a new business or capital acquisitions. A company’s net earnings, after taxes, and its retained earnings represent the total net worth of the company. If a net loss is greater than the retained earnings, there are negative retained earnings shown as a deficit. The share premium, or the additional paid-in capital account, and retained earnings are usually the two biggest components of shareholders’ equity. In terms of the shareholders’ equity, the first account is usually the common stock account followed by the additional paid-in capital account. Other accounts appearing in the shareholders’ equity section of the balance sheet can include accumulated other comprehensive income, treasury stock, and unearned compensation.

https://www.investopedia.com/top-nasdaq-etfs-for-q3-2023-7853251

Top Nasdaq ETFs for Q3 2023

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The technology sector fell in 2022 but has recovered this year, affirming for many investors the importance of focusing on technology companies when crafting a portfolio. Those looking for broad exposure to the sector in the third quarter may wish to focus on one of the top Nasdaq 100 Index exchange-traded funds (ETFs). That tech-heavy index has risen by almost 20% in the last 12 months, while the S&amp;P 500 has climbed by 9%.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>Two popular funds offering exposure to the Nasdaq 100 index are the Invesco NASDAQ 100 ETF (QQQM) and the Invesco QQQ Trust (QQQ).</li> <li>The benchmark Nasdaq 100 index focuses heavily on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/10/primer-on-the-tech-industry.asp">tech stocks</a> and has outperformed the S&amp;P 500 in the last year.</li> <li>The top holdings of both funds are Apple Inc., Microsoft Corp., and Amazon.com Inc.</li> </ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> There are only two <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">ETFs</a> in the U.S. that target the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq100.asp">Nasdaq 100 index</a> without providing inverse or leveraged coverage and that have at least $50 million in <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp">assets under management (AUM)</a>. These are the Invesco NASDAQ 100 ETF and the Invesco QQQ Trust.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Another fund tracking the same index but with a focus on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp">environmental, social, and governance (ESG)</a> factors, the Invesco ESG NASDAQ 100 ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=QQMG">QQMG</a>), has outperformed both of the funds above in the last year but only had about $18 million in AUM as of this writing.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> We look at both the QQQM and QQQ funds in greater detail below. All data is as of Aug. 24, 2023. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-invesco-nasdaq-100-etf-qqqm"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=QQQM" rel="nocaes">Invesco Nasdaq 100 ETF (QQQM)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <li>Performance Over 1 Year: 15.6%</li><li>Expense Ratio: 0.15%</li><li>Annual Dividend Yield: 0.66%</li><li>Three-Month Average Daily Volume: 1,210,148</li><li>Assets Under Management: $13.9 billion</li><li>Inception Date: Oct. 13, 2020</li><li>Issuer: Invesco</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The NASDAQ 100 ETF by Invesco is a lower-cost version of its earlier and significantly more popular QQQ Trust. Both funds track the Nasdaq 100, but QQQM has a lower expense ratio and share price. It also reinvests dividends, making it an attractive option for investors looking to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buyandhold.asp">buy and hold</a>.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-invesco-qqq-trust-qqq"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <a class="mntl-sc-block-heading__link" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=QQQ" rel="nocaes">Invesco QQQ Trust (QQQ)</a> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <li>Performance Over 1 Year: 15.5%</li><li>Expense Ratio: 0.20%</li><li>Annual Dividend Yield: 0.60%</li><li>Three-Month Average Daily Volume: 53,118,392</li><li>Assets Under Management: $202.0 billion</li><li>Inception Date: March 10, 1999</li><li>Issuer: Invesco</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> QQQ Trust is one of the oldest and most popular ETFs available today. It is also among the most liquid, with a daily trading volume suggesting that it is often used for short-term trading purposes by institutional investors and larger financial institutions. Still, many buy-and-hold investors look to QQQ based on its popularity, although QQQM above has a lower <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp">expense ratio</a>.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="5"></span><br/><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Below, we list the top 10 holdings for both QQQM and QQQ. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_23-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">Top QQQ and QQQM Holdings</th> </tr> </thead> <tbody data-check="-1"> <tr> <td>Company Name (Ticker)</td> <td>Percent of Total Assets</td> <td>Description of Company</td> </tr> <tr> <td>Apple Inc. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL">AAPL</a>)</td> <td>11.1</td> <td>Computers, software, services</td> </tr> <tr> <td>Microsoft Corp. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>)</td> <td>9.5</td> <td>Computers, cloud services, software</td> </tr> <tr> <td>Amazon.com Inc. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN">AMZN</a>)</td> <td>5.4</td> <td>Ecommerce, cloud computing</td> </tr> <tr> <td>NVIDIA Corp. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>)</td> <td>4.7</td> <td>Computing and chips</td> </tr> <tr> <td>Meta Platforms Inc. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>) (class A shares)</td> <td>3.6</td> <td>Social media, metaverse</td> </tr> <tr> <td>Alphabet Inc. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=googl">GOOGL</a>) (class A shares)</td> <td>3.1</td> <td>Search engine, software, and cloud computing</td> </tr> <tr> <td>Alphabet Inc. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=goog">GOOG</a>) (class C shares)</td> <td>3.1</td> <td>Search engine, software, and cloud computing</td> </tr> <tr> <td>Broadcom Inc. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AVGO">AVGO</a>)</td> <td>3.1</td> <td>Semiconductors and infrastructure software</td> </tr> <tr> <td>Tesla Inc. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA">TSLA</a>)</td> <td>2.9</td> <td>Electric vehicles</td> </tr> <tr> <td>PepsiCo Inc. (<a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PEP">PEP</a>)</td> <td>2.1 </td> <td>Beverages, snacks, and packaged food</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer">warranty and liability disclaimer</a> for more info.</em> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> <em>As of the date this article was written, the author does not own shares of the ETFs listed above.<br/></em> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

The technology sector fell in 2022 but has recovered this year, affirming for many investors the importance of focusing on technology companies when crafting a portfolio. Those looking for broad exposure to the sector in the third quarter may wish to focus on one of the top Nasdaq 100 Index exchange-traded funds (ETFs). That tech-heavy index has risen by almost 20% in the last 12 months, while the S&P 500 has climbed by 9%. ### Key Takeaways * Two popular funds offering exposure to the Nasdaq 100 index are the Invesco NASDAQ 100 ETF (QQQM) and the Invesco QQQ Trust (QQQ). * The benchmark Nasdaq 100 index focuses heavily on [tech stocks](https://www.investopedia.com/articles/stocks/10/primer-on-the-tech-industry.asp) and has outperformed the S&P 500 in the last year. * The top holdings of both funds are Apple Inc., Microsoft Corp., and Amazon.com Inc. There are only two [ETFs](https://www.investopedia.com/terms/e/etf.asp) in the U.S. that target the [Nasdaq 100 index](https://www.investopedia.com/terms/n/nasdaq100.asp) without providing inverse or leveraged coverage and that have at least $50 million in [assets under management (AUM)](https://www.investopedia.com/terms/a/aum.asp). These are the Invesco NASDAQ 100 ETF and the Invesco QQQ Trust. Another fund tracking the same index but with a focus on [environmental, social, and governance (ESG)](https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp) factors, the Invesco ESG NASDAQ 100 ETF ([QQMG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=QQMG)), has outperformed both of the funds above in the last year but only had about $18 million in AUM as of this writing. We look at both the QQQM and QQQ funds in greater detail below. All data is as of Aug. 24, 2023. ## [Invesco Nasdaq 100 ETF (QQQM)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=QQQM) * Performance Over 1 Year: 15.6% * Expense Ratio: 0.15% * Annual Dividend Yield: 0.66% * Three-Month Average Daily Volume: 1,210,148 * Assets Under Management: $13.9 billion * Inception Date: Oct. 13, 2020 * Issuer: Invesco The NASDAQ 100 ETF by Invesco is a lower-cost version of its earlier and significantly more popular QQQ Trust. Both funds track the Nasdaq 100, but QQQM has a lower expense ratio and share price. It also reinvests dividends, making it an attractive option for investors looking to [buy and hold](https://www.investopedia.com/terms/b/buyandhold.asp). ## [Invesco QQQ Trust (QQQ)](https://www.investopedia.com/markets/quote?tvwidgetsymbol=QQQ) * Performance Over 1 Year: 15.5% * Expense Ratio: 0.20% * Annual Dividend Yield: 0.60% * Three-Month Average Daily Volume: 53,118,392 * Assets Under Management: $202.0 billion * Inception Date: March 10, 1999 * Issuer: Invesco QQQ Trust is one of the oldest and most popular ETFs available today. It is also among the most liquid, with a daily trading volume suggesting that it is often used for short-term trading purposes by institutional investors and larger financial institutions. Still, many buy-and-hold investors look to QQQ based on its popularity, although QQQM above has a lower [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp). Below, we list the top 10 holdings for both QQQM and QQQ. | Top QQQ and QQQM Holdings | | | | --- | --- | --- | | Company Name (Ticker) | Percent of Total Assets | Description of Company | | Apple Inc. ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) | 11.1 | Computers, software, services | | Microsoft Corp. ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) | 9.5 | Computers, cloud services, software | | Amazon.com Inc. ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN)) | 5.4 | Ecommerce, cloud computing | | NVIDIA Corp. ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)) | 4.7 | Computing and chips | | Meta Platforms Inc. ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)) (class A shares) | 3.6 | Social media, metaverse | | Alphabet Inc. ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=googl)) (class A shares) | 3.1 | Search engine, software, and cloud computing | | Alphabet Inc. ([GOOG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=goog)) (class C shares) | 3.1 | Search engine, software, and cloud computing | | Broadcom Inc. ([AVGO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AVGO)) | 3.1 | Semiconductors and infrastructure software | | Tesla Inc. ([TSLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSLA)) | 2.9 | Electric vehicles | | PepsiCo Inc. ([PEP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PEP)) | 2.1 | Beverages, snacks, and packaged food | *The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.* *As of the date this article was written, the author does not own shares of the ETFs listed above.* Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

The technology sector fell in 2022 but has recovered this year, affirming for many investors the importance of focusing on technology companies when crafting a portfolio. Those looking for broad exposure to the sector in the third quarter may wish to focus on one of the top Nasdaq 100 Index exchange-traded funds (ETFs). That tech-heavy index has risen by almost 20% in the last 12 months, while the S&P 500 has climbed by 9%. Key Takeaways Two popular funds offering exposure to the Nasdaq 100 index are the Invesco NASDAQ 100 ETF (QQQM) and the Invesco QQQ Trust (QQQ). The benchmark Nasdaq 100 index focuses heavily on tech stocks and has outperformed the S&P 500 in the last year. The top holdings of both funds are Apple Inc., Microsoft Corp., and Amazon.com Inc. There are only two ETFs in the U.S. that target the Nasdaq 100 index without providing inverse or leveraged coverage and that have at least $50 million in assets under management (AUM). These are the Invesco NASDAQ 100 ETF and the Invesco QQQ Trust. Another fund tracking the same index but with a focus on environmental, social, and governance (ESG) factors, the Invesco ESG NASDAQ 100 ETF (QQMG), has outperformed both of the funds above in the last year but only had about $18 million in AUM as of this writing. We look at both the QQQM and QQQ funds in greater detail below. All data is as of Aug. 24, 2023. Invesco Nasdaq 100 ETF (QQQM) Performance Over 1 Year: 15.6%Expense Ratio: 0.15%Annual Dividend Yield: 0.66%Three-Month Average Daily Volume: 1,210,148Assets Under Management: $13.9 billionInception Date: Oct. 13, 2020Issuer: Invesco The NASDAQ 100 ETF by Invesco is a lower-cost version of its earlier and significantly more popular QQQ Trust. Both funds track the Nasdaq 100, but QQQM has a lower expense ratio and share price. It also reinvests dividends, making it an attractive option for investors looking to buy and hold. Invesco QQQ Trust (QQQ) Performance Over 1 Year: 15.5%Expense Ratio: 0.20%Annual Dividend Yield: 0.60%Three-Month Average Daily Volume: 53,118,392Assets Under Management: $202.0 billionInception Date: March 10, 1999Issuer: Invesco QQQ Trust is one of the oldest and most popular ETFs available today. It is also among the most liquid, with a daily trading volume suggesting that it is often used for short-term trading purposes by institutional investors and larger financial institutions. Still, many buy-and-hold investors look to QQQ based on its popularity, although QQQM above has a lower expense ratio. Below, we list the top 10 holdings for both QQQM and QQQ. Top QQQ and QQQM Holdings Company Name (Ticker) Percent of Total Assets Description of Company Apple Inc. (AAPL) 11.1 Computers, software, services Microsoft Corp. (MSFT) 9.5 Computers, cloud services, software Amazon.com Inc. (AMZN) 5.4 Ecommerce, cloud computing NVIDIA Corp. (NVDA) 4.7 Computing and chips Meta Platforms Inc. (META) (class A shares) 3.6 Social media, metaverse Alphabet Inc. (GOOGL) (class A shares) 3.1 Search engine, software, and cloud computing Alphabet Inc. (GOOG) (class C shares) 3.1 Search engine, software, and cloud computing Broadcom Inc. (AVGO) 3.1 Semiconductors and infrastructure software Tesla Inc. (TSLA) 2.9 Electric vehicles PepsiCo Inc. (PEP) 2.1  Beverages, snacks, and packaged food The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own shares of the ETFs listed above. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/terms/i/iar.asp

Investment Advisory Representative (IAR): Definition and Duties

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-an-investment-advisory-representative-iar"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is an Investment Advisory Representative (IAR)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Investment advisory representatives (IARs) are licensed and authorized personnel who work for investment advisory companies and are permitted to work with clients. The primary responsibility of an IAR is to provide investment-related advice as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/personal-financial-advisor.asp">financial advisor</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialplanner.asp">financial planner</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> In order to become an IAR, individuals must pass the appropriate licensing exam or exams and register with the appropriate regulatory bodies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>IARs are individuals employed by or associated with an investment advisor who make recommendations or otherwise give financial or investment advice.</li><li>IARs receive compensation by charging fees either on a commission basis, at a flat or hourly rate, or as a percentage of assets under management (AUM).</li><li>IARs must be properly registered, and, at a minimum, complete credentialing exams certified by FINRA and other required regulatory agencies.</li><li>IARs are often required to pass the Series 63 and Series 65 exams, though requirements vary by state.</li><li>IARs responsibilities include making financial recommendations, managing client accounts, providing advisory services to external parties, or overseeing other IARs.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-investment-advisory-representatives-iars"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Investment Advisory Representatives (IARs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/uniformsecuritiesact.asp">The Uniform Securities Act</a> defines the term investment advisor representative (IAR) as: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <cite>"An individual employed by or associated with an investment advisor or federal-covered investment advisor and who makes any recommendations or otherwise gives investment advice regarding securities, manages accounts or portfolios of clients, determines which recommendation or advice regarding securities should be given, provides investment advice or holds herself or himself out as providing investment advice, receives compensation to solicit, offer, or negotiate for the sale of or for selling investment advice, or supervises employees who perform any of the foregoing.<em>"</em></cite><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> IARs, as the name suggests, are representatives of investment advisory firms. They are typically tasked with duties and roles that would cast them as financial advisors and/or financial planners and often work with individual clients to help them achieve their financial goals and build investment <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolios</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> More specifically, IARs commonly engage in the following: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <li><strong>Make Recommendations:</strong> IARs use their skill and judgment to make recommendations about different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">securities</a>. They may use research produced by their firm to make an investment decision such as making a buy recommendation to a client after analyzing a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/research_note.asp">research note</a>.</li> <li><strong>Manages Client Accounts:</strong> This includes all aspects of account management, from managing <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discretionaryaccount.asp">discretionary accounts</a> to following up on administration issues. For instance, an IAR may request additional funds from an investor to settle an outstanding trade.</li> <li><strong>Advisory Services:</strong> IARs may provide general <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment-advice.asp">investment advice</a>. Examples include presenting a daily market report at a local television station or writing a weekly investment column for a newspaper.</li> <li><strong>Supervise Other IARs:</strong> An IAR might manage other IARs. This could include ensuring that new staff meet all regulatory requirements and helping to train junior team members as well as monitor the investment advice they give to investors.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> An employee of an investment firm who does not directly engage in financial advice or investment recommendations to clients would not need to register as an IAR. This includes support staff, administrators, secretaries, etc. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_21-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_22-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>According to regulatory terminology, the "registered investment advisor" or RIA is the firm and the IAR is the individual who represents the firm and must pass an exam.<span class="ql-inline-citation" data-cite="4"></span></p></div></div></div> <span class="heading-toc" id="toc-iar-requirements"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> IAR Requirements </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> It is essential for RIA firms to ensure their IARs are registered correctly to avoid significant penalties. The first step in the registration process is to create an account with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment-adviser-registration-depository-iard.asp">Investment Adviser Registration Depository (IARD)</a>. These accounts are managed by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finra.asp">Financial Industry Regulatory Authority (FINRA)</a> on behalf of the Securities and Exchange Commission (SEC) and states.<span class="ql-inline-citation" data-cite="1"></span> There are a few states that do not require this, so advisors who only do business in those states do not have to use this system.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Once the account is open, FINRA will supply the advisor or firm with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crd.asp">Central Registration Depository (CRD)</a> number and account ID information. With this, the firm can then file <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/form_adv.asp">Form ADV</a> and the U4 forms with either the SEC or states.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> According to regulations, IARs can only offer advice on topics for which they have passed the appropriate examinations. In addition to obtaining the minimum qualifications, they must register with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/ria.asp">registered investment advisor (RIA)</a> firm and the proper state authorities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> IARs register in the state in which they provide investment advice; they do not require SEC registration. In the majority of states, IARs are required to file Form U4, which is the Uniform Application for Securities Industry Registration. The form then gets filed on the CRD system. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-iar-qualifications"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> IAR Qualifications </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> To expand their knowledge of financial products and principles, many IARs go above and beyond by acquiring either the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfp.asp">Certified Financial Planner (CFP)</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cfa.asp">Chartered Financial Analyst (CFA)</a> designations. These designations are not required to be an IAR or financial advisor but provide more legitimacy, opportunity, and knowledge to the charter holder. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> IARs in most states are typically required to pass the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/series63.asp">Series 63</a> and/or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/series65.asp">Series 65 exams</a>.<span class="ql-inline-citation" data-cite="1"></span> The FINRA administered exam consists of 130 scored questions which candidates have 180 minutes to complete.<span class="ql-inline-citation" data-cite="2"></span> As an alternative to passing the Series 65 exam, IARs may pass the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/series66.asp">Series 66</a> and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/series7.asp">Series 7</a> exams.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Some states allow for the substitution of licensing credentials. For example, an individual may not have to pass the Series 65 exam if they hold a CFP designation. IARs may also have continuing education requirements depending on their jurisdiction. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_39-0"><span class="heading-toc" id="toc-what-does-an-iar-do"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does an IAR Do?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An IAR is a specific type of financial advisor that provides general advice to clients, oversees their accounts, and provides advisory services to external parties.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_41-0"><span class="heading-toc" id="toc-how-do-i-become-an-iar"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Become an IAR?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can become an IAR by creating an account with the IARD. Once your account is open, your firm can submit Forms ADV and U4 with the SEC and states, if applicable.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_43-0"><span class="heading-toc" id="toc-what-are-the-benefits-of-becoming-an-iar"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Benefits of Becoming an IAR?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Becoming an IAR legitimizes your status and knowledge as a financial advisor. IARs are recognized by regulatory bodies and often require passing specific tests to provide proficiency.</p></div> </div></div>

## What Is an Investment Advisory Representative (IAR)? Investment advisory representatives (IARs) are licensed and authorized personnel who work for investment advisory companies and are permitted to work with clients. The primary responsibility of an IAR is to provide investment-related advice as a [financial advisor](https://www.investopedia.com/terms/p/personal-financial-advisor.asp) or [financial planner](https://www.investopedia.com/terms/f/financialplanner.asp). In order to become an IAR, individuals must pass the appropriate licensing exam or exams and register with the appropriate regulatory bodies. ### Key Takeaways * IARs are individuals employed by or associated with an investment advisor who make recommendations or otherwise give financial or investment advice. * IARs receive compensation by charging fees either on a commission basis, at a flat or hourly rate, or as a percentage of assets under management (AUM). * IARs must be properly registered, and, at a minimum, complete credentialing exams certified by FINRA and other required regulatory agencies. * IARs are often required to pass the Series 63 and Series 65 exams, though requirements vary by state. * IARs responsibilities include making financial recommendations, managing client accounts, providing advisory services to external parties, or overseeing other IARs. ## Understanding Investment Advisory Representatives (IARs) [The Uniform Securities Act](https://www.investopedia.com/terms/u/uniformsecuritiesact.asp) defines the term investment advisor representative (IAR) as: "An individual employed by or associated with an investment advisor or federal-covered investment advisor and who makes any recommendations or otherwise gives investment advice regarding securities, manages accounts or portfolios of clients, determines which recommendation or advice regarding securities should be given, provides investment advice or holds herself or himself out as providing investment advice, receives compensation to solicit, offer, or negotiate for the sale of or for selling investment advice, or supervises employees who perform any of the foregoing.*"* IARs, as the name suggests, are representatives of investment advisory firms. They are typically tasked with duties and roles that would cast them as financial advisors and/or financial planners and often work with individual clients to help them achieve their financial goals and build investment [portfolios](https://www.investopedia.com/terms/p/portfolio.asp). More specifically, IARs commonly engage in the following: * **Make Recommendations:** IARs use their skill and judgment to make recommendations about different [securities](https://www.investopedia.com/terms/s/security.asp). They may use research produced by their firm to make an investment decision such as making a buy recommendation to a client after analyzing a [research note](https://www.investopedia.com/terms/r/research_note.asp). * **Manages Client Accounts:** This includes all aspects of account management, from managing [discretionary accounts](https://www.investopedia.com/terms/d/discretionaryaccount.asp) to following up on administration issues. For instance, an IAR may request additional funds from an investor to settle an outstanding trade. * **Advisory Services:** IARs may provide general [investment advice](https://www.investopedia.com/terms/i/investment-advice.asp). Examples include presenting a daily market report at a local television station or writing a weekly investment column for a newspaper. * **Supervise Other IARs:** An IAR might manage other IARs. This could include ensuring that new staff meet all regulatory requirements and helping to train junior team members as well as monitor the investment advice they give to investors. An employee of an investment firm who does not directly engage in financial advice or investment recommendations to clients would not need to register as an IAR. This includes support staff, administrators, secretaries, etc. ### According to regulatory terminology, the "registered investment advisor" or RIA is the firm and the IAR is the individual who represents the firm and must pass an exam. ## IAR Requirements It is essential for RIA firms to ensure their IARs are registered correctly to avoid significant penalties. The first step in the registration process is to create an account with the [Investment Adviser Registration Depository (IARD)](https://www.investopedia.com/terms/i/investment-adviser-registration-depository-iard.asp). These accounts are managed by the [Financial Industry Regulatory Authority (FINRA)](https://www.investopedia.com/terms/f/finra.asp) on behalf of the Securities and Exchange Commission (SEC) and states. There are a few states that do not require this, so advisors who only do business in those states do not have to use this system. Once the account is open, FINRA will supply the advisor or firm with a [Central Registration Depository (CRD)](https://www.investopedia.com/terms/c/crd.asp) number and account ID information. With this, the firm can then file [Form ADV](https://www.investopedia.com/terms/f/form_adv.asp) and the U4 forms with either the SEC or states. According to regulations, IARs can only offer advice on topics for which they have passed the appropriate examinations. In addition to obtaining the minimum qualifications, they must register with a [registered investment advisor (RIA)](https://www.investopedia.com/terms/r/ria.asp) firm and the proper state authorities. IARs register in the state in which they provide investment advice; they do not require SEC registration. In the majority of states, IARs are required to file Form U4, which is the Uniform Application for Securities Industry Registration. The form then gets filed on the CRD system. ## IAR Qualifications To expand their knowledge of financial products and principles, many IARs go above and beyond by acquiring either the [Certified Financial Planner (CFP)](https://www.investopedia.com/terms/c/cfp.asp) or [Chartered Financial Analyst (CFA)](https://www.investopedia.com/terms/c/cfa.asp) designations. These designations are not required to be an IAR or financial advisor but provide more legitimacy, opportunity, and knowledge to the charter holder. IARs in most states are typically required to pass the [Series 63](https://www.investopedia.com/terms/s/series63.asp) and/or [Series 65 exams](https://www.investopedia.com/terms/s/series65.asp). The FINRA administered exam consists of 130 scored questions which candidates have 180 minutes to complete. As an alternative to passing the Series 65 exam, IARs may pass the [Series 66](https://www.investopedia.com/terms/s/series66.asp) and [Series 7](https://www.investopedia.com/terms/s/series7.asp) exams. Some states allow for the substitution of licensing credentials. For example, an individual may not have to pass the Series 65 exam if they hold a CFP designation. IARs may also have continuing education requirements depending on their jurisdiction. ## What Does an IAR Do? An IAR is a specific type of financial advisor that provides general advice to clients, oversees their accounts, and provides advisory services to external parties. ## How Do I Become an IAR? You can become an IAR by creating an account with the IARD. Once your account is open, your firm can submit Forms ADV and U4 with the SEC and states, if applicable. ## What Are the Benefits of Becoming an IAR? Becoming an IAR legitimizes your status and knowledge as a financial advisor. IARs are recognized by regulatory bodies and often require passing specific tests to provide proficiency.

What Is an Investment Advisory Representative (IAR)? Investment advisory representatives (IARs) are licensed and authorized personnel who work for investment advisory companies and are permitted to work with clients. The primary responsibility of an IAR is to provide investment-related advice as a financial advisor or financial planner. In order to become an IAR, individuals must pass the appropriate licensing exam or exams and register with the appropriate regulatory bodies. Key Takeaways IARs are individuals employed by or associated with an investment advisor who make recommendations or otherwise give financial or investment advice.IARs receive compensation by charging fees either on a commission basis, at a flat or hourly rate, or as a percentage of assets under management (AUM).IARs must be properly registered, and, at a minimum, complete credentialing exams certified by FINRA and other required regulatory agencies.IARs are often required to pass the Series 63 and Series 65 exams, though requirements vary by state.IARs responsibilities include making financial recommendations, managing client accounts, providing advisory services to external parties, or overseeing other IARs. Understanding Investment Advisory Representatives (IARs) The Uniform Securities Act defines the term investment advisor representative (IAR) as: "An individual employed by or associated with an investment advisor or federal-covered investment advisor and who makes any recommendations or otherwise gives investment advice regarding securities, manages accounts or portfolios of clients, determines which recommendation or advice regarding securities should be given, provides investment advice or holds herself or himself out as providing investment advice, receives compensation to solicit, offer, or negotiate for the sale of or for selling investment advice, or supervises employees who perform any of the foregoing." IARs, as the name suggests, are representatives of investment advisory firms. They are typically tasked with duties and roles that would cast them as financial advisors and/or financial planners and often work with individual clients to help them achieve their financial goals and build investment portfolios. More specifically, IARs commonly engage in the following: Make Recommendations: IARs use their skill and judgment to make recommendations about different securities. They may use research produced by their firm to make an investment decision such as making a buy recommendation to a client after analyzing a research note. Manages Client Accounts: This includes all aspects of account management, from managing discretionary accounts to following up on administration issues. For instance, an IAR may request additional funds from an investor to settle an outstanding trade. Advisory Services: IARs may provide general investment advice. Examples include presenting a daily market report at a local television station or writing a weekly investment column for a newspaper. Supervise Other IARs: An IAR might manage other IARs. This could include ensuring that new staff meet all regulatory requirements and helping to train junior team members as well as monitor the investment advice they give to investors. An employee of an investment firm who does not directly engage in financial advice or investment recommendations to clients would not need to register as an IAR. This includes support staff, administrators, secretaries, etc. According to regulatory terminology, the "registered investment advisor" or RIA is the firm and the IAR is the individual who represents the firm and must pass an exam. IAR Requirements It is essential for RIA firms to ensure their IARs are registered correctly to avoid significant penalties. The first step in the registration process is to create an account with the Investment Adviser Registration Depository (IARD). These accounts are managed by the Financial Industry Regulatory Authority (FINRA) on behalf of the Securities and Exchange Commission (SEC) and states. There are a few states that do not require this, so advisors who only do business in those states do not have to use this system. Once the account is open, FINRA will supply the advisor or firm with a Central Registration Depository (CRD) number and account ID information. With this, the firm can then file Form ADV and the U4 forms with either the SEC or states. According to regulations, IARs can only offer advice on topics for which they have passed the appropriate examinations. In addition to obtaining the minimum qualifications, they must register with a registered investment advisor (RIA) firm and the proper state authorities. IARs register in the state in which they provide investment advice; they do not require SEC registration. In the majority of states, IARs are required to file Form U4, which is the Uniform Application for Securities Industry Registration. The form then gets filed on the CRD system. IAR Qualifications To expand their knowledge of financial products and principles, many IARs go above and beyond by acquiring either the Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA) designations. These designations are not required to be an IAR or financial advisor but provide more legitimacy, opportunity, and knowledge to the charter holder. IARs in most states are typically required to pass the Series 63 and/or Series 65 exams. The FINRA administered exam consists of 130 scored questions which candidates have 180 minutes to complete. As an alternative to passing the Series 65 exam, IARs may pass the Series 66 and Series 7 exams. Some states allow for the substitution of licensing credentials. For example, an individual may not have to pass the Series 65 exam if they hold a CFP designation. IARs may also have continuing education requirements depending on their jurisdiction. What Does an IAR Do? An IAR is a specific type of financial advisor that provides general advice to clients, oversees their accounts, and provides advisory services to external parties. How Do I Become an IAR? You can become an IAR by creating an account with the IARD. Once your account is open, your firm can submit Forms ADV and U4 with the SEC and states, if applicable. What Are the Benefits of Becoming an IAR? Becoming an IAR legitimizes your status and knowledge as a financial advisor. IARs are recognized by regulatory bodies and often require passing specific tests to provide proficiency.

https://www.investopedia.com/southeast-financial-motorcycle-loans-review-8357874

Southeast Financial Motorcycle Loans Review

<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <svg class="mntl-svg-resource is-hidden"> <defs> <symbol id="star-icon"><svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg></symbol> </defs> </svg> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="comp product-review-content product-review-content--finance product-review--base" id="product-review-content--finance_1-0"> <div class="comp js-toc-appear article-container article-intro mntl-block" id="article-intro_1-0"> <div class="comp product-card" data-tracking-container="true" data-tracking-id="product-card" id="product-card_1-0" style="--imgWidth: 684px"> <div class="product-card__content"> <div class="product-card__intro expert-content"> <figure class="comp figure-article figure-3x2 upscaleImg product-card__image litho-figure-article mntl-universal-primary-image primary-image" id="product-card__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Southeast Financial" class="primary-image__image mntl-primary-image--blurry" height="1000" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/FWfhtsqlKYH5R3aaq90E89XeqkE=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Southeast_financial-5c7c44ae71004b2aaf09e2cbe811dcce.jpg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDQAFAPQAAAApZQA3egA6cQA4eQBAhUlhjACO7wCa7ef29PX////38fv7/fv////6+/39+/z8/P/9/f/9/v/9/////f7+//7//////wApZQApZQApZQApZQApZQApZQApZQApZQApZSwAAAAADQAFAEQIKwAZPLBAsKBBggYOKgywIIFCgxQQFHQwoEIDCBMUSLAA4ADBCAQKFhBgISAAOw==')" width="1500"/> <noscript> <img alt="Southeast Financial" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="1000" src="https://www.investopedia.com/thmb/FWfhtsqlKYH5R3aaq90E89XeqkE=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Southeast_financial-5c7c44ae71004b2aaf09e2cbe811dcce.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_1-0"> <span class="figure-article-caption-owner"><p> Southeast Financial</p> </span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article figure-3x2 upscaleImg product-card__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp product-card__rating card-rating--finance product-rating" id="product-card__rating_1-0"> <span class="product-rating__rating-label noskim"> Investopedia’s Rating </span> <div alt="4 out of 5 stars" class="comp star-rating" id="star-rating_1-0"> <span class="star-rating__label">4.0</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__empty-star star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: #d5d5d5;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp product-card__rating card-rating--finance product-rating --> <div class="comp js-sticky-riser-show product-card__cta commerce-block mntl-block" id="product-card__cta_1-0"> <a class="commerce-button mntl-text-link" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-tracking-container="false" href="https://fiona.com/partner/thebalancebridge/loans?bridge_partner=sefinancial" id="commerce-button_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Apply Now</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp js-sticky-riser-show product-card__cta commerce-block mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> <strong>Our Take</strong> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-1"> Southeast Financial is a good choice if you’re short on time to shop around for financing, especially if you’re working on building credit. However, the lender puts the brakes on borrowing more than $50,000 and borrowing if you live in Alaska or Hawaii. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-2"> <em>Rates are accurate as of November 2, 2023.</em> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block" data-click-action="Product Tab Click" data-tracking-container="true" data-tracking-id="Full Product Review"> <ul class="tabbed-sc-block__tabs"> <li class="tabbed-sc-block__tab js-tabbed-tab is-active is-initial-load" data-tab-index="1"><span class="tabbed-sc-block__title">Pros and Cons</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="2"><span class="tabbed-sc-block__title">Key Takeaways</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="3"><span class="tabbed-sc-block__title">Company Overview</span></li> </ul> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Pros and Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content is-active is-initial-load" data-tab-index="1"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_1-0-4"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Accepts applicants with poor credit</p></li> <li><p>Lease buyouts available</p></li> <li><p>Good customer satisfaction ratings</p></li> <li><p>Can purchase from private sellers</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Doesn’t disclose partners</p></li> <li><p>Steep minimum loan amounts</p></li> <li><p>Loan limit of $50,000</p></li> <li><p>Doesn’t offer loans in Alaska or Hawaii</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Key Takeaways</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="2"> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-6"> <li>Southeast Financial works with partner lenders to help you find the best loan option for your next motorcycle, recreational vehicle, or boat.</li><li>Southeast Financial offers loans of $10,000 to $50,000 to purchase a new or used bike; refinancing is available as well. </li><li>Southeast Financial has no vehicle mileage restrictions, and finances vehicles up to 15 years old.</li><li>You can purchase your motorcycle from a dealership or a private seller.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Company Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-8"> Southeast Financial has been around since 1998 and is based in Nashville, Tennessee.<span class="ql-inline-citation" data-cite="1"></span> It’s not a true lender per se because it doesn’t fund your loan directly. Instead, as is common in the industry, it’s a marketplace working with several lenders to help you find the best loan option in its network.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-9"> Unlike some other lender networks, Southeast Financial specializes in loans for vehicles other than cars and trucks. It offers loans not only for motorcycles, but for boats and recreational vehicles of all types: campers, horse trailers, motorhomes, and the like. As the lender says, “If you can drive it or ride it for recreational purposes, chances are we finance it.”<span class="ql-inline-citation" data-cite="2"></span> Southeast Financial offers loans to residents of all states except Hawaii and Alaska. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block" id="mntl-sc-block_1-0-10"> <div class="comp product-spec-tool definition-list" id="product-spec-tool_1-0"> <ul class="definition-list__container"> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Loan Types Offered</span> <span class="definition-list__item-content definition-list__item-content-0"> New, used, refinance </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">States Available</span> <span class="definition-list__item-content definition-list__item-content-1"> All 50 states except AK, HI </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">New APR Range</span> <span class="definition-list__item-content definition-list__item-content-2"> 8.35%–18.00%* </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Used APR Range</span> <span class="definition-list__item-content definition-list__item-content-3"> 8.35%–18.00%* </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Refinance APR Range</span> <span class="definition-list__item-content definition-list__item-content-4"> Not disclosed </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Min. Time to Receive Loan</span> <span class="definition-list__item-content definition-list__item-content-5"> 3 days </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Recommended Min. Credit Score</span> <span class="definition-list__item-content definition-list__item-content-6"> 600 </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Max. Accepted Mileage</span> <span class="definition-list__item-content definition-list__item-content-7"> No maximum </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Max. Accepted Age</span> <span class="definition-list__item-content definition-list__item-content-8"> 15 years </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Max. Accepted Loan-to-Value Ratio</span> <span class="definition-list__item-content definition-list__item-content-9"> No maximum </span> </span> </li> </ul> </div><!-- end: comp product-spec-tool definition-list --> </div><!-- end: comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block --> </div> </div> </div> </div><!-- end: comp product-card --> </div><!-- end: comp js-toc-appear article-container article-intro mntl-block --> <div class="loc body-content article-container"> <div class="comp article-body article-content mntl-block" id="article-content_1-0"> <div class="comp left-nav js-sticky-container product-review__left-nav mntl-block" id="product-review__left-nav_1-0"> <div class="comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block" data-desktop-bp="54em" data-tracking-container="true" id="product-review__toc_1-0"> <div class="comp sticky-toc-widget__product-container mntl-block" id="sticky-toc-widget__product-container_1-0"> <figure class="comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image" id="sticky-toc-widget__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Southeast Financial" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/BO-caH4_QVjKoEKSzQPcddMlNiU=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Southeast_financial-5c7c44ae71004b2aaf09e2cbe811dcce.jpg" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDQAFAPQAAAApZQA3egA6cQA4eQBAhUlhjACO7wCa7ef29PX////38fv7/fv////6+/39+/z8/P/9/f/9/v/9/////f7+//7//////wApZQApZQApZQApZQApZQApZQApZQApZQApZSwAAAAADQAFAEQIKwAZPLBAsKBBggYOKgywIIFCgxQQFHQwoEIDCBMUSLAA4ADBCAQKFhBgISAAOw==')" width="1500"/> <noscript> <img alt="Southeast Financial" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/BO-caH4_QVjKoEKSzQPcddMlNiU=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Southeast_financial-5c7c44ae71004b2aaf09e2cbe811dcce.jpg" width="1500"/> </noscript> </div> </div> <figcaption class="comp primary-image__figcap mntl-figure-caption figure-article-caption" id="primary-image__figcap_2-0"> <span class="figure-article-caption-owner"><p> Southeast Financial</p> </span> </figcaption><!-- end: comp primary-image__figcap mntl-figure-caption figure-article-caption --> </figure><!-- end: comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp sticky-toc-widget__rating product-rating" id="sticky-toc-widget__rating_1-0"> <span class="product-rating__rating-label noskim"> overall rating </span> <div alt="4 out of 5 stars" class="comp star-rating" id="star-rating_1-0-1"> <span class="star-rating__label">4.0</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #d17000;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__empty-star star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: #d5d5d5;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp sticky-toc-widget__rating product-rating --> <div class="comp sticky-toc-widget__cta commerce-block mntl-block" id="sticky-toc-widget__cta_1-0"> <a class="commerce-button mntl-text-link" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-tracking-container="false" href="https://fiona.com/partner/thebalancebridge/loans?bridge_partner=sefinancial" id="commerce-button_2-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Apply Now</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp sticky-toc-widget__cta commerce-block mntl-block --> </div><!-- end: comp sticky-toc-widget__product-container mntl-block --> <div class="comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="sticky-toc-widget__toc_3-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_3-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_3-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_5-0"> Table of Contents</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_3-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="View All" id="mntl-toc-toggle__btn_3-0"> View All</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-Southeast Financial Motorcycle Loans Review" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_6-0"> Southeast Financial Motorcycle Loans Review</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_3-0"> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pros Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-explained" id="mntl-toc__list-item-link_3-0" rel="nocaes"><span class="link__wrapper">Pros Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Cons Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-cons-explained" id="mntl-toc__list-item-link_3-0-1" rel="nocaes"><span class="link__wrapper">Cons Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Types of Loans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-types-of-motorcycle-loans-offered-by-southeast-financial" id="mntl-toc__list-item-link_3-0-2" rel="nocaes"><span class="link__wrapper">Types of Loans</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Time to Receive Funds" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-time-to-receive-funds" id="mntl-toc__list-item-link_3-0-3" rel="nocaes"><span class="link__wrapper">Time to Receive Funds</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Borrower Requirements" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-borrower-requirements" id="mntl-toc__list-item-link_3-0-4" rel="nocaes"><span class="link__wrapper">Borrower Requirements</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Vehicle Requirements" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-vehicle-requirements" id="mntl-toc__list-item-link_3-0-5" rel="nocaes"><span class="link__wrapper">Vehicle Requirements</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-6"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Loan Features" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-southeast-financial-motorcycle-loan-features" id="mntl-toc__list-item-link_3-0-6" rel="nocaes"><span class="link__wrapper">Loan Features</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-7"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-7"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Service" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-customer-service" id="mntl-toc__list-item-link_3-0-7" rel="nocaes"><span class="link__wrapper">Customer Service</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-8"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-8"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Satisfaction" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-customer-satisfaction" id="mntl-toc__list-item-link_3-0-8" rel="nocaes"><span class="link__wrapper">Customer Satisfaction</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-9"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-9"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How to Apply" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-apply-for-a-southeast-financial-motorcycle-loan" id="mntl-toc__list-item-link_3-0-9" rel="nocaes"><span class="link__wrapper">How to Apply</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-10"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-10"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Alternatives" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-alternatives-to-southeast-financial-motorcycle-loans" id="mntl-toc__list-item-link_3-0-10" rel="nocaes"><span class="link__wrapper">Alternatives</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-11"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-11"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_3-0-11" rel="nocaes"><span class="link__wrapper">Final Verdict</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-12"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-12"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_3-0-12" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block --> </div><!-- end: comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block --> </div><!-- end: comp left-nav js-sticky-container product-review__left-nav mntl-block --> <div class="comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block" data-tracking-container="true" id="product-review__content_1-0"> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>Shopping around with a few different lenders can help you find the best possible rate, which may save hundreds or thousands of dollars over the life of your loan. Browse the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-motorcycle-loans-5080905">best motorcycle loans</a> to check your rates.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-pros-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-1"> <span class="mntl-sc-block-heading__text"> Pros Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-2"> <li><strong>Accepts applicants with poor credit</strong>: You can qualify for a loan with a credit score as low as 600, unlike many other lenders that require good credit.</li> <li><strong>Lease buyouts available</strong>: Not all lenders allow <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/013015/best-way-get-out-your-car-lease.asp">motorcycle lease buyouts</a>, but Southeast Financial makes this option available. </li> <li><strong>Good customer satisfaction ratings</strong>: Bad reviews do exist, but on the whole, Southeast Financial has some of the highest ratings of any lender in its class.</li> <li><strong>Can purchase from private sellers</strong>:<strong> </strong>Only about half of the motorcycle loan lenders we surveyed allow you to take out a loan to buy from a private seller. Southeast is one lender that does.<br/></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-cons-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-3"> <span class="mntl-sc-block-heading__text"> Cons Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-4"> <li><strong>Doesn’t disclose partners</strong>: Southeast Financial doesn’t disclose how many or which lenders it works with. It’s hard to avoid duplicating efforts when shopping for rates on your own (recommended) since there’s no way to know who Southeast Financial already shopped your loan with. </li><li><strong>Steep minimum loan amounts</strong>: The average used motorcycle costs between $3,000 and $6,000—far, far below the minimum of $15,000 you’ll need to borrow to get a Southeast Financial loan. </li><li><strong>Loan limit of $50,000</strong>: A luxury motorcycle can cost $65,000. If you want a motorcycle that costs more than $50,000, you’ll need to look elsewhere—several competitors offer loans of up to $150,000 or more.<span class="ql-inline-citation" data-cite="3"></span></li><li><strong>Doesn’t offer loans in Alaska or Hawaii:</strong> Residents of these states will need to consider other motorcycle lenders; most lenders offer financing to residents of these states. </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-5"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>Shopping around for the right loan can help you save hundreds or thousands of dollars. See the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-motorcycle-loans-5080905">best motorcycle loans</a> in a variety of categories to explore your options.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-types-of-motorcycle-loans-offered-by-southeast-financial"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-6"> <span class="mntl-sc-block-heading__text"> Types of Motorcycle Loans Offered by Southeast Financial </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-7"> Southeast Financial offers loans for new and used motorcycles, along with refinance loans.<span class="ql-inline-citation" data-cite="4"></span> Its minimum rates are close to average among lenders we surveyed. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-8"> <span class="mntl-sc-block-subheading__text"> New Motorcycle Loans </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-9"> <li><strong>APR:</strong> 8.35%–18.00%</li><li><strong>Loan amounts:</strong> $10,000–$50,000</li><li><strong>Loan terms:</strong> 12–240 months</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-10"> <span class="mntl-sc-block-subheading__text"> Used Motorcycle Loans </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-11"> <li><strong>APR:</strong> 8.35%–18.00%</li><li><strong>Loan amounts:</strong> $10,000–$50,000</li><li><strong>Loan terms:</strong> 12–240 months</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-12"> You can use a Southeast Financial motorcycle loan to purchase a bike from a dealership or a private seller. Not all lenders allow you to do this, but Southeast Financial is one of a few nationwide lenders that do.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-13"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-2"> <p>See our picks for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-private-party-car-loans-7372372">best private party auto loans</a> for other options, although not all of those lenders may offer motorcycle loans.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-14"> <span class="mntl-sc-block-subheading__text"> Refinance Motorcycle Loans </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-15"> <li><strong>APR:</strong> Not disclosed</li><li><strong>Loan amounts:</strong> Not disclosed</li><li><strong>Loan terms:</strong> 12–240 months</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-time-to-receive-funds"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-16"> <span class="mntl-sc-block-heading__text"> Time to Receive Funds </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-17"> Southeast Financial strives to get same-business-day credit approval for applicants and, at most, 24 hours. In total, it typically takes about three to five business days from application submission to receiving a check. You’ll usually receive a loan decision within 24 hours of submitting your application, and if approved, you’ll have a 30-day window to accept the loan. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-borrower-requirements"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-18"> <span class="mntl-sc-block-heading__text"> Borrower Requirements </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-19"> Southeast Financial is refreshingly transparent when it comes to disclosing some of the requirements you’ll need to meet to get approved for a loan. It’s also remarkably tolerant of poor credit, with a lower minimum credit score requirement than most other options.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-20"> <li><strong>Minimum recommended credit score: </strong>600</li><li><strong>State availability:</strong> All states in the U.S. except for Alaska and Hawaii</li><li><strong>Minimum annual income:</strong> $25,000</li><li><strong>Minimum age: </strong>18 years or older</li><li><strong>Citizenship status:</strong> U.S. citizen</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-important mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-21"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-3"> <p>Southeast Financial doesn’t set the borrowing requirements since it’s an intermediary that helps you find the best loan from other lenders. <em>Those </em>lenders are ultimately the ones who decide which applicants they’ll approve. </p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-important mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-vehicle-requirements"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-22"> <span class="mntl-sc-block-heading__text"> Vehicle Requirements </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-23"> Southeast Financial also provides a fairly good picture of which bikes qualify for financing with its partner lenders and which don’t. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-24"> <li><strong>Maximum age:</strong> 15 years old</li><li><strong>Maximum accepted mileage:</strong> None</li><li><strong>Maximum loan-to-value ratio:</strong> Not disclosed</li><li><strong>Vehicle restrictions:</strong> No commercial vehicles, ATVs, bullet bikes, sports bikes, or dirt bikes</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-southeast-financial-motorcycle-loan-features"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-25"> <span class="mntl-sc-block-heading__text"> Southeast Financial Motorcycle Loan Features </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-26"> Loan features depend on which lender Southeast Financial matches you with from its partner network. However, according to the company, none of its partner lenders charge an origination fee.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-27"> <span class="mntl-sc-block-subheading__text"> Co-Signers and Co-Applicants </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-28"> Depending on the lender that Southeast Financial finds to fund your loan, you may be able to apply with a co-signer or a co-borrower. This can help you get approved for a loan with better rates if you have poor credit, for example.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-warning mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-29"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-4"> <p>Co-borrowers share ownership rights to your motorcycle with you. On the other hand, co-signers won’t be listed on the title and merely serve to guarantee your loan in case you default, helping you qualify for better rates. </p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-warning mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-customer-service"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-30"> <span class="mntl-sc-block-heading__text"> Customer Service </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-31"> Southeast Financial offers several ways to get in touch if you need help. You can contact the company by snail mail, email, phone, or by filling out a contact form on its website. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-32"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Medium</b></th> <th><b>Contact</b></th> <th><b>Availability</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>Telephone</td> <td>(866) 900-8949</td> <td>Weekdays, 8:30 a.m. to 5 p.m. CT</td> </tr> <tr> <td>Online</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.sefinancial.com/contact-us/" rel="sponsored nofollow">Contact Form</a></td> <td>N/A</td> </tr> <tr> <td>Email</td> <td>[email protected]</td> <td>N/A</td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <span class="heading-toc" id="toc-customer-satisfaction"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-33"> <span class="mntl-sc-block-heading__text"> Customer Satisfaction </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-34"> Southeast Financial has a good reputation among customers who share their opinions online. On Trustpilot, the lender has an average rating of 4.6 out of 5, based on nearly 4,000 customer reviews. The company has only one complaint with the Consumer Financial Protection Bureau’s Consumer Complaint Database; although this doesn’t mean there are no complaints about the company, it’s a good sign when seen with the Trustpilot ratings.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="5"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-apply-for-a-southeast-financial-motorcycle-loan"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-35"> <span class="mntl-sc-block-heading__text"> How to Apply for a Southeast Financial Motorcycle Loan </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-36"> Applying for a motorcycle loan with Southeast Financial is quick and easy. Prepare to apply for a loan in advance by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/budget.asp">checking your budget</a> to see how much you can afford each month for your loan payment. Check your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a> ahead of time so you can fix any errors, and check your <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/091714/top-websites-checking-your-credit-scores.asp">credit score</a>, too, so you know whether you’re likely to qualify.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-37"> When you’re ready to apply, here’s how the process will work: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ol class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-38"> <li><strong>Fill out a credit application:</strong> There are two applications to choose from. If you haven’t yet picked a bike, choose the “Instant Quote?” option. If you already have a bike in mind, select the “Ready to buy?” option. </li><li><strong>Provide documents:</strong> You must include a copy of your driver’s license. If you’ve already picked a bike, include the seller’s contact information, a copy of the title, and the lender/loan information if the seller is still paying it off. Additionally, you’ll need to show proof that it’s insured.  </li><li><strong>Get a loan decision:</strong> Southeast Financial will usually reply within 24 hours to let you know whether you’re approved. If approved, your loan offer is valid for 30 days, giving you time to shop around for other rates (if you haven’t already done so). </li><li><strong>Finalize the loan:</strong> If Southeast Financial offers the best rates you’ve found, you can feel secure signing the loan agreement. You’ll receive a check within three to five business days (including the time it takes to get your loan approved), which you can use to purchase the bike. </li><li><strong>Repay the loan:</strong> Sign up for autopay with your new lender to focus on cruising the roads instead of dealing with late-payment hassles. </li> </ol><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-alternatives-to-southeast-financial-motorcycle-loans"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-39"> <span class="mntl-sc-block-heading__text"> Alternatives to Southeast Financial Motorcycle Loans </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-40"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th></th> <th><b><a class="null" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://fiona.com/partner/thebalancebridge/loans?bridge_partner=sefinancial" rel="sponsored nofollow">Southeast Financial</a></b></th> <th><b><a class="null" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=harley%20davidson" rel="sponsored nofollow">Harley-Davidson</a></b></th> <th><b><a class="null" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=digital-federal-credit-union" rel="sponsored nofollow">Digital Federal Credit Union</a></b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>Loan Types Offered</b></td> <td>New, used, refinance</td> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/harley-davidson-motorcycle-loan-review-8357877">New, used</a></td> <td>New, used, refinance</td> </tr> <tr> <td><b>States Available</b></td> <td>All 50 states except AK, HI</td> <td>All 50 states and D.C.</td> <td>All 50 states and D.C.</td> </tr> <tr> <td><b>New APR Range</b></td> <td>8.35%–18.00%*</td> <td>Starting from 6.39%*</td> <td>7.25%–17.25%*</td> </tr> <tr> <td><b>Used APR Range</b></td> <td>8.35%–18.00%*</td> <td>Starting from 7.79%*</td> <td>7.25%–17.25%*</td> </tr> <tr> <td><b>Refinance APR Range</b></td> <td>Not disclosed</td> <td>N/A</td> <td>7.25%–17.25%*</td> </tr> <tr> <td><b>Min. Time to Receive Loan</b></td> <td>3 days</td> <td>Not disclosed</td> <td>2 days</td> </tr> <tr> <td><b>Recommended Min. Credit Score</b></td> <td>600</td> <td>Not disclosed</td> <td>Not disclosed</td> </tr> <tr> <td><b>Max. Accepted Mileage</b></td> <td>No maximum</td> <td>No maximum</td> <td>No maximum</td> </tr> <tr> <td><b>Max. Accepted Age</b></td> <td>15 years</td> <td>No maximum</td> <td>22 years</td> </tr> <tr> <td><b>Max. Accepted Loan-to-Value Ratio</b></td> <td>No maximum</td> <td>Not disclosed</td> <td>125%</td> </tr> </tbody> </table> <figcaption>*Rates are accurate as of November 2, 2023.</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-41"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-5"> <p>Southeast Financial’s rates are about average and it’s a solid overall lender, but its loan amounts are somewhat limited. And it always pays to shop around—see the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-motorcycle-loans-5080905">best motorcycle loans</a> to check your rates with some other lenders.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-final-verdict"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-42"> <span class="mntl-sc-block-heading__text"> Final Verdict </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-43"> Southeast Financial’s strength is in helping contiguous U.S. applicants with less-than-stellar credit (or better) get connected with motorcycle loan options. Working with multiple lenders casts a wider net. But whether the loans found are best could depend on other lenders you check with first. The lender also isn’t a great fit if you need a substantial loan to buy an expensive motorcycle, as loan amounts are capped at $50,000.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-link-closest-header="false" data-tracking-container="true" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_2-0-44"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-retailer-type="other" data-tracking-container="true" href="https://fiona.com/partner/thebalancebridge/loans?bridge_partner=sefinancial" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Apply Now</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-45"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-46"> Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of motorcycle loan lenders. To rate providers, we collected hundreds of data points for 10 motorcycle loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block --> </div><!-- end: comp article-body article-content mntl-block --> </div> </div><!-- end: comp product-review-content product-review-content--finance product-review--base --> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-1"><p>LinkedIn. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.linkedin.com/company/southeast-financial/about/">About Southeast Financial.</a>"</p></li> <li class="mntl-sources__source" id="citation-2"><p>Southeast Financial. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.sefinancial.com/services/financing/" rel="nofollow sponsored">"Motorcycle, RV, Boat and Trailer Financing Services</a>."</p></li> <li class="mntl-sources__source" id="citation-3"><p>J.D. Power. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.jdpower.com/motorcycles/shopping-guides/how-much-does-a-motorcycle-cost">Understanding the Factors Behind a Cost of a Motorcycle Ownership</a>."</p></li> <li class="mntl-sources__source" id="citation-4"><p>Southeast Financial. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.sefinancial.com/motorcycles/" rel="nofollow sponsored">Motorcycle Loans and Financing</a>."</p></li> <li class="mntl-sources__source" id="citation-6"><p>Consumer Financial Protection Bureau. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/data-research/consumer-complaints/search/?company=Southeast%20Finance%20Inc.&amp;date_received_max=2023-09-27&amp;date_received_min=2020-09-27&amp;page=1&amp;searchField=all&amp;searchText=southeast%20financial&amp;size=25&amp;sort=created_date_desc&amp;tab=List">Consumer Complaint Database</a>."</p></li> <li class="mntl-sources__source" id="citation-5"><p>Trustpilot. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.trustpilot.com/review/sefinancial.com">Southeast Financial</a>."</p></li> </ol> </div> </div></div> </div></div>

:fill(white):max_bytes(150000):strip_icc()/Southeast_financial-5c7c44ae71004b2aaf09e2cbe811dcce.jpg) :fill(white):max_bytes(150000):strip_icc()/Southeast_financial-5c7c44ae71004b2aaf09e2cbe811dcce.jpg)  Southeast Financial Investopedia’s Rating 4.0 [Apply Now](https://fiona.com/partner/thebalancebridge/loans?bridge_partner=sefinancial) **Our Take** Southeast Financial is a good choice if you’re short on time to shop around for financing, especially if you’re working on building credit. However, the lender puts the brakes on borrowing more than $50,000 and borrowing if you live in Alaska or Hawaii. *Rates are accurate as of November 2, 2023.* * Pros and Cons * Key Takeaways * Company Overview Pros and Cons Pros * Accepts applicants with poor credit * Lease buyouts available * Good customer satisfaction ratings * Can purchase from private sellers Cons * Doesn’t disclose partners * Steep minimum loan amounts * Loan limit of $50,000 * Doesn’t offer loans in Alaska or Hawaii Key Takeaways * Southeast Financial works with partner lenders to help you find the best loan option for your next motorcycle, recreational vehicle, or boat. * Southeast Financial offers loans of $10,000 to $50,000 to purchase a new or used bike; refinancing is available as well. * Southeast Financial has no vehicle mileage restrictions, and finances vehicles up to 15 years old. * You can purchase your motorcycle from a dealership or a private seller. Company Overview Southeast Financial has been around since 1998 and is based in Nashville, Tennessee. It’s not a true lender per se because it doesn’t fund your loan directly. Instead, as is common in the industry, it’s a marketplace working with several lenders to help you find the best loan option in its network.  Unlike some other lender networks, Southeast Financial specializes in loans for vehicles other than cars and trucks. It offers loans not only for motorcycles, but for boats and recreational vehicles of all types: campers, horse trailers, motorhomes, and the like. As the lender says, “If you can drive it or ride it for recreational purposes, chances are we finance it.” Southeast Financial offers loans to residents of all states except Hawaii and Alaska. * Loan Types Offered New, used, refinance * States Available All 50 states except AK, HI * New APR Range 8.35%–18.00%\* * Used APR Range 8.35%–18.00%\* * Refinance APR Range Not disclosed * Min. Time to Receive Loan 3 days * Recommended Min. Credit Score 600 * Max. Accepted Mileage No maximum * Max. Accepted Age 15 years * Max. Accepted Loan-to-Value Ratio No maximum :fill(white):max_bytes(150000):strip_icc()/Southeast_financial-5c7c44ae71004b2aaf09e2cbe811dcce.jpg) :fill(white):max_bytes(150000):strip_icc()/Southeast_financial-5c7c44ae71004b2aaf09e2cbe811dcce.jpg)  Southeast Financial overall rating 4.0 [Apply Now](https://fiona.com/partner/thebalancebridge/loans?bridge_partner=sefinancial) Table of Contents View All Southeast Financial Motorcycle Loans Review * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Types of Loans](#toc-types-of-motorcycle-loans-offered-by-southeast-financial) * [Time to Receive Funds](#toc-time-to-receive-funds) * [Borrower Requirements](#toc-borrower-requirements) * [Vehicle Requirements](#toc-vehicle-requirements) * [Loan Features](#toc-southeast-financial-motorcycle-loan-features) * [Customer Service](#toc-customer-service) * [Customer Satisfaction](#toc-customer-satisfaction) * [How to Apply](#toc-how-to-apply-for-a-southeast-financial-motorcycle-loan) * [Alternatives](#toc-alternatives-to-southeast-financial-motorcycle-loans) * [Final Verdict](#toc-final-verdict) * [Methodology](#toc-methodology) Shopping around with a few different lenders can help you find the best possible rate, which may save hundreds or thousands of dollars over the life of your loan. Browse the [best motorcycle loans](https://www.investopedia.com/best-motorcycle-loans-5080905) to check your rates. ## Pros Explained * **Accepts applicants with poor credit**: You can qualify for a loan with a credit score as low as 600, unlike many other lenders that require good credit. * **Lease buyouts available**: Not all lenders allow [motorcycle lease buyouts](https://www.investopedia.com/articles/personal-finance/013015/best-way-get-out-your-car-lease.asp), but Southeast Financial makes this option available. * **Good customer satisfaction ratings**: Bad reviews do exist, but on the whole, Southeast Financial has some of the highest ratings of any lender in its class. * **Can purchase from private sellers**:Only about half of the motorcycle loan lenders we surveyed allow you to take out a loan to buy from a private seller. Southeast is one lender that does. ## Cons Explained * **Doesn’t disclose partners**: Southeast Financial doesn’t disclose how many or which lenders it works with. It’s hard to avoid duplicating efforts when shopping for rates on your own (recommended) since there’s no way to know who Southeast Financial already shopped your loan with. * **Steep minimum loan amounts**: The average used motorcycle costs between $3,000 and $6,000—far, far below the minimum of $15,000 you’ll need to borrow to get a Southeast Financial loan. * **Loan limit of $50,000**: A luxury motorcycle can cost $65,000. If you want a motorcycle that costs more than $50,000, you’ll need to look elsewhere—several competitors offer loans of up to $150,000 or more. * **Doesn’t offer loans in Alaska or Hawaii:** Residents of these states will need to consider other motorcycle lenders; most lenders offer financing to residents of these states. Shopping around for the right loan can help you save hundreds or thousands of dollars. See the [best motorcycle loans](https://www.investopedia.com/best-motorcycle-loans-5080905) in a variety of categories to explore your options. ## Types of Motorcycle Loans Offered by Southeast Financial Southeast Financial offers loans for new and used motorcycles, along with refinance loans. Its minimum rates are close to average among lenders we surveyed. ### New Motorcycle Loans * **APR:** 8.35%–18.00% * **Loan amounts:** $10,000–$50,000 * **Loan terms:** 12–240 months ### Used Motorcycle Loans * **APR:** 8.35%–18.00% * **Loan amounts:** $10,000–$50,000 * **Loan terms:** 12–240 months You can use a Southeast Financial motorcycle loan to purchase a bike from a dealership or a private seller. Not all lenders allow you to do this, but Southeast Financial is one of a few nationwide lenders that do.  See our picks for the [best private party auto loans](https://www.investopedia.com/best-private-party-car-loans-7372372) for other options, although not all of those lenders may offer motorcycle loans. ### Refinance Motorcycle Loans * **APR:** Not disclosed * **Loan amounts:** Not disclosed * **Loan terms:** 12–240 months ## Time to Receive Funds Southeast Financial strives to get same-business-day credit approval for applicants and, at most, 24 hours. In total, it typically takes about three to five business days from application submission to receiving a check. You’ll usually receive a loan decision within 24 hours of submitting your application, and if approved, you’ll have a 30-day window to accept the loan. ## Borrower Requirements Southeast Financial is refreshingly transparent when it comes to disclosing some of the requirements you’ll need to meet to get approved for a loan. It’s also remarkably tolerant of poor credit, with a lower minimum credit score requirement than most other options.  * **Minimum recommended credit score:** 600 * **State availability:** All states in the U.S. except for Alaska and Hawaii * **Minimum annual income:** $25,000 * **Minimum age:** 18 years or older * **Citizenship status:** U.S. citizen Southeast Financial doesn’t set the borrowing requirements since it’s an intermediary that helps you find the best loan from other lenders. *Those* lenders are ultimately the ones who decide which applicants they’ll approve.  ## Vehicle Requirements Southeast Financial also provides a fairly good picture of which bikes qualify for financing with its partner lenders and which don’t. * **Maximum age:** 15 years old * **Maximum accepted mileage:** None * **Maximum loan-to-value ratio:** Not disclosed * **Vehicle restrictions:** No commercial vehicles, ATVs, bullet bikes, sports bikes, or dirt bikes ## Southeast Financial Motorcycle Loan Features Loan features depend on which lender Southeast Financial matches you with from its partner network. However, according to the company, none of its partner lenders charge an origination fee.  ### Co-Signers and Co-Applicants Depending on the lender that Southeast Financial finds to fund your loan, you may be able to apply with a co-signer or a co-borrower. This can help you get approved for a loan with better rates if you have poor credit, for example.  Co-borrowers share ownership rights to your motorcycle with you. On the other hand, co-signers won’t be listed on the title and merely serve to guarantee your loan in case you default, helping you qualify for better rates.  ## Customer Service Southeast Financial offers several ways to get in touch if you need help. You can contact the company by snail mail, email, phone, or by filling out a contact form on its website. | **Medium** | **Contact** | **Availability** | | --- | --- | --- | | Telephone | (866) 900-8949 | Weekdays, 8:30 a.m. to 5 p.m. CT | | Online | [Contact Form](https://www.sefinancial.com/contact-us/) | N/A | | Email | [email protected] | N/A | ## Customer Satisfaction Southeast Financial has a good reputation among customers who share their opinions online. On Trustpilot, the lender has an average rating of 4.6 out of 5, based on nearly 4,000 customer reviews. The company has only one complaint with the Consumer Financial Protection Bureau’s Consumer Complaint Database; although this doesn’t mean there are no complaints about the company, it’s a good sign when seen with the Trustpilot ratings. ## How to Apply for a Southeast Financial Motorcycle Loan Applying for a motorcycle loan with Southeast Financial is quick and easy. Prepare to apply for a loan in advance by [checking your budget](https://www.investopedia.com/terms/b/budget.asp) to see how much you can afford each month for your loan payment. Check your [credit report](https://www.investopedia.com/terms/c/creditreport.asp) ahead of time so you can fix any errors, and check your [credit score](https://www.investopedia.com/articles/personal-finance/091714/top-websites-checking-your-credit-scores.asp), too, so you know whether you’re likely to qualify.  When you’re ready to apply, here’s how the process will work: 1. **Fill out a credit application:** There are two applications to choose from. If you haven’t yet picked a bike, choose the “Instant Quote?” option. If you already have a bike in mind, select the “Ready to buy?” option. 2. **Provide documents:** You must include a copy of your driver’s license. If you’ve already picked a bike, include the seller’s contact information, a copy of the title, and the lender/loan information if the seller is still paying it off. Additionally, you’ll need to show proof that it’s insured. 3. **Get a loan decision:** Southeast Financial will usually reply within 24 hours to let you know whether you’re approved. If approved, your loan offer is valid for 30 days, giving you time to shop around for other rates (if you haven’t already done so). 4. **Finalize the loan:** If Southeast Financial offers the best rates you’ve found, you can feel secure signing the loan agreement. You’ll receive a check within three to five business days (including the time it takes to get your loan approved), which you can use to purchase the bike. 5. **Repay the loan:** Sign up for autopay with your new lender to focus on cruising the roads instead of dealing with late-payment hassles. ## Alternatives to Southeast Financial Motorcycle Loans | | **[Southeast Financial](https://fiona.com/partner/thebalancebridge/loans?bridge_partner=sefinancial)** | **[Harley-Davidson](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=harley%20davidson)** | **[Digital Federal Credit Union](https://fiona.com/partner/investopedia-bridge-page-embed-loans/loans?bridge_partner=digital-federal-credit-union)** | | --- | --- | --- | --- | | **Loan Types Offered** | New, used, refinance | [New, used](https://www.investopedia.com/harley-davidson-motorcycle-loan-review-8357877) | New, used, refinance | | **States Available** | All 50 states except AK, HI | All 50 states and D.C. | All 50 states and D.C. | | **New APR Range** | 8.35%–18.00%\* | Starting from 6.39%\* | 7.25%–17.25%\* | | **Used APR Range** | 8.35%–18.00%\* | Starting from 7.79%\* | 7.25%–17.25%\* | | **Refinance APR Range** | Not disclosed | N/A | 7.25%–17.25%\* | | **Min. Time to Receive Loan** | 3 days | Not disclosed | 2 days | | **Recommended Min. Credit Score** | 600 | Not disclosed | Not disclosed | | **Max. Accepted Mileage** | No maximum | No maximum | No maximum | | **Max. Accepted Age** | 15 years | No maximum | 22 years | | **Max. Accepted Loan-to-Value Ratio** | No maximum | Not disclosed | 125% | \*Rates are accurate as of November 2, 2023. Southeast Financial’s rates are about average and it’s a solid overall lender, but its loan amounts are somewhat limited. And it always pays to shop around—see the [best motorcycle loans](https://www.investopedia.com/best-motorcycle-loans-5080905) to check your rates with some other lenders. ## Final Verdict Southeast Financial’s strength is in helping contiguous U.S. applicants with less-than-stellar credit (or better) get connected with motorcycle loan options. Working with multiple lenders casts a wider net. But whether the loans found are best could depend on other lenders you check with first. The lender also isn’t a great fit if you need a substantial loan to buy an expensive motorcycle, as loan amounts are capped at $50,000.  [Apply Now](https://fiona.com/partner/thebalancebridge/loans?bridge_partner=sefinancial) ## Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of motorcycle loan lenders. To rate providers, we collected hundreds of data points for 10 motorcycle loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our [editorial policy.](https://www.investopedia.com/legal-4768893#EditorialPolicy) 1. LinkedIn. "[About Southeast Financial.](https://www.linkedin.com/company/southeast-financial/about/)" 2. Southeast Financial. ["Motorcycle, RV, Boat and Trailer Financing Services](https://www.sefinancial.com/services/financing/)." 3. J.D. Power. "[Understanding the Factors Behind a Cost of a Motorcycle Ownership](https://www.jdpower.com/motorcycles/shopping-guides/how-much-does-a-motorcycle-cost)." 4. Southeast Financial. "[Motorcycle Loans and Financing](https://www.sefinancial.com/motorcycles/)." 5. Consumer Financial Protection Bureau. "[Consumer Complaint Database](https://www.consumerfinance.gov/data-research/consumer-complaints/search/?company=Southeast%20Finance%20Inc.&date_received_max=2023-09-27&date_received_min=2020-09-27&page=1&searchField=all&searchText=southeast%20financial&size=25&sort=created_date_desc&tab=List)." 6. Trustpilot. "[Southeast Financial](https://www.trustpilot.com/review/sefinancial.com)."

 Southeast Financial Investopedia’s Rating 4.0 Apply Now Our Take Southeast Financial is a good choice if you’re short on time to shop around for financing, especially if you’re working on building credit. However, the lender puts the brakes on borrowing more than $50,000 and borrowing if you live in Alaska or Hawaii. Rates are accurate as of November 2, 2023. Pros and Cons Key Takeaways Company Overview Pros and Cons Pros Accepts applicants with poor credit Lease buyouts available Good customer satisfaction ratings Can purchase from private sellers Cons Doesn’t disclose partners Steep minimum loan amounts Loan limit of $50,000 Doesn’t offer loans in Alaska or Hawaii Key Takeaways Southeast Financial works with partner lenders to help you find the best loan option for your next motorcycle, recreational vehicle, or boat.Southeast Financial offers loans of $10,000 to $50,000 to purchase a new or used bike; refinancing is available as well. Southeast Financial has no vehicle mileage restrictions, and finances vehicles up to 15 years old.You can purchase your motorcycle from a dealership or a private seller. Company Overview Southeast Financial has been around since 1998 and is based in Nashville, Tennessee. It’s not a true lender per se because it doesn’t fund your loan directly. Instead, as is common in the industry, it’s a marketplace working with several lenders to help you find the best loan option in its network.  Unlike some other lender networks, Southeast Financial specializes in loans for vehicles other than cars and trucks. It offers loans not only for motorcycles, but for boats and recreational vehicles of all types: campers, horse trailers, motorhomes, and the like. As the lender says, “If you can drive it or ride it for recreational purposes, chances are we finance it.” Southeast Financial offers loans to residents of all states except Hawaii and Alaska. Loan Types Offered New, used, refinance States Available All 50 states except AK, HI New APR Range 8.35%–18.00%* Used APR Range 8.35%–18.00%* Refinance APR Range Not disclosed Min. Time to Receive Loan 3 days Recommended Min. Credit Score 600 Max. Accepted Mileage No maximum Max. Accepted Age 15 years Max. Accepted Loan-to-Value Ratio No maximum  Southeast Financial overall rating 4.0 Apply Now Table of Contents View All Southeast Financial Motorcycle Loans Review Pros Explained Cons Explained Types of Loans Time to Receive Funds Borrower Requirements Vehicle Requirements Loan Features Customer Service Customer Satisfaction How to Apply Alternatives Final Verdict Methodology Shopping around with a few different lenders can help you find the best possible rate, which may save hundreds or thousands of dollars over the life of your loan. Browse the best motorcycle loans to check your rates. Pros Explained Accepts applicants with poor credit: You can qualify for a loan with a credit score as low as 600, unlike many other lenders that require good credit. Lease buyouts available: Not all lenders allow motorcycle lease buyouts, but Southeast Financial makes this option available.  Good customer satisfaction ratings: Bad reviews do exist, but on the whole, Southeast Financial has some of the highest ratings of any lender in its class. Can purchase from private sellers: Only about half of the motorcycle loan lenders we surveyed allow you to take out a loan to buy from a private seller. Southeast is one lender that does. Cons Explained Doesn’t disclose partners: Southeast Financial doesn’t disclose how many or which lenders it works with. It’s hard to avoid duplicating efforts when shopping for rates on your own (recommended) since there’s no way to know who Southeast Financial already shopped your loan with. Steep minimum loan amounts: The average used motorcycle costs between $3,000 and $6,000—far, far below the minimum of $15,000 you’ll need to borrow to get a Southeast Financial loan. Loan limit of $50,000: A luxury motorcycle can cost $65,000. If you want a motorcycle that costs more than $50,000, you’ll need to look elsewhere—several competitors offer loans of up to $150,000 or more.Doesn’t offer loans in Alaska or Hawaii: Residents of these states will need to consider other motorcycle lenders; most lenders offer financing to residents of these states.  Shopping around for the right loan can help you save hundreds or thousands of dollars. See the best motorcycle loans in a variety of categories to explore your options. Types of Motorcycle Loans Offered by Southeast Financial Southeast Financial offers loans for new and used motorcycles, along with refinance loans. Its minimum rates are close to average among lenders we surveyed. New Motorcycle Loans APR: 8.35%–18.00%Loan amounts: $10,000–$50,000Loan terms: 12–240 months Used Motorcycle Loans APR: 8.35%–18.00%Loan amounts: $10,000–$50,000Loan terms: 12–240 months You can use a Southeast Financial motorcycle loan to purchase a bike from a dealership or a private seller. Not all lenders allow you to do this, but Southeast Financial is one of a few nationwide lenders that do.  See our picks for the best private party auto loans for other options, although not all of those lenders may offer motorcycle loans. Refinance Motorcycle Loans APR: Not disclosedLoan amounts: Not disclosedLoan terms: 12–240 months Time to Receive Funds Southeast Financial strives to get same-business-day credit approval for applicants and, at most, 24 hours. In total, it typically takes about three to five business days from application submission to receiving a check. You’ll usually receive a loan decision within 24 hours of submitting your application, and if approved, you’ll have a 30-day window to accept the loan. Borrower Requirements Southeast Financial is refreshingly transparent when it comes to disclosing some of the requirements you’ll need to meet to get approved for a loan. It’s also remarkably tolerant of poor credit, with a lower minimum credit score requirement than most other options.  Minimum recommended credit score: 600State availability: All states in the U.S. except for Alaska and HawaiiMinimum annual income: $25,000Minimum age: 18 years or olderCitizenship status: U.S. citizen Southeast Financial doesn’t set the borrowing requirements since it’s an intermediary that helps you find the best loan from other lenders. Those lenders are ultimately the ones who decide which applicants they’ll approve.  Vehicle Requirements Southeast Financial also provides a fairly good picture of which bikes qualify for financing with its partner lenders and which don’t. Maximum age: 15 years oldMaximum accepted mileage: NoneMaximum loan-to-value ratio: Not disclosedVehicle restrictions: No commercial vehicles, ATVs, bullet bikes, sports bikes, or dirt bikes Southeast Financial Motorcycle Loan Features Loan features depend on which lender Southeast Financial matches you with from its partner network. However, according to the company, none of its partner lenders charge an origination fee.  Co-Signers and Co-Applicants Depending on the lender that Southeast Financial finds to fund your loan, you may be able to apply with a co-signer or a co-borrower. This can help you get approved for a loan with better rates if you have poor credit, for example.  Co-borrowers share ownership rights to your motorcycle with you. On the other hand, co-signers won’t be listed on the title and merely serve to guarantee your loan in case you default, helping you qualify for better rates.  Customer Service Southeast Financial offers several ways to get in touch if you need help. You can contact the company by snail mail, email, phone, or by filling out a contact form on its website. Medium Contact Availability Telephone (866) 900-8949 Weekdays, 8:30 a.m. to 5 p.m. CT Online Contact Form N/A Email [email protected] N/A Customer Satisfaction Southeast Financial has a good reputation among customers who share their opinions online. On Trustpilot, the lender has an average rating of 4.6 out of 5, based on nearly 4,000 customer reviews. The company has only one complaint with the Consumer Financial Protection Bureau’s Consumer Complaint Database; although this doesn’t mean there are no complaints about the company, it’s a good sign when seen with the Trustpilot ratings. How to Apply for a Southeast Financial Motorcycle Loan Applying for a motorcycle loan with Southeast Financial is quick and easy. Prepare to apply for a loan in advance by checking your budget to see how much you can afford each month for your loan payment. Check your credit report ahead of time so you can fix any errors, and check your credit score, too, so you know whether you’re likely to qualify.  When you’re ready to apply, here’s how the process will work: Fill out a credit application: There are two applications to choose from. If you haven’t yet picked a bike, choose the “Instant Quote?” option. If you already have a bike in mind, select the “Ready to buy?” option. Provide documents: You must include a copy of your driver’s license. If you’ve already picked a bike, include the seller’s contact information, a copy of the title, and the lender/loan information if the seller is still paying it off. Additionally, you’ll need to show proof that it’s insured.  Get a loan decision: Southeast Financial will usually reply within 24 hours to let you know whether you’re approved. If approved, your loan offer is valid for 30 days, giving you time to shop around for other rates (if you haven’t already done so). Finalize the loan: If Southeast Financial offers the best rates you’ve found, you can feel secure signing the loan agreement. You’ll receive a check within three to five business days (including the time it takes to get your loan approved), which you can use to purchase the bike. Repay the loan: Sign up for autopay with your new lender to focus on cruising the roads instead of dealing with late-payment hassles.  Alternatives to Southeast Financial Motorcycle Loans Southeast Financial Harley-Davidson Digital Federal Credit Union Loan Types Offered New, used, refinance New, used New, used, refinance States Available All 50 states except AK, HI All 50 states and D.C. All 50 states and D.C. New APR Range 8.35%–18.00%* Starting from 6.39%* 7.25%–17.25%* Used APR Range 8.35%–18.00%* Starting from 7.79%* 7.25%–17.25%* Refinance APR Range Not disclosed N/A 7.25%–17.25%* Min. Time to Receive Loan 3 days Not disclosed 2 days Recommended Min. Credit Score 600 Not disclosed Not disclosed Max. Accepted Mileage No maximum No maximum No maximum Max. Accepted Age 15 years No maximum 22 years Max. Accepted Loan-to-Value Ratio No maximum Not disclosed 125% *Rates are accurate as of November 2, 2023. Southeast Financial’s rates are about average and it’s a solid overall lender, but its loan amounts are somewhat limited. And it always pays to shop around—see the best motorcycle loans to check your rates with some other lenders. Final Verdict Southeast Financial’s strength is in helping contiguous U.S. applicants with less-than-stellar credit (or better) get connected with motorcycle loan options. Working with multiple lenders casts a wider net. But whether the loans found are best could depend on other lenders you check with first. The lender also isn’t a great fit if you need a substantial loan to buy an expensive motorcycle, as loan amounts are capped at $50,000.  Apply Now Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of motorcycle loan lenders. To rate providers, we collected hundreds of data points for 10 motorcycle loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. LinkedIn. "About Southeast Financial." Southeast Financial. "Motorcycle, RV, Boat and Trailer Financing Services." J.D. Power. "Understanding the Factors Behind a Cost of a Motorcycle Ownership." Southeast Financial. "Motorcycle Loans and Financing." Consumer Financial Protection Bureau. "Consumer Complaint Database." Trustpilot. "Southeast Financial."

https://www.investopedia.com/terms/f/fundamentalanalysis.asp

Fundamental Analysis: Principles, Types, and How to Use It

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-fundamental-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Fundamental Analysis? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Fundamental analysis (FA) measures <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valuation.asp">a security's intrinsic value</a> by examining related economic and financial factors. Intrinsic value is the value of an investment based on the issuing company's financial situation and current market and economic conditions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Fundamental analysts study anything that can affect the security's value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company's management. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The end goal is to determine a number that an investor can compare with a security's current price to see whether the security is undervalued or overvalued by other investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_9-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Fundamental analysis is a method of determining a stock's real or "fair market" value.</li><li>Fundamental analysts search for stocks currently trading at prices higher or lower than their real value.</li><li>If the fair market value is higher than the market price, the stock is deemed undervalued, and a buy recommendation is given.</li><li>If the fair market value is lower than the market price, the stock is deemed overvalued, and the recommendation might be not to buy or to sell if the stock is held.</li><li>In contrast, technical analysts favor studying the historical price trends of the stock to predict short-term future trends.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_10-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Fundamental Analysis" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/5ND_3MkllJpH1r-mzG1mC0-L15g=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/FundamentalAnalysis_Final_4195918-eea2436ba2374e23930b0a482adbea2f.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/5ND_3MkllJpH1r-mzG1mC0-L15g=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/FundamentalAnalysis_Final_4195918-eea2436ba2374e23930b0a482adbea2f.jpg" data-srcset="https://www.investopedia.com/thmb/PvwRAxomNnMETPVBn_n4o6SVPtg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/FundamentalAnalysis_Final_4195918-eea2436ba2374e23930b0a482adbea2f.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Fundamental Analysis" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/5ND_3MkllJpH1r-mzG1mC0-L15g=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/FundamentalAnalysis_Final_4195918-eea2436ba2374e23930b0a482adbea2f.jpg" srcset="https://www.investopedia.com/thmb/PvwRAxomNnMETPVBn_n4o6SVPtg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/FundamentalAnalysis_Final_4195918-eea2436ba2374e23930b0a482adbea2f.jpg 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Paige McLaughlin</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-fundamental-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> Understanding Fundamental Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Fundamental analysis is usually done from a macro to micro perspective to identify securities that are not correctly priced by the market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Analysts typically study, in order: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <li>The overall state of the economy</li><li>The strength of the specific industry</li><li>The financial performance of the company issuing the stock</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> This ensures they arrive at a fair market value for the stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-subheading__text"> Sources for Fundamental Analysis </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Fundamental analysis uses publicly available financial data to evaluate the value of an investment. The data is recorded on financial statements such as quarterly and annual reports and filings like the 10-Q (quarterly) or 10-K (annual). The 8-K is also informative because public companies must file it any time a reportable event occurs, like an acquisition or upper-level management change. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_24-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Most public—and many private—companies list annual reports on the investor relation sections of their websites, highlighting financial decisions made and results achieved throughout the year.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> For example, you might perform a fundamental analysis of a bond's value by looking at economic factors such as interest rates and the overall state of the economy. Then, you'd evaluate the bond market and use financial data from similar bond issuers. Finally, you'd analyze the financial data from the issuing company, including external factors such as potential changes in its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrating.asp">credit rating</a>. You could also read through the 8-K, 10-Q, 10-K, and the issuer's annual reports to find out what they are doing, their goals, or other issues. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Fundamental analysis uses a company's revenues, earnings, future growth, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/returnonequity.asp">return on equity</a>, profit margins, and other data to determine a company's underlying value and potential for future growth. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-subheading__text"> Intrinsic Value </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> One of the primary assumptions behind fundamental analysis is that a stock's current price often does not fully reflect the value of the company when compared to publicly available financial data. A second assumption is that the value reflected from the company's fundamental data is more likely to be closer to the true value of the stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_32-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_33-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Intrinsic value means something different in stock valuation than in options trading. Option pricing uses a standard calculation for intrinsic value, while it can be calculated in many different ways for a stock.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> For example, say that a company's stock was trading at $20, and after extensive research on the company, an analyst determines that it ought to be worth $24. Another analyst does equal research but decides it should be worth $26. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Many investors will consider the average of these estimates and assume that the stock's intrinsic value may be near $25. Often investors consider these estimates highly relevant because they want to buy stocks trading at prices significantly below these intrinsic values. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> This leads to a third major assumption of fundamental analysis: In the long run, the stock market will reflect the fundamentals. The problem is, no one knows how long "the long run" really is. It could be days or years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> This is what fundamental analysis is all about. By focusing on a particular business, an investor can estimate the intrinsic value of a firm and find opportunities to buy at a discount or sell at a premium. The investment will pay off when the market catches up to the fundamentals. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_42-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_43-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Fundamental analysis is used most often for stocks, but it is useful for evaluating any security, from a bond to a derivative. If you consider the fundamentals, from the broader economy to the company details, you are doing a fundamental analysis.</p></div></div></div> <span class="heading-toc" id="toc-fundamental-analysis-vs-technical-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-heading__text"> Fundamental Analysis vs. Technical Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> This method of analysis starkly contrasts with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalanalysis.asp">technical analysis,</a> which attempts to forecast price direction through analyzing historical market data such as price and volume. Technical analysis uses price trends and price action to create indicators. Some of the indicators create patterns that have names resembling their shapes, such as the head and shoulders pattern. Others use trend, support, and resistance lines to demonstrate how traders view investments and indicate what will happen. Some examples are the symmetrical triangle or the wedge. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Fundamental analysis relies on financial information reported by the company whose stock is being analyzed. Ratios and metrics are created using the data which indicate how a company is performing compared to similar companies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <span class="heading-toc" id="toc-quantitative-and-qualitative-fundamental-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-heading__text"> Quantitative and Qualitative Fundamental Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> The problem with defining the word fundamentals is that it can cover anything related to the economic well-being of a company. They include numbers like revenue and profit, but they can also include anything from a company's market share to the quality of its management. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> The various fundamental factors can be grouped into two categories: quantitative and qualitative. The financial meaning of these terms isn't much different from well-known definitions: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> <li><strong>Quantitative</strong>: information that can be shown using numbers, figures, ratios, or formulas</li><li><strong>Qualitative</strong>:<strong> </strong>rather than a quantity of something, it is its quality, standard, or nature</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> In this context, quantitative fundamentals are hard numbers. They are the measurable characteristics of a business. That's why the biggest source of quantitative data is financial statements. Revenue, profit, assets, and more can be accurately measured. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> The qualitative fundamentals are less tangible. They might include the quality of a company's key executives, brand-name recognition, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/patent.asp">patents</a>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/proprietarytechnology.asp">proprietary technology</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Neither qualitative nor quantitative analysis is inherently better. Many analysts consider them together. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <span class="heading-toc" id="toc-qualitative-fundamentals-to-consider"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_62-0"> <span class="mntl-sc-block-heading__text"> Qualitative Fundamentals to Consider </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> There are four key fundamentals that analysts always consider when regarding a company. All are qualitative rather than quantitative. They include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_65-0"> <span class="mntl-sc-block-subheading__text"> The Business Model </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> What exactly does the company do? This isn't as straightforward as it seems. If a company's business model is based on selling fast-food chicken, is it making its money that way? Or is it just coasting on royalty and franchise fees? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-subheading__text"> Competitive Advantage </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> A company's long-term success is primarily driven by its ability to maintain a competitive advantage—and keep it. Powerful competitive advantages, such as Coca-Cola's brand name and Microsoft's domination of the personal computer operating system, create a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/05/economicmoat.asp">moat</a> around a business allowing it to keep competitors at bay and enjoy growth and profits. When a company can achieve a competitive advantage, its shareholders can be well rewarded for decades. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_71-0"> <span class="mntl-sc-block-subheading__text"> Management </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> Some believe management is the most important criterion for investing in a company. It makes sense: Even the best business model is doomed if the company's leaders fail to execute the plan properly. While it's hard for retail investors to meet and truly evaluate managers, you can look at the corporate website and check the resumes of the top brass and the board members. How well did they perform in previous jobs? Have they been unloading a lot of their stock shares lately? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_74-0"> <span class="mntl-sc-block-subheading__text"> Corporate Governance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Corporate governance describes the policies in place within an organization denoting the relationships and responsibilities between management, directors, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stakeholder.asp">stakeholders</a>. These policies are defined and determined in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporatecharter.asp">company charter</a>, its bylaws, and corporate laws and regulations. You want to do business with a company that is run ethically, fairly, transparently, and efficiently. Particularly note whether management respects shareholder rights and shareholder interests. Make sure their communications to shareholders are transparent, clear, and understandable. If you don't get it, it's probably because they don't want you to. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_77-0"> <span class="mntl-sc-block-subheading__text"> Industry </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> It's also important to consider a company's industry: its customer base, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketshare.asp">market share</a> among firms, industry-wide growth, competition, regulation, and business cycles. Learning how the industry works will give an investor a deeper understanding of a company's financial health. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <span class="heading-toc" id="toc-quantitative-fundamentals-to-consider-financial-statements"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_80-0"> <span class="mntl-sc-block-heading__text"> Quantitative Fundamentals to Consider: Financial Statements </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> Financial statements are the medium by which a company discloses information concerning its financial performance. Followers of fundamental analysis use quantitative information from financial statements to make investment decisions. The three most important financial statements are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incomestatement.asp">income statements</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balancesheet.asp">balance sheets</a>, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashflow.asp">cash flow statements</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_83-0"> <span class="mntl-sc-block-subheading__text"> The Balance Sheet </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> The balance sheet represents a record of a company's assets, liabilities, and equity at a particular point in time. It is called a balance sheet because the three sections—assets, liabilities, and shareholders' equity—must balance using the formula: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <blockquote class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> Assets = Liabilities + Shareholders' Equity </blockquote> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_88-0"> Assets represent the resources the business owns or controls at a given time. This includes items such as cash, inventory, machinery, and buildings. The other side of the equation represents the total financing value the company has used to acquire those assets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> Financing comes as a result of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liability.asp">liabilities</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equity</a>. Liabilities represent debts or obligations that must be paid. In contrast, equity represents the total value of money that the owners have contributed to the business—including retained earnings, which is the profit left after paying all current obligations, dividends, and taxes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_92-0"> <span class="mntl-sc-block-subheading__text"> The Income Statement </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> While the balance sheet takes a snapshot approach in examining a business, the income statement measures a company's performance over a specific time frame. Technically, you could have a balance sheet for a month or even a day, but you'll only see public companies report quarterly and annually. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_94-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_95-0"> The income statement presents revenues, expenses, and profit generated from the business' operations for that period. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_97-0"> <span class="mntl-sc-block-subheading__text"> Statement of Cash Flows </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_98-0"> The statement of cash flows represents a record of a business' cash inflows and outflows over a period of time. Typically, a statement of cash flows focuses on the following cash-related activities: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_99-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_100-0"> <li><strong>Cash from investing (CFI)</strong>: Cash used for investing in assets, as well as the proceeds from the sale of other businesses, equipment, or long-term assets</li> <li><strong>Cash from financing (CFF)</strong>: Cash paid or received from the issuing and borrowing of funds</li> <li><strong><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/operatingcashflow.asp">Operating Cash Flow</a> (OCF)</strong>: Cash generated from day-to-day business operations</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_101-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_102-0"> The cash flow statement is important because it's challenging for a business to manipulate its cash situation. There is plenty that aggressive accountants can do to manipulate earnings, but it's tough to fake cash in the bank. For this reason, some investors use the cash flow statement as a more conservative measure of a company's performance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_104-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_105-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>Fundamental analysis relies on using <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-ratios-4689817">financial ratios</a> drawn from data on corporate financial statements to make inferences about a company's value and prospects.</p></div></div></div> <span class="heading-toc" id="toc-example-of-fundamental-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_106-0"> <span class="mntl-sc-block-heading__text"> Example of Fundamental Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_107-0"> The Coca-Cola Company is a prime example that can be used in fundamental analysis. To begin, an analyst would examine the economy using some published metrics: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_108-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_109-0"> <li>Consumer price index (inflation measure)</li><li>Gross domestic product growth</li><li>Exports/imports</li><li>Purchasing manager's index</li><li>Interest rates</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_110-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_111-0"> Then, the sector and industry would be examined using statistics and metrics from various reports and competitor companies. Lastly, the analysts would gather the reports from Coca-Cola or the Security and Exchange Commission's Edgar filings database.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_112-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_113-0"> Analysts might also use data gathered by another firm, such as CSIMarket. CSIMarket provides fundamental analysis data for investors, so you could begin by assessing the value of Coca-Cola's assets, income streams, debts, and liabilities. You might find comparisons of objective metrics such as revenue, profits, and growth, especially in the context of the broader beverage industry. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_114-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_115-0"> Using CSIMarket's analysis, the analyst could compare growth rates to the industry and sector Coca-Cola operates in, along with the other information provided, to see if the company is valued correctly. For example, as of August 2022, for the trailing twelve months (TTM), Coca-Cola had (using only a few of the possible ratios and metrics):<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_116-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_117-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td></td> <td> Coca-Cola</td> <td>Industry </td> <td>Sector </td> </tr> <tr> <td>Y/Y Revenue Growth</td> <td>13.48% </td> <td>10.86% </td> <td>16.18%</td> </tr> <tr> <td>P/E Ratio</td> <td>29.12 </td> <td>25.16 </td> <td>18.68 </td> </tr> <tr> <td>Price to Free Cash Flow</td> <td>24</td> <td>7.45</td> <td>4.23</td> </tr> <tr> <td>Debt to Equity (TTM)</td> <td>1.57</td> <td>0.14</td> <td>0.11</td> </tr> <tr> <td>Quick Ratio (TTM)</td> <td>0.16</td> <td>0.24</td> <td>0.2</td> </tr> <tr> <td>Return on Equity (TTM)</td> <td>13.14%</td> <td>30.21%</td> <td>23.16%</td> </tr> <tr> <td>Return on Assets (TTM)</td> <td>11.5%</td> <td>8.69%</td> <td>7.91%</td> </tr> <tr> <td>Return on Investment (TTM)</td> <td>13.14%</td> <td>19.76%</td> <td>15.84%</td> </tr> <tr> <td>Revenue per Employee (TTM)</td> <td>$111,578</td> <td>$55,015</td> <td>$66,896</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_118-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_119-0"> One factor not shown in an analysis of ratios and numbers is how long a company has been around and the conditions they have weathered. Coca-Cola was founded in 1892 in Atlanta, Georgia.<span class="ql-inline-citation" data-cite="13"></span> It has stayed in business through several wars, depressions, recessions, epidemics, pandemics, stock market crashes, and a global financial crisis. Not many companies can claim a history like that. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_120-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_121-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_122-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_6-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_6-0"><p>Additionally, a company's brand can add value to an investment. Coca-Cola has been providing beverages for a long time, and its logo is recognized worldwide.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_123-0"> So, an analyst can combine brand, longevity, growth above that of the beverages manufacturing industry, an above average price-to-earnings ratio, and good return on investment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_124-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_125-0"> Coca-Cola has more debt than equity, but it also generates more returns using its assets than the rest of the industry. The company doesn't have as much liquidity as other companies, but it seems the industry hovers on pretty low quick ratios. More than 1.0 means a company can pay its short-term obligations quickly—so in general, most of the industry is low, but Coca-Cola has more than $1 billion in net cash flows, which gives it a lot of wriggle room.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_126-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_127-0"> An interesting measurement is how much revenue one employee generates. Coca-Cola employees generate about twice as much revenue as employees for comparative companies. This might warrant a deeper investigation into what Coca-Cola is doing differently. They may have invested in new technology or have much more efficient systems. Looking over press releases and reading company reports can provide insights into what the company is doing. It might also be that Coca-Cola simply sells more products than its competitors, so it's important to review any reports and releases and conduct a fundamental analysis carefully. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_128-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_129-0"><span class="heading-toc" id="toc-what-is-fundamental-analysis-and-its-objective"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Fundamental Analysis and Its Objective?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Fundamental analysis uses publicly available financial information and reports to determine whether a stock and the issuing company are valued correctly by the market.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_130-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_131-0"><span class="heading-toc" id="toc-what-are-the-types-of-fundamental-analysis"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Types of Fundamental Analysis?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are two types of fundamental analysis, qualitative and quantitative.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_132-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_133-0"><span class="heading-toc" id="toc-what-are-the-3-layers-of-fundamental-analysis"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the 3 Layers of Fundamental Analysis?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When conducting an analysis, you start with economic analysis, then analyze the industry, then the company.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_134-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_135-0"><span class="heading-toc" id="toc-why-is-fundamental-analysis-important"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is Fundamental Analysis Important?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Fundamental analysis allows you to see what the market value for a company should be. Many investors only look at the price a stock is currently trading at and what it has traded at instead of analyzing what lies behind the stock. A stock is issued by a company, so its overall performance is related to the financial performance of the company.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_136-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_137-0"><span class="heading-toc" id="toc-what-are-the-tools-for-fundamental-analysis"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Tools for Fundamental Analysis?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Analysts use many tools. Some examples are financial reports, ratios from the reports, spreadsheets, charts, graphs, infographics, government agency reports on industries and the economy, and market reports.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_138-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_139-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_140-0"> Fundamental analysis is a valuation tool used by stock analysts to determine whether a stock is over- or undervalued by the market. It considers the economic, market, industry, and sector conditions a company operates in and its financial performance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_141-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_142-0"> Financial ratios generated from financial reports and government industry and economic reports are used to valuate a company. Not every analyst uses the same tools or views stocks similarly—you might determine a stock is valued differently than another analyst. What's important is that the stock you analyze meets your criteria for value and that your analysis creates actionable information for you. </p></div>

## What Is Fundamental Analysis? Fundamental analysis (FA) measures [a security's intrinsic value](https://www.investopedia.com/terms/v/valuation.asp) by examining related economic and financial factors. Intrinsic value is the value of an investment based on the issuing company's financial situation and current market and economic conditions. Fundamental analysts study anything that can affect the security's value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company's management. The end goal is to determine a number that an investor can compare with a security's current price to see whether the security is undervalued or overvalued by other investors. ### Key Takeaways * Fundamental analysis is a method of determining a stock's real or "fair market" value. * Fundamental analysts search for stocks currently trading at prices higher or lower than their real value. * If the fair market value is higher than the market price, the stock is deemed undervalued, and a buy recommendation is given. * If the fair market value is lower than the market price, the stock is deemed overvalued, and the recommendation might be not to buy or to sell if the stock is held. * In contrast, technical analysts favor studying the historical price trends of the stock to predict short-term future trends. ![Fundamental Analysis]() :max_bytes(150000):strip_icc()/FundamentalAnalysis_Final_4195918-eea2436ba2374e23930b0a482adbea2f.jpg) Investopedia / Paige McLaughlin ## Understanding Fundamental Analysis Fundamental analysis is usually done from a macro to micro perspective to identify securities that are not correctly priced by the market. Analysts typically study, in order: * The overall state of the economy * The strength of the specific industry * The financial performance of the company issuing the stock This ensures they arrive at a fair market value for the stock. ### Sources for Fundamental Analysis Fundamental analysis uses publicly available financial data to evaluate the value of an investment. The data is recorded on financial statements such as quarterly and annual reports and filings like the 10-Q (quarterly) or 10-K (annual). The 8-K is also informative because public companies must file it any time a reportable event occurs, like an acquisition or upper-level management change. ### Most public—and many private—companies list annual reports on the investor relation sections of their websites, highlighting financial decisions made and results achieved throughout the year. For example, you might perform a fundamental analysis of a bond's value by looking at economic factors such as interest rates and the overall state of the economy. Then, you'd evaluate the bond market and use financial data from similar bond issuers. Finally, you'd analyze the financial data from the issuing company, including external factors such as potential changes in its [credit rating](https://www.investopedia.com/terms/c/creditrating.asp). You could also read through the 8-K, 10-Q, 10-K, and the issuer's annual reports to find out what they are doing, their goals, or other issues. Fundamental analysis uses a company's revenues, earnings, future growth, [return on equity](https://www.investopedia.com/terms/r/returnonequity.asp), profit margins, and other data to determine a company's underlying value and potential for future growth. ### Intrinsic Value One of the primary assumptions behind fundamental analysis is that a stock's current price often does not fully reflect the value of the company when compared to publicly available financial data. A second assumption is that the value reflected from the company's fundamental data is more likely to be closer to the true value of the stock. ### Intrinsic value means something different in stock valuation than in options trading. Option pricing uses a standard calculation for intrinsic value, while it can be calculated in many different ways for a stock. For example, say that a company's stock was trading at $20, and after extensive research on the company, an analyst determines that it ought to be worth $24. Another analyst does equal research but decides it should be worth $26. Many investors will consider the average of these estimates and assume that the stock's intrinsic value may be near $25. Often investors consider these estimates highly relevant because they want to buy stocks trading at prices significantly below these intrinsic values. This leads to a third major assumption of fundamental analysis: In the long run, the stock market will reflect the fundamentals. The problem is, no one knows how long "the long run" really is. It could be days or years. This is what fundamental analysis is all about. By focusing on a particular business, an investor can estimate the intrinsic value of a firm and find opportunities to buy at a discount or sell at a premium. The investment will pay off when the market catches up to the fundamentals. ### Fundamental analysis is used most often for stocks, but it is useful for evaluating any security, from a bond to a derivative. If you consider the fundamentals, from the broader economy to the company details, you are doing a fundamental analysis. ## Fundamental Analysis vs. Technical Analysis This method of analysis starkly contrasts with [technical analysis,](https://www.investopedia.com/terms/t/technicalanalysis.asp) which attempts to forecast price direction through analyzing historical market data such as price and volume. Technical analysis uses price trends and price action to create indicators. Some of the indicators create patterns that have names resembling their shapes, such as the head and shoulders pattern. Others use trend, support, and resistance lines to demonstrate how traders view investments and indicate what will happen. Some examples are the symmetrical triangle or the wedge. Fundamental analysis relies on financial information reported by the company whose stock is being analyzed. Ratios and metrics are created using the data which indicate how a company is performing compared to similar companies. ## Quantitative and Qualitative Fundamental Analysis The problem with defining the word fundamentals is that it can cover anything related to the economic well-being of a company. They include numbers like revenue and profit, but they can also include anything from a company's market share to the quality of its management. The various fundamental factors can be grouped into two categories: quantitative and qualitative. The financial meaning of these terms isn't much different from well-known definitions: * **Quantitative**: information that can be shown using numbers, figures, ratios, or formulas * **Qualitative**:rather than a quantity of something, it is its quality, standard, or nature In this context, quantitative fundamentals are hard numbers. They are the measurable characteristics of a business. That's why the biggest source of quantitative data is financial statements. Revenue, profit, assets, and more can be accurately measured. The qualitative fundamentals are less tangible. They might include the quality of a company's key executives, brand-name recognition, [patents](https://www.investopedia.com/terms/p/patent.asp), and [proprietary technology](https://www.investopedia.com/terms/p/proprietarytechnology.asp). Neither qualitative nor quantitative analysis is inherently better. Many analysts consider them together. ## Qualitative Fundamentals to Consider There are four key fundamentals that analysts always consider when regarding a company. All are qualitative rather than quantitative. They include: ### The Business Model What exactly does the company do? This isn't as straightforward as it seems. If a company's business model is based on selling fast-food chicken, is it making its money that way? Or is it just coasting on royalty and franchise fees? ### Competitive Advantage A company's long-term success is primarily driven by its ability to maintain a competitive advantage—and keep it. Powerful competitive advantages, such as Coca-Cola's brand name and Microsoft's domination of the personal computer operating system, create a [moat](https://www.investopedia.com/ask/answers/05/economicmoat.asp) around a business allowing it to keep competitors at bay and enjoy growth and profits. When a company can achieve a competitive advantage, its shareholders can be well rewarded for decades. ### Management Some believe management is the most important criterion for investing in a company. It makes sense: Even the best business model is doomed if the company's leaders fail to execute the plan properly. While it's hard for retail investors to meet and truly evaluate managers, you can look at the corporate website and check the resumes of the top brass and the board members. How well did they perform in previous jobs? Have they been unloading a lot of their stock shares lately? ### Corporate Governance Corporate governance describes the policies in place within an organization denoting the relationships and responsibilities between management, directors, and [stakeholders](https://www.investopedia.com/terms/s/stakeholder.asp). These policies are defined and determined in the [company charter](https://www.investopedia.com/terms/c/corporatecharter.asp), its bylaws, and corporate laws and regulations. You want to do business with a company that is run ethically, fairly, transparently, and efficiently. Particularly note whether management respects shareholder rights and shareholder interests. Make sure their communications to shareholders are transparent, clear, and understandable. If you don't get it, it's probably because they don't want you to. ### Industry It's also important to consider a company's industry: its customer base, [market share](https://www.investopedia.com/terms/m/marketshare.asp) among firms, industry-wide growth, competition, regulation, and business cycles. Learning how the industry works will give an investor a deeper understanding of a company's financial health. ## Quantitative Fundamentals to Consider: Financial Statements Financial statements are the medium by which a company discloses information concerning its financial performance. Followers of fundamental analysis use quantitative information from financial statements to make investment decisions. The three most important financial statements are [income statements](https://www.investopedia.com/terms/i/incomestatement.asp), [balance sheets](https://www.investopedia.com/terms/b/balancesheet.asp), and [cash flow statements](https://www.investopedia.com/terms/c/cashflow.asp). ### The Balance Sheet The balance sheet represents a record of a company's assets, liabilities, and equity at a particular point in time. It is called a balance sheet because the three sections—assets, liabilities, and shareholders' equity—must balance using the formula: > Assets = Liabilities + Shareholders' Equity Assets represent the resources the business owns or controls at a given time. This includes items such as cash, inventory, machinery, and buildings. The other side of the equation represents the total financing value the company has used to acquire those assets. Financing comes as a result of [liabilities](https://www.investopedia.com/terms/l/liability.asp) or [equity](https://www.investopedia.com/terms/e/equity.asp). Liabilities represent debts or obligations that must be paid. In contrast, equity represents the total value of money that the owners have contributed to the business—including retained earnings, which is the profit left after paying all current obligations, dividends, and taxes. ### The Income Statement While the balance sheet takes a snapshot approach in examining a business, the income statement measures a company's performance over a specific time frame. Technically, you could have a balance sheet for a month or even a day, but you'll only see public companies report quarterly and annually. The income statement presents revenues, expenses, and profit generated from the business' operations for that period. ### Statement of Cash Flows The statement of cash flows represents a record of a business' cash inflows and outflows over a period of time. Typically, a statement of cash flows focuses on the following cash-related activities: * **Cash from investing (CFI)**: Cash used for investing in assets, as well as the proceeds from the sale of other businesses, equipment, or long-term assets * **Cash from financing (CFF)**: Cash paid or received from the issuing and borrowing of funds * **[Operating Cash Flow](https://www.investopedia.com/terms/o/operatingcashflow.asp) (OCF)**: Cash generated from day-to-day business operations The cash flow statement is important because it's challenging for a business to manipulate its cash situation. There is plenty that aggressive accountants can do to manipulate earnings, but it's tough to fake cash in the bank. For this reason, some investors use the cash flow statement as a more conservative measure of a company's performance. ### Fundamental analysis relies on using [financial ratios](https://www.investopedia.com/financial-ratios-4689817) drawn from data on corporate financial statements to make inferences about a company's value and prospects. ## Example of Fundamental Analysis The Coca-Cola Company is a prime example that can be used in fundamental analysis. To begin, an analyst would examine the economy using some published metrics: * Consumer price index (inflation measure) * Gross domestic product growth * Exports/imports * Purchasing manager's index * Interest rates Then, the sector and industry would be examined using statistics and metrics from various reports and competitor companies. Lastly, the analysts would gather the reports from Coca-Cola or the Security and Exchange Commission's Edgar filings database. Analysts might also use data gathered by another firm, such as CSIMarket. CSIMarket provides fundamental analysis data for investors, so you could begin by assessing the value of Coca-Cola's assets, income streams, debts, and liabilities. You might find comparisons of objective metrics such as revenue, profits, and growth, especially in the context of the broader beverage industry. Using CSIMarket's analysis, the analyst could compare growth rates to the industry and sector Coca-Cola operates in, along with the other information provided, to see if the company is valued correctly. For example, as of August 2022, for the trailing twelve months (TTM), Coca-Cola had (using only a few of the possible ratios and metrics): | | Coca-Cola | Industry | Sector | | --- | --- | --- | --- | | Y/Y Revenue Growth | 13.48% | 10.86% | 16.18% | | P/E Ratio | 29.12 | 25.16 | 18.68 | | Price to Free Cash Flow | 24 | 7.45 | 4.23 | | Debt to Equity (TTM) | 1.57 | 0.14 | 0.11 | | Quick Ratio (TTM) | 0.16 | 0.24 | 0.2 | | Return on Equity (TTM) | 13.14% | 30.21% | 23.16% | | Return on Assets (TTM) | 11.5% | 8.69% | 7.91% | | Return on Investment (TTM) | 13.14% | 19.76% | 15.84% | | Revenue per Employee (TTM) | $111,578 | $55,015 | $66,896 | One factor not shown in an analysis of ratios and numbers is how long a company has been around and the conditions they have weathered. Coca-Cola was founded in 1892 in Atlanta, Georgia. It has stayed in business through several wars, depressions, recessions, epidemics, pandemics, stock market crashes, and a global financial crisis. Not many companies can claim a history like that. ### Additionally, a company's brand can add value to an investment. Coca-Cola has been providing beverages for a long time, and its logo is recognized worldwide. So, an analyst can combine brand, longevity, growth above that of the beverages manufacturing industry, an above average price-to-earnings ratio, and good return on investment. Coca-Cola has more debt than equity, but it also generates more returns using its assets than the rest of the industry. The company doesn't have as much liquidity as other companies, but it seems the industry hovers on pretty low quick ratios. More than 1.0 means a company can pay its short-term obligations quickly—so in general, most of the industry is low, but Coca-Cola has more than $1 billion in net cash flows, which gives it a lot of wriggle room. An interesting measurement is how much revenue one employee generates. Coca-Cola employees generate about twice as much revenue as employees for comparative companies. This might warrant a deeper investigation into what Coca-Cola is doing differently. They may have invested in new technology or have much more efficient systems. Looking over press releases and reading company reports can provide insights into what the company is doing. It might also be that Coca-Cola simply sells more products than its competitors, so it's important to review any reports and releases and conduct a fundamental analysis carefully. ## What Is Fundamental Analysis and Its Objective? Fundamental analysis uses publicly available financial information and reports to determine whether a stock and the issuing company are valued correctly by the market. ## What Are the Types of Fundamental Analysis? There are two types of fundamental analysis, qualitative and quantitative. ## What Are the 3 Layers of Fundamental Analysis? When conducting an analysis, you start with economic analysis, then analyze the industry, then the company. ## Why Is Fundamental Analysis Important? Fundamental analysis allows you to see what the market value for a company should be. Many investors only look at the price a stock is currently trading at and what it has traded at instead of analyzing what lies behind the stock. A stock is issued by a company, so its overall performance is related to the financial performance of the company. ## What Are the Tools for Fundamental Analysis? Analysts use many tools. Some examples are financial reports, ratios from the reports, spreadsheets, charts, graphs, infographics, government agency reports on industries and the economy, and market reports. ## The Bottom Line Fundamental analysis is a valuation tool used by stock analysts to determine whether a stock is over- or undervalued by the market. It considers the economic, market, industry, and sector conditions a company operates in and its financial performance. Financial ratios generated from financial reports and government industry and economic reports are used to valuate a company. Not every analyst uses the same tools or views stocks similarly—you might determine a stock is valued differently than another analyst. What's important is that the stock you analyze meets your criteria for value and that your analysis creates actionable information for you.

What Is Fundamental Analysis? Fundamental analysis (FA) measures a security's intrinsic value by examining related economic and financial factors. Intrinsic value is the value of an investment based on the issuing company's financial situation and current market and economic conditions. Fundamental analysts study anything that can affect the security's value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company's management. The end goal is to determine a number that an investor can compare with a security's current price to see whether the security is undervalued or overvalued by other investors. Key Takeaways Fundamental analysis is a method of determining a stock's real or "fair market" value.Fundamental analysts search for stocks currently trading at prices higher or lower than their real value.If the fair market value is higher than the market price, the stock is deemed undervalued, and a buy recommendation is given.If the fair market value is lower than the market price, the stock is deemed overvalued, and the recommendation might be not to buy or to sell if the stock is held.In contrast, technical analysts favor studying the historical price trends of the stock to predict short-term future trends. Investopedia / Paige McLaughlin Understanding Fundamental Analysis Fundamental analysis is usually done from a macro to micro perspective to identify securities that are not correctly priced by the market. Analysts typically study, in order: The overall state of the economyThe strength of the specific industryThe financial performance of the company issuing the stock This ensures they arrive at a fair market value for the stock. Sources for Fundamental Analysis Fundamental analysis uses publicly available financial data to evaluate the value of an investment. The data is recorded on financial statements such as quarterly and annual reports and filings like the 10-Q (quarterly) or 10-K (annual). The 8-K is also informative because public companies must file it any time a reportable event occurs, like an acquisition or upper-level management change. Most public—and many private—companies list annual reports on the investor relation sections of their websites, highlighting financial decisions made and results achieved throughout the year. For example, you might perform a fundamental analysis of a bond's value by looking at economic factors such as interest rates and the overall state of the economy. Then, you'd evaluate the bond market and use financial data from similar bond issuers. Finally, you'd analyze the financial data from the issuing company, including external factors such as potential changes in its credit rating. You could also read through the 8-K, 10-Q, 10-K, and the issuer's annual reports to find out what they are doing, their goals, or other issues. Fundamental analysis uses a company's revenues, earnings, future growth, return on equity, profit margins, and other data to determine a company's underlying value and potential for future growth. Intrinsic Value One of the primary assumptions behind fundamental analysis is that a stock's current price often does not fully reflect the value of the company when compared to publicly available financial data. A second assumption is that the value reflected from the company's fundamental data is more likely to be closer to the true value of the stock. Intrinsic value means something different in stock valuation than in options trading. Option pricing uses a standard calculation for intrinsic value, while it can be calculated in many different ways for a stock. For example, say that a company's stock was trading at $20, and after extensive research on the company, an analyst determines that it ought to be worth $24. Another analyst does equal research but decides it should be worth $26. Many investors will consider the average of these estimates and assume that the stock's intrinsic value may be near $25. Often investors consider these estimates highly relevant because they want to buy stocks trading at prices significantly below these intrinsic values. This leads to a third major assumption of fundamental analysis: In the long run, the stock market will reflect the fundamentals. The problem is, no one knows how long "the long run" really is. It could be days or years. This is what fundamental analysis is all about. By focusing on a particular business, an investor can estimate the intrinsic value of a firm and find opportunities to buy at a discount or sell at a premium. The investment will pay off when the market catches up to the fundamentals. Fundamental analysis is used most often for stocks, but it is useful for evaluating any security, from a bond to a derivative. If you consider the fundamentals, from the broader economy to the company details, you are doing a fundamental analysis. Fundamental Analysis vs. Technical Analysis This method of analysis starkly contrasts with technical analysis, which attempts to forecast price direction through analyzing historical market data such as price and volume. Technical analysis uses price trends and price action to create indicators. Some of the indicators create patterns that have names resembling their shapes, such as the head and shoulders pattern. Others use trend, support, and resistance lines to demonstrate how traders view investments and indicate what will happen. Some examples are the symmetrical triangle or the wedge. Fundamental analysis relies on financial information reported by the company whose stock is being analyzed. Ratios and metrics are created using the data which indicate how a company is performing compared to similar companies. Quantitative and Qualitative Fundamental Analysis The problem with defining the word fundamentals is that it can cover anything related to the economic well-being of a company. They include numbers like revenue and profit, but they can also include anything from a company's market share to the quality of its management. The various fundamental factors can be grouped into two categories: quantitative and qualitative. The financial meaning of these terms isn't much different from well-known definitions: Quantitative: information that can be shown using numbers, figures, ratios, or formulasQualitative: rather than a quantity of something, it is its quality, standard, or nature In this context, quantitative fundamentals are hard numbers. They are the measurable characteristics of a business. That's why the biggest source of quantitative data is financial statements. Revenue, profit, assets, and more can be accurately measured. The qualitative fundamentals are less tangible. They might include the quality of a company's key executives, brand-name recognition, patents, and proprietary technology. Neither qualitative nor quantitative analysis is inherently better. Many analysts consider them together. Qualitative Fundamentals to Consider There are four key fundamentals that analysts always consider when regarding a company. All are qualitative rather than quantitative. They include: The Business Model What exactly does the company do? This isn't as straightforward as it seems. If a company's business model is based on selling fast-food chicken, is it making its money that way? Or is it just coasting on royalty and franchise fees? Competitive Advantage A company's long-term success is primarily driven by its ability to maintain a competitive advantage—and keep it. Powerful competitive advantages, such as Coca-Cola's brand name and Microsoft's domination of the personal computer operating system, create a moat around a business allowing it to keep competitors at bay and enjoy growth and profits. When a company can achieve a competitive advantage, its shareholders can be well rewarded for decades. Management Some believe management is the most important criterion for investing in a company. It makes sense: Even the best business model is doomed if the company's leaders fail to execute the plan properly. While it's hard for retail investors to meet and truly evaluate managers, you can look at the corporate website and check the resumes of the top brass and the board members. How well did they perform in previous jobs? Have they been unloading a lot of their stock shares lately? Corporate Governance Corporate governance describes the policies in place within an organization denoting the relationships and responsibilities between management, directors, and stakeholders. These policies are defined and determined in the company charter, its bylaws, and corporate laws and regulations. You want to do business with a company that is run ethically, fairly, transparently, and efficiently. Particularly note whether management respects shareholder rights and shareholder interests. Make sure their communications to shareholders are transparent, clear, and understandable. If you don't get it, it's probably because they don't want you to. Industry It's also important to consider a company's industry: its customer base, market share among firms, industry-wide growth, competition, regulation, and business cycles. Learning how the industry works will give an investor a deeper understanding of a company's financial health. Quantitative Fundamentals to Consider: Financial Statements Financial statements are the medium by which a company discloses information concerning its financial performance. Followers of fundamental analysis use quantitative information from financial statements to make investment decisions. The three most important financial statements are income statements, balance sheets, and cash flow statements. The Balance Sheet The balance sheet represents a record of a company's assets, liabilities, and equity at a particular point in time. It is called a balance sheet because the three sections—assets, liabilities, and shareholders' equity—must balance using the formula: Assets = Liabilities + Shareholders' Equity Assets represent the resources the business owns or controls at a given time. This includes items such as cash, inventory, machinery, and buildings. The other side of the equation represents the total financing value the company has used to acquire those assets. Financing comes as a result of liabilities or equity. Liabilities represent debts or obligations that must be paid. In contrast, equity represents the total value of money that the owners have contributed to the business—including retained earnings, which is the profit left after paying all current obligations, dividends, and taxes. The Income Statement While the balance sheet takes a snapshot approach in examining a business, the income statement measures a company's performance over a specific time frame. Technically, you could have a balance sheet for a month or even a day, but you'll only see public companies report quarterly and annually. The income statement presents revenues, expenses, and profit generated from the business' operations for that period. Statement of Cash Flows The statement of cash flows represents a record of a business' cash inflows and outflows over a period of time. Typically, a statement of cash flows focuses on the following cash-related activities: Cash from investing (CFI): Cash used for investing in assets, as well as the proceeds from the sale of other businesses, equipment, or long-term assets Cash from financing (CFF): Cash paid or received from the issuing and borrowing of funds Operating Cash Flow (OCF): Cash generated from day-to-day business operations The cash flow statement is important because it's challenging for a business to manipulate its cash situation. There is plenty that aggressive accountants can do to manipulate earnings, but it's tough to fake cash in the bank. For this reason, some investors use the cash flow statement as a more conservative measure of a company's performance. Fundamental analysis relies on using financial ratios drawn from data on corporate financial statements to make inferences about a company's value and prospects. Example of Fundamental Analysis The Coca-Cola Company is a prime example that can be used in fundamental analysis. To begin, an analyst would examine the economy using some published metrics: Consumer price index (inflation measure)Gross domestic product growthExports/importsPurchasing manager's indexInterest rates Then, the sector and industry would be examined using statistics and metrics from various reports and competitor companies. Lastly, the analysts would gather the reports from Coca-Cola or the Security and Exchange Commission's Edgar filings database. Analysts might also use data gathered by another firm, such as CSIMarket. CSIMarket provides fundamental analysis data for investors, so you could begin by assessing the value of Coca-Cola's assets, income streams, debts, and liabilities. You might find comparisons of objective metrics such as revenue, profits, and growth, especially in the context of the broader beverage industry. Using CSIMarket's analysis, the analyst could compare growth rates to the industry and sector Coca-Cola operates in, along with the other information provided, to see if the company is valued correctly. For example, as of August 2022, for the trailing twelve months (TTM), Coca-Cola had (using only a few of the possible ratios and metrics):  Coca-Cola Industry  Sector  Y/Y Revenue Growth 13.48%  10.86%  16.18% P/E Ratio 29.12  25.16  18.68  Price to Free Cash Flow 24 7.45 4.23 Debt to Equity (TTM) 1.57 0.14 0.11 Quick Ratio (TTM) 0.16 0.24 0.2 Return on Equity (TTM) 13.14% 30.21% 23.16% Return on Assets (TTM) 11.5% 8.69% 7.91% Return on Investment (TTM) 13.14% 19.76% 15.84% Revenue per Employee (TTM) $111,578 $55,015 $66,896 One factor not shown in an analysis of ratios and numbers is how long a company has been around and the conditions they have weathered. Coca-Cola was founded in 1892 in Atlanta, Georgia. It has stayed in business through several wars, depressions, recessions, epidemics, pandemics, stock market crashes, and a global financial crisis. Not many companies can claim a history like that. Additionally, a company's brand can add value to an investment. Coca-Cola has been providing beverages for a long time, and its logo is recognized worldwide. So, an analyst can combine brand, longevity, growth above that of the beverages manufacturing industry, an above average price-to-earnings ratio, and good return on investment. Coca-Cola has more debt than equity, but it also generates more returns using its assets than the rest of the industry. The company doesn't have as much liquidity as other companies, but it seems the industry hovers on pretty low quick ratios. More than 1.0 means a company can pay its short-term obligations quickly—so in general, most of the industry is low, but Coca-Cola has more than $1 billion in net cash flows, which gives it a lot of wriggle room. An interesting measurement is how much revenue one employee generates. Coca-Cola employees generate about twice as much revenue as employees for comparative companies. This might warrant a deeper investigation into what Coca-Cola is doing differently. They may have invested in new technology or have much more efficient systems. Looking over press releases and reading company reports can provide insights into what the company is doing. It might also be that Coca-Cola simply sells more products than its competitors, so it's important to review any reports and releases and conduct a fundamental analysis carefully. What Is Fundamental Analysis and Its Objective? Fundamental analysis uses publicly available financial information and reports to determine whether a stock and the issuing company are valued correctly by the market. What Are the Types of Fundamental Analysis? There are two types of fundamental analysis, qualitative and quantitative. What Are the 3 Layers of Fundamental Analysis? When conducting an analysis, you start with economic analysis, then analyze the industry, then the company. Why Is Fundamental Analysis Important? Fundamental analysis allows you to see what the market value for a company should be. Many investors only look at the price a stock is currently trading at and what it has traded at instead of analyzing what lies behind the stock. A stock is issued by a company, so its overall performance is related to the financial performance of the company. What Are the Tools for Fundamental Analysis? Analysts use many tools. Some examples are financial reports, ratios from the reports, spreadsheets, charts, graphs, infographics, government agency reports on industries and the economy, and market reports. The Bottom Line Fundamental analysis is a valuation tool used by stock analysts to determine whether a stock is over- or undervalued by the market. It considers the economic, market, industry, and sector conditions a company operates in and its financial performance. Financial ratios generated from financial reports and government industry and economic reports are used to valuate a company. Not every analyst uses the same tools or views stocks similarly—you might determine a stock is valued differently than another analyst. What's important is that the stock you analyze meets your criteria for value and that your analysis creates actionable information for you.

https://www.investopedia.com/terms/b/baltic_dry_index.asp

What Is the Baltic Dry Index (BDI), and Why Is It Important?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-baltic-dry-index-bdi"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is the Baltic Dry Index (BDI)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Baltic Dry Index (BDI) is a shipping and trade index created by the London-based <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/baltic-exchange.asp">Baltic Exchange</a>. It measures changes in the cost of transporting various <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rawmaterials.asp">raw materials</a>, such as coal and steel. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Members of the exchange directly contact shipping brokers to assess <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price_level.asp">price levels</a> for given shipping paths, a product to transport, and time to delivery or speed. The Baltic Dry Index is a composite of four sub-indices that measure different sizes of dry bulk carriers or merchant ships: Capesize, Panamax, Supramax, and Handysize.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Baltic Dry Index (BDI) is an index of average prices paid for the transport of dry bulk materials across more than 20 routes.</li><li>The BDI is often viewed as a leading indicator of economic activity because changes in the index reflect supply and demand for important materials used in manufacturing.</li><li>The index can experience high levels of volatility because the supply of large carriers tends to be small with long lead times and high production costs.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-the-baltic-dry-index-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How the Baltic Dry Index Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The Baltic Exchange calculates the index by assessing multiple shipping rates across more than 20 routes for each of the BDI component vessels. Analyzing multiple geographic shipping paths for each index gives depth to the index's composite measurement. Members contact <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dry-bulk-commodity.asp">dry bulk shippers</a> worldwide to gather their prices and they then calculate an average.<span class="ql-inline-citation" data-cite="2"></span> The Baltic Exchange issues the BDI daily. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> A change in the Baltic Dry Index can give investors insight into global supply and demand trends. Many consider a rising or contracting index to be a leading indicator of future economic growth. It's based on raw materials because the demand for them portends the future. These materials are bought to construct and sustain buildings and infrastructure, not at times when buyers have either an excess of materials or are no longer constructing buildings or manufacturing products. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The Baltic Exchange also operates as a maker of markets in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/freight_derivatives.asp">freight derivatives</a>, including types of financial forward contracts known as forward freight agreements. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-the-sizes-of-bdi-vessels"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> The Sizes of BDI Vessels </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The BDI measures shipments on various sizes of cargo ships. Capesize boats are the largest ships in the BDI with 100,000 deadweight tonnage (DWT) or greater. The average size of a Capesize ship is 156,000 DWT. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> This category can also include some massive vessels with capacities of 400,000 DWT. Capesize ships primarily transport coal and iron ore on long-haul routes and are occasionally used to transport grains. They're too large to cross over the Panama Canal.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Panamax ships have a 60,000 to 80,000 DWT capacity, and they're used mostly to transport coal, grains, and minor bulk products such as sugar and cement. Panamax cargo ships require specialized equipment for loading and unloading. They can barely squeeze through the Panama Canal.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The smallest vessels included in the BDI are Supramaxes, also referred to as Handymaxes (or Handysize). These ships have a carrying capacity of 45,000 to 59,999 DWT. They're sometimes Although they're close in size to Panamaxes, Supramaxes normally have specialized equipment for loading and unloading, and they're used in ports where Panamaxes cannot.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-type-of-dry-bulk-commodities"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Type of Dry Bulk Commodities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/030816/bulk-carrier-vs-container-vs-tanker-exploring-2016-shipping-market-c.asp" rel="noopener noreferrer">Dry bulk commodities</a> are usually divided into two categories: major bulks and minor bulks. Some examples of major dry bulk commodities include iron ore, coal, and grain. These major bulks account for nearly two-thirds of global dry bulk trade. Minor bulks include steel products, sugars, cement, and cover the remaining one-third of global dry bulk trade. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Coal, along with iron ore, is one of the most traded dry bulk commodities by volume in the world. Countries most involved in the importation of coal for their primary energy and electricity needs are India, China, and Japan. Grain is another major cargo in terms of seaborne dry bulk trade and accounts for a chunk of the total dry bulk trade worldwide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-real-world-example"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> Real-World Example </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> The index can fall when the goods shipped are raw, pre-production material, which is typically an area with minimal levels of speculation. The index can experience high levels of volatility if global demand increases or suddenly drops off because the supply of large carriers tends to be small with long lead times and high <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/production-cost.asp">production costs</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Stock prices increase when the global market is healthy and growing, and they tend to decrease when it's stalled or dropping. The index is reasonably consistent because it depends on black-and-white factors of supply and demand without much in the way of influences such as unemployment and inflation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> The BDI predicted the 2008 recession in some measure when prices experienced a sharp drop. In one striking example of the insight that can come from the index, analysts could observe that between September 2019 and January 2020, the Baltic Dry Index (BDI) fell by more than 70%, a strong indication of economic contraction.<span class="ql-inline-citation" data-cite="1"></span> This occurred directly ahead of the outbreak of the COVID-19 pandemic. Then, into 2021, the BDI rose dramatically as the pandemic led to snarls and delays in global shipping. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_36-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:61.4%;"> <img alt="BDI" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/y32Ff8O27FN2lcSjh_mNFVrMYBU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Clipboard01-acc45c3263204453bc5d8a4ee670d3ac.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/y32Ff8O27FN2lcSjh_mNFVrMYBU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Clipboard01-acc45c3263204453bc5d8a4ee670d3ac.jpg" data-srcset="https://www.investopedia.com/thmb/1HrQYS0d80s681hkT35-uJSBDkc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Clipboard01-acc45c3263204453bc5d8a4ee670d3ac.jpg 750w" data-tracking-container="true" height="1228" id="mntl-sc-block-image_1-0" width="1997"/> <noscript> <img alt="BDI" class="img--noscript universal-image__image" height="1228" sizes="750px" src="https://www.investopedia.com/thmb/y32Ff8O27FN2lcSjh_mNFVrMYBU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Clipboard01-acc45c3263204453bc5d8a4ee670d3ac.jpg" srcset="https://www.investopedia.com/thmb/1HrQYS0d80s681hkT35-uJSBDkc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Clipboard01-acc45c3263204453bc5d8a4ee670d3ac.jpg 750w" width="1997"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-text">BDI.</span> </figcaption></figure></div>

## What Is the Baltic Dry Index (BDI)? The Baltic Dry Index (BDI) is a shipping and trade index created by the London-based [Baltic Exchange](https://www.investopedia.com/terms/b/baltic-exchange.asp). It measures changes in the cost of transporting various [raw materials](https://www.investopedia.com/terms/r/rawmaterials.asp), such as coal and steel. Members of the exchange directly contact shipping brokers to assess [price levels](https://www.investopedia.com/terms/p/price_level.asp) for given shipping paths, a product to transport, and time to delivery or speed. The Baltic Dry Index is a composite of four sub-indices that measure different sizes of dry bulk carriers or merchant ships: Capesize, Panamax, Supramax, and Handysize. ### Key Takeaways * The Baltic Dry Index (BDI) is an index of average prices paid for the transport of dry bulk materials across more than 20 routes. * The BDI is often viewed as a leading indicator of economic activity because changes in the index reflect supply and demand for important materials used in manufacturing. * The index can experience high levels of volatility because the supply of large carriers tends to be small with long lead times and high production costs. ## How the Baltic Dry Index Works The Baltic Exchange calculates the index by assessing multiple shipping rates across more than 20 routes for each of the BDI component vessels. Analyzing multiple geographic shipping paths for each index gives depth to the index's composite measurement. Members contact [dry bulk shippers](https://www.investopedia.com/terms/d/dry-bulk-commodity.asp) worldwide to gather their prices and they then calculate an average. The Baltic Exchange issues the BDI daily. A change in the Baltic Dry Index can give investors insight into global supply and demand trends. Many consider a rising or contracting index to be a leading indicator of future economic growth. It's based on raw materials because the demand for them portends the future. These materials are bought to construct and sustain buildings and infrastructure, not at times when buyers have either an excess of materials or are no longer constructing buildings or manufacturing products. The Baltic Exchange also operates as a maker of markets in [freight derivatives](https://www.investopedia.com/terms/f/freight_derivatives.asp), including types of financial forward contracts known as forward freight agreements. ## The Sizes of BDI Vessels The BDI measures shipments on various sizes of cargo ships. Capesize boats are the largest ships in the BDI with 100,000 deadweight tonnage (DWT) or greater. The average size of a Capesize ship is 156,000 DWT. This category can also include some massive vessels with capacities of 400,000 DWT. Capesize ships primarily transport coal and iron ore on long-haul routes and are occasionally used to transport grains. They're too large to cross over the Panama Canal. Panamax ships have a 60,000 to 80,000 DWT capacity, and they're used mostly to transport coal, grains, and minor bulk products such as sugar and cement. Panamax cargo ships require specialized equipment for loading and unloading. They can barely squeeze through the Panama Canal. The smallest vessels included in the BDI are Supramaxes, also referred to as Handymaxes (or Handysize). These ships have a carrying capacity of 45,000 to 59,999 DWT. They're sometimes Although they're close in size to Panamaxes, Supramaxes normally have specialized equipment for loading and unloading, and they're used in ports where Panamaxes cannot. ## Type of Dry Bulk Commodities [Dry bulk commodities](https://www.investopedia.com/articles/investing/030816/bulk-carrier-vs-container-vs-tanker-exploring-2016-shipping-market-c.asp) are usually divided into two categories: major bulks and minor bulks. Some examples of major dry bulk commodities include iron ore, coal, and grain. These major bulks account for nearly two-thirds of global dry bulk trade. Minor bulks include steel products, sugars, cement, and cover the remaining one-third of global dry bulk trade. Coal, along with iron ore, is one of the most traded dry bulk commodities by volume in the world. Countries most involved in the importation of coal for their primary energy and electricity needs are India, China, and Japan. Grain is another major cargo in terms of seaborne dry bulk trade and accounts for a chunk of the total dry bulk trade worldwide. ## Real-World Example The index can fall when the goods shipped are raw, pre-production material, which is typically an area with minimal levels of speculation. The index can experience high levels of volatility if global demand increases or suddenly drops off because the supply of large carriers tends to be small with long lead times and high [production costs](https://www.investopedia.com/terms/p/production-cost.asp). Stock prices increase when the global market is healthy and growing, and they tend to decrease when it's stalled or dropping. The index is reasonably consistent because it depends on black-and-white factors of supply and demand without much in the way of influences such as unemployment and inflation. The BDI predicted the 2008 recession in some measure when prices experienced a sharp drop. In one striking example of the insight that can come from the index, analysts could observe that between September 2019 and January 2020, the Baltic Dry Index (BDI) fell by more than 70%, a strong indication of economic contraction. This occurred directly ahead of the outbreak of the COVID-19 pandemic. Then, into 2021, the BDI rose dramatically as the pandemic led to snarls and delays in global shipping. ![BDI]() :max_bytes(150000):strip_icc()/Clipboard01-acc45c3263204453bc5d8a4ee670d3ac.jpg) BDI.

What Is the Baltic Dry Index (BDI)? The Baltic Dry Index (BDI) is a shipping and trade index created by the London-based Baltic Exchange. It measures changes in the cost of transporting various raw materials, such as coal and steel. Members of the exchange directly contact shipping brokers to assess price levels for given shipping paths, a product to transport, and time to delivery or speed. The Baltic Dry Index is a composite of four sub-indices that measure different sizes of dry bulk carriers or merchant ships: Capesize, Panamax, Supramax, and Handysize. Key Takeaways The Baltic Dry Index (BDI) is an index of average prices paid for the transport of dry bulk materials across more than 20 routes.The BDI is often viewed as a leading indicator of economic activity because changes in the index reflect supply and demand for important materials used in manufacturing.The index can experience high levels of volatility because the supply of large carriers tends to be small with long lead times and high production costs. How the Baltic Dry Index Works The Baltic Exchange calculates the index by assessing multiple shipping rates across more than 20 routes for each of the BDI component vessels. Analyzing multiple geographic shipping paths for each index gives depth to the index's composite measurement. Members contact dry bulk shippers worldwide to gather their prices and they then calculate an average. The Baltic Exchange issues the BDI daily. A change in the Baltic Dry Index can give investors insight into global supply and demand trends. Many consider a rising or contracting index to be a leading indicator of future economic growth. It's based on raw materials because the demand for them portends the future. These materials are bought to construct and sustain buildings and infrastructure, not at times when buyers have either an excess of materials or are no longer constructing buildings or manufacturing products. The Baltic Exchange also operates as a maker of markets in freight derivatives, including types of financial forward contracts known as forward freight agreements. The Sizes of BDI Vessels The BDI measures shipments on various sizes of cargo ships. Capesize boats are the largest ships in the BDI with 100,000 deadweight tonnage (DWT) or greater. The average size of a Capesize ship is 156,000 DWT. This category can also include some massive vessels with capacities of 400,000 DWT. Capesize ships primarily transport coal and iron ore on long-haul routes and are occasionally used to transport grains. They're too large to cross over the Panama Canal. Panamax ships have a 60,000 to 80,000 DWT capacity, and they're used mostly to transport coal, grains, and minor bulk products such as sugar and cement. Panamax cargo ships require specialized equipment for loading and unloading. They can barely squeeze through the Panama Canal. The smallest vessels included in the BDI are Supramaxes, also referred to as Handymaxes (or Handysize). These ships have a carrying capacity of 45,000 to 59,999 DWT. They're sometimes Although they're close in size to Panamaxes, Supramaxes normally have specialized equipment for loading and unloading, and they're used in ports where Panamaxes cannot. Type of Dry Bulk Commodities Dry bulk commodities are usually divided into two categories: major bulks and minor bulks. Some examples of major dry bulk commodities include iron ore, coal, and grain. These major bulks account for nearly two-thirds of global dry bulk trade. Minor bulks include steel products, sugars, cement, and cover the remaining one-third of global dry bulk trade. Coal, along with iron ore, is one of the most traded dry bulk commodities by volume in the world. Countries most involved in the importation of coal for their primary energy and electricity needs are India, China, and Japan. Grain is another major cargo in terms of seaborne dry bulk trade and accounts for a chunk of the total dry bulk trade worldwide. Real-World Example The index can fall when the goods shipped are raw, pre-production material, which is typically an area with minimal levels of speculation. The index can experience high levels of volatility if global demand increases or suddenly drops off because the supply of large carriers tends to be small with long lead times and high production costs. Stock prices increase when the global market is healthy and growing, and they tend to decrease when it's stalled or dropping. The index is reasonably consistent because it depends on black-and-white factors of supply and demand without much in the way of influences such as unemployment and inflation. The BDI predicted the 2008 recession in some measure when prices experienced a sharp drop. In one striking example of the insight that can come from the index, analysts could observe that between September 2019 and January 2020, the Baltic Dry Index (BDI) fell by more than 70%, a strong indication of economic contraction. This occurred directly ahead of the outbreak of the COVID-19 pandemic. Then, into 2021, the BDI rose dramatically as the pandemic led to snarls and delays in global shipping. BDI.

https://www.investopedia.com/gold-roundup-for-may-16-price-falls-as-fed-speakers-suggest-rate-cuts-may-not-come-soon-8649729

Gold Roundup For May 16: Price Falls as Fed Speakers Suggest Rate Cuts May Not Come Soon

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The spot price of gold edged lower Thursday as comments from Federal Reserve speakers indicated they don't anticipate rate cuts soon.</li><li>New York Fed President John Williams told <em>Reuters</em> he doesn't see a reason to change the stance of monetary policy now.</li><li>Richmond Fed President Thomas Barkin also suggested in an interview with <em>CNBC</em> that the central bank may need to keep interest rates elevated for longer to slow inflation.<br/></li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> The spot price of gold was 0.4% lower at $2,376.96 per ounce as of 5 p.m. ET Thursday, putting the brakes on a rally earlier in the week driven by economic data suggesting the Federal Reserve could begin cutting interest rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The shift came as comments by several Federal Reserve speakers <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-may-16-8649409">raised doubts</a> about when the central bank might move to cut interest rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <span class="heading-toc" id="toc-feds-williams-says-he-doesnt-expect-rate-cuts-soon"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Fed's Williams Says He Doesn't Expect Rate Cuts Soon </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> New York Fed President John Williams threw cold water on the idea of policymakers reducing rates anytime soon in an interview with <em>Reuters </em>Thursday<em>, </em>suggesting monetary policy is "is in a good place."<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Williams reportedly suggested he doesn't see a reason to change the stance of monetary policy now, telling <em>Reuters</em> "I don't expect that, I don't expect to get that greater confidence that we need to see on the inflation progress towards a 2% goal in the very near term." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-feds-barkin-says-fed-needs-more-time-to-slow-inflation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Fed's Barkin Says Fed Needs More Time To Slow Inflation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Richmond Fed President Thomas Barkin also suggested in an interview with <em>CNBC</em> that the central bank may need to keep interest rates elevated for longer to slow inflation down to the central bank's 2% target, pointing to price pressures in the services sector.<span class="ql-inline-citation" data-cite="2"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_15-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:73.3%;"> <img alt="XAUUSD" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/AHgrfnUBv-4Frt-FW2kIPDPGzAk=/1464x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-16_17-10-42-d183696a8e914cf3b11236893483dcb9.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/TfosgpgxcA0WjAL-82kmNBD5pTQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-16_17-10-42-d183696a8e914cf3b11236893483dcb9.png" data-srcset="https://www.investopedia.com/thmb/HKk3Yg9KRuRsS5Nz-eBiHdynHzg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-16_17-10-42-d183696a8e914cf3b11236893483dcb9.png 750w" data-tracking-container="true" height="1074" id="mntl-sc-block-image_1-0" width="1464"/> <noscript> <img alt="XAUUSD" class="img--noscript universal-image__image" height="1074" sizes="750px" src="https://www.investopedia.com/thmb/TfosgpgxcA0WjAL-82kmNBD5pTQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/XAUUSD_2024-05-16_17-10-42-d183696a8e914cf3b11236893483dcb9.png" 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Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * The spot price of gold edged lower Thursday as comments from Federal Reserve speakers indicated they don't anticipate rate cuts soon. * New York Fed President John Williams told *Reuters* he doesn't see a reason to change the stance of monetary policy now. * Richmond Fed President Thomas Barkin also suggested in an interview with *CNBC* that the central bank may need to keep interest rates elevated for longer to slow inflation. The spot price of gold was 0.4% lower at $2,376.96 per ounce as of 5 p.m. ET Thursday, putting the brakes on a rally earlier in the week driven by economic data suggesting the Federal Reserve could begin cutting interest rates. The shift came as comments by several Federal Reserve speakers [raised doubts](https://www.investopedia.com/us-economy-news-today-may-16-8649409) about when the central bank might move to cut interest rates. ## Fed's Williams Says He Doesn't Expect Rate Cuts Soon New York Fed President John Williams threw cold water on the idea of policymakers reducing rates anytime soon in an interview with *Reuters* Thursday*,* suggesting monetary policy is "is in a good place." Williams reportedly suggested he doesn't see a reason to change the stance of monetary policy now, telling *Reuters* "I don't expect that, I don't expect to get that greater confidence that we need to see on the inflation progress towards a 2% goal in the very near term." ## Fed's Barkin Says Fed Needs More Time To Slow Inflation Richmond Fed President Thomas Barkin also suggested in an interview with *CNBC* that the central bank may need to keep interest rates elevated for longer to slow inflation down to the central bank's 2% target, pointing to price pressures in the services sector. ![XAUUSD]() :max_bytes(150000):strip_icc()/XAUUSD_2024-05-16_17-10-42-d183696a8e914cf3b11236893483dcb9.png) TradingView Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways The spot price of gold edged lower Thursday as comments from Federal Reserve speakers indicated they don't anticipate rate cuts soon.New York Fed President John Williams told Reuters he doesn't see a reason to change the stance of monetary policy now.Richmond Fed President Thomas Barkin also suggested in an interview with CNBC that the central bank may need to keep interest rates elevated for longer to slow inflation. The spot price of gold was 0.4% lower at $2,376.96 per ounce as of 5 p.m. ET Thursday, putting the brakes on a rally earlier in the week driven by economic data suggesting the Federal Reserve could begin cutting interest rates. The shift came as comments by several Federal Reserve speakers raised doubts about when the central bank might move to cut interest rates. Fed's Williams Says He Doesn't Expect Rate Cuts Soon New York Fed President John Williams threw cold water on the idea of policymakers reducing rates anytime soon in an interview with Reuters Thursday, suggesting monetary policy is "is in a good place." Williams reportedly suggested he doesn't see a reason to change the stance of monetary policy now, telling Reuters "I don't expect that, I don't expect to get that greater confidence that we need to see on the inflation progress towards a 2% goal in the very near term." Fed's Barkin Says Fed Needs More Time To Slow Inflation Richmond Fed President Thomas Barkin also suggested in an interview with CNBC that the central bank may need to keep interest rates elevated for longer to slow inflation down to the central bank's 2% target, pointing to price pressures in the services sector. TradingView Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/terms/s/status-symbol.asp

Status Symbol: Definition, Examples, and History

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-status-symbol"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Status Symbol? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A status symbol is generally an object that signifies its owners' high social and economic standing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A status symbol is generally an object meant to signify its owners' high social and economic standing.</li><li>What serves as status symbols often changes as a culture and its values change.</li><li>One's vocation also may dictate various status symbols, and certain types of uniforms may read as status symbols.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-status-symbol"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding a Status Symbol </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Objects that act as status symbols change over time but are almost always linked to the primary <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0912/which-income-class-are-you.aspx" rel="noopener noreferrer">differences between the upper and lower classes within society</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> In <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalism.asp" rel="noopener noreferrer">capitalistic</a> societies, status symbols are most often tied to monetary wealth. Elsewhere, status symbols can take on different forms. For example, in places where warriors are respected, a bodily scar may represent honor or courage, and thus become a status symbol.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-types-of-status-symbols"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> Types of Status Symbols </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-subheading__text"> Expensive Items </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Expensive goods such as luxury vehicles and watches that can cost more than a downpayment on a home are mostly out of reach for lower economic classes. For this reason, they have become status symbols. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Because much of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/utility.asp" rel="noopener noreferrer">utility</a> derived from status symbols comes from their high price, if the price of a status symbol goes up it may actually increase its demand, rather than diminish it. A product that exhibits this phenomenon is known as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/veblen-good.asp" rel="noopener noreferrer">Veblen good</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-subheading__text"> Uniforms </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Another type of status symbol is a uniform that symbolizes membership in an organization, such as the military or law enforcement. A uniform may also display additional insignia of rank, specialty, tenure, and other details of the owner's status within the organization. A state might confer decorations, medals, or badges that can show that the wearer has heroic or official status. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In many cultures around the world, dress codes may specify who ought to wear particular kinds of styles of clothing, and when and where specific items of clothing are displayed. A modern example of this is in the professional world, where certain brands of ties, suits, or shoes confer status on the wearer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-status-symbols-change-according-to-cultural-values"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> Status Symbols Change According to Cultural Values </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Culture and society are fickle and the actual <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/091115/psychology-behind-why-people-buy-luxury-goods.asp" rel="noopener noreferrer">goods that become status symbols</a> change constantly according to taste, popularity, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brand.asp" rel="noopener noreferrer">branding</a>, psychology, and a host of other factors. Items that have become status symbols range from jewelry and clothing to recreational vehicles and how many homes one owns. Many have speculated that the earliest foods to be domesticated were luxury feast foods, used to establish one's place in society as a rich person. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Status symbols can also change according to one's vocation or avocation. For example, among intellectuals, an ivy league education along with the ability to think intelligently is an important status symbol regardless of the individual's material possessions. In academic circles, a long list of publications and a securely tenured position at a prestigious university or research institute are marks of high status. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <span class="heading-toc" id="toc-gilded-ages-spawn-various-status-symbols"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> Gilded Ages Spawn Various Status Symbols </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Mark Twain dubbed the decades after the Civil War the "Gilded Age." It was a period dominated by political scandal and the "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/robberbarons.asp" rel="noopener noreferrer">Robber Barons</a>," the growth of railroads, the economization of oil and electricity, and the development of America's first giant—national and even international—<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporation.asp" rel="noopener noreferrer">corporations</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> During the first Gilded Age, sociologist <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/thorstein-veblen.asp" rel="noopener noreferrer">Thorstein Veblen</a> coined the term “<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conspicuous-consumption.asp" rel="noopener noreferrer">conspicuous consumption</a>.” He was referring to rich people flaunting their wealth through wasteful spending. Why buy a $1,000 suit when a $100 suit serves the same function? The answer, Veblen said, was power. The rich asserted their dominance by showing how much money they could burn on things they didn’t need. While radical at the time, Veblen’s observation seems obvious now. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-subheading__text"> Numerous "Gilded Ages" </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> In the intervening decades, conspicuous consumption became deeply embedded in the texture of American capitalism, and it seems that each decade has identified a new host of status symbols. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-subheading__text"> The 1980s and 1990s </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> America's more recent Gilded Age of the 1980s and most of the 1990s, was all about flaunting excess, as echoed in the movie <em>Wall Street</em> and television series such as <em>Dallas</em> and <em>Dynasty</em>. Back then one was perceived to be rich with an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a> of around $100,000 but, by 1989, American millionaires had become quite common.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-subheading__text"> The "Power Scarf" </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> As more women entered American business and finance, their clothes and accessories became status symbols. In the 1980s and '90s, the sea of men on Wall Street was dotted occasionally with women sporting their own power suits, but with that ubiquitous flash of color—the imperative silk square of the designer "power scarf," which at the time ran for about $200 apiece. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-subheading__text"> Your Gym As a Status Symbol </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Acquiring insanely expensive commodities isn’t the only way that modern elites project power. More recently, another form of the status symbol has emerged. In today's Gilded Age, identifying oneself as a member of the upper class doesn’t just require conspicuous consumption. It requires conspicuous production. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> If conspicuous consumption involves the worship of luxury, conspicuous production involves the worship of labor. It isn’t about how much you spend. It’s about how hard you work—which includes, by the way, how hard you work out at the gym. </p></div>

## What Is a Status Symbol? A status symbol is generally an object that signifies its owners' high social and economic standing. ### Key Takeaways * A status symbol is generally an object meant to signify its owners' high social and economic standing. * What serves as status symbols often changes as a culture and its values change. * One's vocation also may dictate various status symbols, and certain types of uniforms may read as status symbols. ## Understanding a Status Symbol Objects that act as status symbols change over time but are almost always linked to the primary [differences between the upper and lower classes within society](https://www.investopedia.com/financial-edge/0912/which-income-class-are-you.aspx). In [capitalistic](https://www.investopedia.com/terms/c/capitalism.asp) societies, status symbols are most often tied to monetary wealth. Elsewhere, status symbols can take on different forms. For example, in places where warriors are respected, a bodily scar may represent honor or courage, and thus become a status symbol.  ## Types of Status Symbols ### Expensive Items Expensive goods such as luxury vehicles and watches that can cost more than a downpayment on a home are mostly out of reach for lower economic classes. For this reason, they have become status symbols. Because much of the [utility](https://www.investopedia.com/terms/u/utility.asp) derived from status symbols comes from their high price, if the price of a status symbol goes up it may actually increase its demand, rather than diminish it. A product that exhibits this phenomenon is known as a [Veblen good](https://www.investopedia.com/terms/v/veblen-good.asp). ### Uniforms Another type of status symbol is a uniform that symbolizes membership in an organization, such as the military or law enforcement. A uniform may also display additional insignia of rank, specialty, tenure, and other details of the owner's status within the organization. A state might confer decorations, medals, or badges that can show that the wearer has heroic or official status. In many cultures around the world, dress codes may specify who ought to wear particular kinds of styles of clothing, and when and where specific items of clothing are displayed. A modern example of this is in the professional world, where certain brands of ties, suits, or shoes confer status on the wearer. ## Status Symbols Change According to Cultural Values Culture and society are fickle and the actual [goods that become status symbols](https://www.investopedia.com/articles/personal-finance/091115/psychology-behind-why-people-buy-luxury-goods.asp) change constantly according to taste, popularity, [branding](https://www.investopedia.com/terms/b/brand.asp), psychology, and a host of other factors. Items that have become status symbols range from jewelry and clothing to recreational vehicles and how many homes one owns. Many have speculated that the earliest foods to be domesticated were luxury feast foods, used to establish one's place in society as a rich person. Status symbols can also change according to one's vocation or avocation. For example, among intellectuals, an ivy league education along with the ability to think intelligently is an important status symbol regardless of the individual's material possessions. In academic circles, a long list of publications and a securely tenured position at a prestigious university or research institute are marks of high status. ## Gilded Ages Spawn Various Status Symbols Mark Twain dubbed the decades after the Civil War the "Gilded Age." It was a period dominated by political scandal and the "[Robber Barons](https://www.investopedia.com/terms/r/robberbarons.asp)," the growth of railroads, the economization of oil and electricity, and the development of America's first giant—national and even international—[corporations](https://www.investopedia.com/terms/c/corporation.asp). During the first Gilded Age, sociologist [Thorstein Veblen](https://www.investopedia.com/terms/t/thorstein-veblen.asp) coined the term “[conspicuous consumption](https://www.investopedia.com/terms/c/conspicuous-consumption.asp).” He was referring to rich people flaunting their wealth through wasteful spending. Why buy a $1,000 suit when a $100 suit serves the same function? The answer, Veblen said, was power. The rich asserted their dominance by showing how much money they could burn on things they didn’t need. While radical at the time, Veblen’s observation seems obvious now. ### Numerous "Gilded Ages" In the intervening decades, conspicuous consumption became deeply embedded in the texture of American capitalism, and it seems that each decade has identified a new host of status symbols. ### The 1980s and 1990s America's more recent Gilded Age of the 1980s and most of the 1990s, was all about flaunting excess, as echoed in the movie *Wall Street* and television series such as *Dallas* and *Dynasty*. Back then one was perceived to be rich with an [income](https://www.investopedia.com/terms/i/income.asp) of around $100,000 but, by 1989, American millionaires had become quite common.  ### The "Power Scarf" As more women entered American business and finance, their clothes and accessories became status symbols. In the 1980s and '90s, the sea of men on Wall Street was dotted occasionally with women sporting their own power suits, but with that ubiquitous flash of color—the imperative silk square of the designer "power scarf," which at the time ran for about $200 apiece. ### Your Gym As a Status Symbol Acquiring insanely expensive commodities isn’t the only way that modern elites project power. More recently, another form of the status symbol has emerged. In today's Gilded Age, identifying oneself as a member of the upper class doesn’t just require conspicuous consumption. It requires conspicuous production. If conspicuous consumption involves the worship of luxury, conspicuous production involves the worship of labor. It isn’t about how much you spend. It’s about how hard you work—which includes, by the way, how hard you work out at the gym.

What Is a Status Symbol? A status symbol is generally an object that signifies its owners' high social and economic standing. Key Takeaways A status symbol is generally an object meant to signify its owners' high social and economic standing.What serves as status symbols often changes as a culture and its values change.One's vocation also may dictate various status symbols, and certain types of uniforms may read as status symbols. Understanding a Status Symbol Objects that act as status symbols change over time but are almost always linked to the primary differences between the upper and lower classes within society. In capitalistic societies, status symbols are most often tied to monetary wealth. Elsewhere, status symbols can take on different forms. For example, in places where warriors are respected, a bodily scar may represent honor or courage, and thus become a status symbol.  Types of Status Symbols Expensive Items Expensive goods such as luxury vehicles and watches that can cost more than a downpayment on a home are mostly out of reach for lower economic classes. For this reason, they have become status symbols. Because much of the utility derived from status symbols comes from their high price, if the price of a status symbol goes up it may actually increase its demand, rather than diminish it. A product that exhibits this phenomenon is known as a Veblen good. Uniforms Another type of status symbol is a uniform that symbolizes membership in an organization, such as the military or law enforcement. A uniform may also display additional insignia of rank, specialty, tenure, and other details of the owner's status within the organization. A state might confer decorations, medals, or badges that can show that the wearer has heroic or official status. In many cultures around the world, dress codes may specify who ought to wear particular kinds of styles of clothing, and when and where specific items of clothing are displayed. A modern example of this is in the professional world, where certain brands of ties, suits, or shoes confer status on the wearer. Status Symbols Change According to Cultural Values Culture and society are fickle and the actual goods that become status symbols change constantly according to taste, popularity, branding, psychology, and a host of other factors. Items that have become status symbols range from jewelry and clothing to recreational vehicles and how many homes one owns. Many have speculated that the earliest foods to be domesticated were luxury feast foods, used to establish one's place in society as a rich person. Status symbols can also change according to one's vocation or avocation. For example, among intellectuals, an ivy league education along with the ability to think intelligently is an important status symbol regardless of the individual's material possessions. In academic circles, a long list of publications and a securely tenured position at a prestigious university or research institute are marks of high status. Gilded Ages Spawn Various Status Symbols Mark Twain dubbed the decades after the Civil War the "Gilded Age." It was a period dominated by political scandal and the "Robber Barons," the growth of railroads, the economization of oil and electricity, and the development of America's first giant—national and even international—corporations. During the first Gilded Age, sociologist Thorstein Veblen coined the term “conspicuous consumption.” He was referring to rich people flaunting their wealth through wasteful spending. Why buy a $1,000 suit when a $100 suit serves the same function? The answer, Veblen said, was power. The rich asserted their dominance by showing how much money they could burn on things they didn’t need. While radical at the time, Veblen’s observation seems obvious now. Numerous "Gilded Ages" In the intervening decades, conspicuous consumption became deeply embedded in the texture of American capitalism, and it seems that each decade has identified a new host of status symbols. The 1980s and 1990s America's more recent Gilded Age of the 1980s and most of the 1990s, was all about flaunting excess, as echoed in the movie Wall Street and television series such as Dallas and Dynasty. Back then one was perceived to be rich with an income of around $100,000 but, by 1989, American millionaires had become quite common.  The "Power Scarf" As more women entered American business and finance, their clothes and accessories became status symbols. In the 1980s and '90s, the sea of men on Wall Street was dotted occasionally with women sporting their own power suits, but with that ubiquitous flash of color—the imperative silk square of the designer "power scarf," which at the time ran for about $200 apiece. Your Gym As a Status Symbol Acquiring insanely expensive commodities isn’t the only way that modern elites project power. More recently, another form of the status symbol has emerged. In today's Gilded Age, identifying oneself as a member of the upper class doesn’t just require conspicuous consumption. It requires conspicuous production. If conspicuous consumption involves the worship of luxury, conspicuous production involves the worship of labor. It isn’t about how much you spend. It’s about how hard you work—which includes, by the way, how hard you work out at the gym.

https://www.investopedia.com/the-pandemic-impact-of-social-security-and-medicare-5186940

The Pandemic Impact on Social Security and Medicare

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/socialsecurity.asp">Social Security</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicare.asp">Medicare</a> are federal programs that provide old-age, disability, and health insurance benefits, mostly to older Americans, their survivors, and the disabled. COVID-19 has severely affected the beneficiaries of both programs without appreciably changing the programs' longer-term prospects, which were already troubled before the pandemic. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> As of July 20, 2022, more than 1 million Americans had died from COVID-19, with those 65 and older accounting for nearly three-quarters of that total.<span class="ql-inline-citation" data-cite="1"></span> Medicare beneficiaries in nursing homes proved especially vulnerable, with 2 in 5 likely contracting COVID-19 in 2020 alone based on claims data, while the mortality rate in nursing homes rose to 22% that year, from 17% in 2019.<span class="ql-inline-citation" data-cite="34"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Medicare's Hospital Insurance fund saw an initial receipts shortfall as the economic downturn caused by COVID-19 reduced payroll taxes, even as pandemic treatment and prevention costs increased. At the same time, the rise in those costs was more than offset by the decline in elective services as some patients avoided non-emergency care out of caution. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Medicare patients who succumbed to the disease also incurred medical costs significantly above the program's average before the pandemic, so that the healthier profile of the survivors reduced program costs by 1.5% in 2020 and 2.9% in 2021, according to the Medicare Trustees' 2022 annual report, with smaller annual savings expected to persist as a result until 2028.<span class="ql-inline-citation" data-cite="35"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The offsetting effects of the declines in funding and spending and the likelihood the pandemic will wane suggest it won't have a significant long-term effect on Medicare's finances, according to the trustees.<span class="ql-inline-citation" data-cite="36"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Similarly, the long-term prospects of the Social Security trust funds remain unchanged by the pandemic, according to the funds' trustees.<span class="ql-inline-citation" data-cite="37"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>COVID-19 has been particularly deadly for Social Security and Medicare beneficiaries, with those 65 and older accounting for three-quarters of the more than 1 million U.S. deaths attributed to the pandemic as of July 2022.</li><li>Medicare spending fell 9.3% in 2021 as beneficiaries deferred care.</li><li>Medicare saved 1.5% of costs in 2020 and 2.9% in 2021 because beneficiaries who succumbed to COVID-19 used more services than the program's average.</li><li>Medicare's hospital insurance trust fund was projected by trustees in 2022 to deplete its reserves in 2028, two years later than predicted in 2021.</li><li>Social Security's old-age trust fund was projected in 2022 to run out of reserves in 2034, a year later than predicted the prior year, after economic growth in 2021 proved stronger than expected.</li><li>The COVID-19 pandemic is not expected to materially affect the long-term burdens imposed on the Social Security and Medicare trust funds by the aging of the U.S. population and rapidly increasing healthcare spending.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-social-security-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> How Social Security Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Social Security provides old-age and disability benefits financed by dedicated payroll taxes as well as the accumulated surplus of past receipts. Social Security tax receipts go into two <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/social-security-trust-fund.asp">Social Security trust funds</a> that use them to pay benefits, investing any surplus in U.S. government debt.<span class="ql-inline-citation" data-cite="38"></span><span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> For many years annual tax receipts exceeded benefit payouts by a wide margin, building up a surplus in the trust funds. That changed in 2021 as outlays topped receipts, and annual deficits are expected to widen significantly in the near future as more Baby Boomers retire, leaving fewer workers to fund benefits for each retiree. The trust fund for Social Security's old-age and survivors benefit is projected to run out of reserves in 2034 with ongoing receipts covering 77% of scheduled benefits, according to Social Security trustees' 2022 Annual Report.<span class="ql-inline-citation" data-cite="31"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-impact-of-covid-19-on-the-social-security-trust-fund"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Impact of COVID-19 on the Social Security Trust Fund </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Social Security's projected <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/022516/will-baby-boomers-bankrupt-social-security.asp">long-term funding shortfall</a> isn't the result of COVID-19, nor did its extent change appreciably because of the pandemic. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> After moving up the projected year of depletion for the main Social Security trust fund from 2034 to 2033 in their annual report for 2021, Social Security's trustees moved it back to 2034 in the report for 2022.<span class="ql-inline-citation" data-cite="31"></span> "The economic recovery from the brief recession in 2020 has been stronger and faster than assumed in last year’s report," the trustees noted.<span class="ql-inline-citation" data-cite="41"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> A rebound in births in 2021 led the trustees to assume no further decline in 2022, as they had a year earlier, and no change in the long-term fertility rate.<span class="ql-inline-citation" data-cite="39"></span> Meanwhile, the pandemic was expected to keep death rates among those 65 and older elevated through 2023 albeit well below those prevailing in 2020-2021.<span class="ql-inline-citation" data-cite="40"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <span class="heading-toc" id="toc-impact-of-covid-19-legislation-on-social-security"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> Impact of COVID-19 Legislation on Social Security </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> COVID-19 legislation affected Social Security and its recipients, as well as those receiving <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssi.asp">Supplemental Security Income</a> (SSI) also administered by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/ssa.asp">Social Security Administration (SSA)</a>, in several ways: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <li>Authorized <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stimulus-check.asp">economic impact payments</a> of $1,200 (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/coronavirus-aid-relief-and-economic-security-cares-act-4800707">Coronavirus Aid, Relief, and Economic Security [CARES] Act</a>), $600 (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/congress-agrees-on-second-stimulus-here-s-what-s-in-it-and-what-s-not-5093226">Consolidated Appropriations Act [CAA], 2021</a>), and $1,400 (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-rescue-plan-definition-5095694">American Rescue Plan Act</a> of 2021)<span class="ql-inline-citation" data-cite="8"></span></li> <li>Reduced <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fica.asp">Federal Insurance Contributions Act (FICA)</a> taxes owed by certain employers, delayed FICA payments by employers, and ensured the Social Security Trust Fund would not be adversely affected by the delay (CARES Act)<span class="ql-inline-citation" data-cite="9"></span></li> <li>Suspended collection of student loan debt from Social Security benefits (CARES Act)<span class="ql-inline-citation" data-cite="9"></span></li> <li>Provided $300 million through Sept. 30, 2021, to help the SSA prevent, prepare for, and respond to the pandemic (CARES Act)<span class="ql-inline-citation" data-cite="9"></span></li> <li>Extended the repayment due date for employers' payroll tax obligations (CAA)<span class="ql-inline-citation" data-cite="10"></span></li> <li>Increased the <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/childtaxcredit.asp">Child Tax Credit (CTC)</a> and <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnedincomecredit.asp">Earned Income Tax Credit (EITC)</a> and expanded eligibility criteria for the benefits (American Rescue Plan Act of 2021)<span class="ql-inline-citation" data-cite="11"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Social Security trustees have concluded that the long-range implications of COVID-19 on Social Security would be “minor,” with any pandemic-induced recession recovered by 2023 with “little permanent effect.” Over the near term, however, the agency predicts several outcomes that will affect Social Security, including:<span class="ql-inline-citation" data-cite="31"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <li>Lower birth numbers in 2020 and 2021</li> <li>Higher-than-normal mortality rates in 2020 (12%), 2021 (6%), and 2022 (2%)</li> <li>Disability applications lower in 2020 but higher in 2021 and 2022</li> <li>Employment reduced in 2020 but fully recovered by mid-2023</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gdp.asp">Gross domestic product</a> (GDP), productivity, and earning levels permanently lowered by 1%</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-how-medicare-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> How Medicare Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Medicare is a federal health insurance program for people age 65 or older, as well as younger people who are disabled or have end-stage renal disease. Medicare is funded with a combination of payroll taxes, government spending, and premiums paid by participants. It is run by a branch of the U.S. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/us-department-health-and-human-services-hhs.asp">Department of Health and Human Services</a> (HHS) known as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/us-centers-medicare-and-medicaid-services-cms.asp">Centers for Medicare and Medicaid Services (CMS)</a>.<span class="ql-inline-citation" data-cite="15"></span><span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Medicare is paid for through two trust funds: the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hospital-insurance-trust-fund.asp">Hospital Insurance (HI) Trust Fund</a> and the Supplemental Medical Insurance (SMI) Trust Fund. HI pays for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicare-part-hospital-insurance.asp">Medicare Part A</a> (hospitalization), while SMI covers <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicare-part-b-premiums.asp">Part B</a> (medical) and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicarepartd.asp">Part D</a> (prescription drugs).<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The HI Trust Fund, like the Social Security trust funds, is primarily funded with payroll taxes. And as with Social Security, the HI Trust Fund was already on a trajectory to run out of reserves eventually when COVID-19 struck. The fund is now projected to be depleted in 2028, two years later than predicted in the trustees' 2021 report. At that point, ongoing fund receipts would cover 90% of scheduled benefits.<span class="ql-inline-citation" data-cite="42"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> The SMI Trust Fund is expected to remain adequately funded because government funding and premiums reset each year to cover spending on Medicare parts B and D. But the costs of those services are expected to outpace economic growth, requiring proportional appropriations and premium increases.<span class="ql-inline-citation" data-cite="43"></span><span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Medicare trustees estimate SMI funding requirements will increase from 18.5% of personal and corporate income tax receipts in 2021 to 21.5% in 2030 and 30.5% by 2080.<span class="ql-inline-citation" data-cite="44"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-impact-of-covid-19-on-medicare-trust-funds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> Impact of COVID-19 on Medicare Trust Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> COVID-19 caused the unusual 9.3% decline in Medicare outlays in 2021, as savings from the beneficiaries' deferral of elective care more than offset increased pandemic spending.<span class="ql-inline-citation" data-cite="45"></span><span class="ql-inline-citation" data-cite="46"></span> As noted above, the reduced morbidity of Medicare's population following deaths caused by COVID-19 accounted for 2.9 percentage points of the savings, Medicare trustees estimate.<span class="ql-inline-citation" data-cite="47"></span> Meanwhile, Medicare trust funds receipts declined by just 1.4%.<span class="ql-inline-citation" data-cite="45"></span><span class="ql-inline-citation" data-cite="46"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Because spending fell so much more than income, Medicare trust funds' assets increased by $48.3 billion to $325.7 billion, including the HI fund's gain of $8.5 billion to $142.7 billion.<span class="ql-inline-citation" data-cite="45"></span> The HI Trust fund is expected to register a larger surplus for 2022 in a continuation of the COVID-19 trends, before posing growing annual deficits in subsequent years.<span class="ql-inline-citation" data-cite="48"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <span class="heading-toc" id="toc-impact-of-covid-19-on-medicare-recipients"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-heading__text"> Impact of COVID-19 on Medicare Recipients </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> The advanced age of most Medicare recipients makes them much more vulnerable to COVID-19 than the general population, on average. Negative outcomes of the pandemic extend beyond the deaths and hospitalizations it has caused. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_55-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_56-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Medicare recipients (and others) are advised to follow up on all medical appointments, including physicals, to make sure that they continue to manage their health during the ongoing pandemic.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> One CMS survey found that during the pandemic:<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> <li>21% reported feeling more lonely or sad.</li><li>15% reported feeling less financially secure.</li><li>41% reported more stress or anxiety.</li><li>38% said they were less connected with family and friends.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> For Medicare recipients receiving care at home, COVID-19 impact findings included:<span class="ql-inline-citation" data-cite="21"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> <li>The need for social service support increased.</li><li>Loneliness and depression increased.</li><li>Physical and mental health conditions became exacerbated.</li><li>Substance use and abuse increased.</li><li>Evidence of domestic violence increased.</li><li>Staff and equipment were limited.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> On the positive impact side of the equation:<span class="ql-inline-citation" data-cite="22"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> <li>COVID-19 vaccines are free for Medicare recipients.</li><li>Lab tests are provided at no cost.</li><li>Antibody tests and treatments are provided at no cost.</li><li>Expanded telehealth services are available at no cost.</li><li>Medically necessary hospitalization is covered.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> Providers, including physicians and hospitals, have been affected by the pandemic almost from the beginning. During the first six months of the pandemic, for example:<span class="ql-inline-citation" data-cite="23"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> <li>Payments declined by 39% for all fee-for-service (FFS) claims, 33% for inpatient services, and 49% for physician services.</li><li>By the week ending July 1, 2020, weekly payments had risen to 96% of 2019 levels, 93% for inpatient services, and 95% for physician services.</li><li>At the end of June 2020, cumulative payment deficits relative to 2019 ranged from 12% to 16%.</li><li>The use of individual preventive screening and surgical services declined substantially during March and April of 2020.</li><li>There was considerable geographic variation in the magnitude of both the utilization declines and the rate of recovery.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_73-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_74-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>More than 200 regulatory changes affecting Medicare went into effect between Jan. 1, 2020 and July 24, 2020. An additional 49 changes were made between July 25, 2020 and Jan. 8, 2021.<span class="ql-inline-citation" data-cite="32"></span></p></div></div></div> <span class="heading-toc" id="toc-impact-of-covid-19-legislation-on-medicare"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-heading__text"> Impact of COVID-19 Legislation on Medicare </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> The impact of COVID-19 legislation on the Medicare program is reflected in the sheer volume of the resulting regulatory changes.<span class="ql-inline-citation" data-cite="32"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> COVID-19 legislation: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> <li>Expanded Medicare coverage for telehealth services (CARES Act)</li><li>Exempted COVID-19 vaccines from Medicare cost sharing rules (CARES Act)</li><li>Increased some Medicare payment rates to providers (CARES Act)</li><li>Waived some hospital length-of-stay requirements (CARES Act)</li><li>Further increased Medicare payment rates to physicians (CAA)</li><li>Eliminated Medicare’s sequestration cuts through March 2021 (CAA)</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> The Medicare system provides healthcare coverage to people ages 65 and older and those under age 65 with disabilities. These populations are the most vulnerable when it comes to COVID-19. In addition to health concerns, these same populations will be financially vulnerable in the future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> Before COVID-19, many Medicare beneficiaries with limited income and preexisting conditions <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/070914/medicare-101-do-you-need-all-4-parts.asp">faced financial hardship with high out-of-pocket healthcare costs</a>. While regulatory changes have helped with the financial burden in the short term, many of those changes will expire or be rescinded once the health crisis is over. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> Lack of employment post-pandemic, which can lead to early retirement, only exacerbates the financial burden on Medicare recipients. The problem is even worse for older members of minority communities, who have disproportionately lower earnings during their working years, yielding lower Social Security payments and leaving them with lower retirement savings. While the Social Security system anticipates a number of short-term challenges, for Medicare recipients, the financial burden will continue to be a problem well into the future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_88-0"><span class="heading-toc" id="toc-how-has-covid-19-affected-social-security"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Has COVID-19 Affected Social Security?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>COVID-19 is not expected to have a significant long-term effect on Social Security, in part because the recovery from the recession caused by the pandemic proved stronger than Social Security trustees projected a year earlier. As a result, the trustees' 2022 report projects the Social Security trust fund paying old-age benefits will run out of reserves in 2034, a year later than projected in 2021.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_90-0"><span class="heading-toc" id="toc-how-has-covid-19-affected-medicare"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Has COVID-19 Affected Medicare?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>COVID-19 has been deadly for Medicare clients, with those 65 and older accounting for about three-quarters of the more than 1 million U.S. deaths attributed to the pandemic as of July 2022. At the same time, the pandemic has been a big money saver for the Medicare program, which saw spending decline and reserves rise in 2021 amid deferrals of healthcare. The higher morbidity rate among Medicare's sickest recipients reduced costs by 1.5% in 2020 and 2.9% in 2021, Medicare trustees estimate, and is expected to continue generating savings until 2028. Medicare's hospital insurance trust fund is now expected to exhaust its reserves in 2028, two years later than projected in 2021.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_92-0"><span class="heading-toc" id="toc-how-did-the-us-government-respond-to-covid-19"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Did the U.S. Government Respond to COVID-19?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>To address the consequences of the pandemic, U.S. Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act and the Consolidated Appropriations Act (CAA) during the presidency of Donald Trump, and the American Rescue Plan Act under President Joe Biden. The measures offered many Americans up to $3,200 in direct payments, in addition to many other provisions supporting the economy and addressing the pandemic.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0">   </p></div>

[Social Security](https://www.investopedia.com/terms/s/socialsecurity.asp) and [Medicare](https://www.investopedia.com/terms/m/medicare.asp) are federal programs that provide old-age, disability, and health insurance benefits, mostly to older Americans, their survivors, and the disabled. COVID-19 has severely affected the beneficiaries of both programs without appreciably changing the programs' longer-term prospects, which were already troubled before the pandemic. As of July 20, 2022, more than 1 million Americans had died from COVID-19, with those 65 and older accounting for nearly three-quarters of that total. Medicare beneficiaries in nursing homes proved especially vulnerable, with 2 in 5 likely contracting COVID-19 in 2020 alone based on claims data, while the mortality rate in nursing homes rose to 22% that year, from 17% in 2019. Medicare's Hospital Insurance fund saw an initial receipts shortfall as the economic downturn caused by COVID-19 reduced payroll taxes, even as pandemic treatment and prevention costs increased. At the same time, the rise in those costs was more than offset by the decline in elective services as some patients avoided non-emergency care out of caution. Medicare patients who succumbed to the disease also incurred medical costs significantly above the program's average before the pandemic, so that the healthier profile of the survivors reduced program costs by 1.5% in 2020 and 2.9% in 2021, according to the Medicare Trustees' 2022 annual report, with smaller annual savings expected to persist as a result until 2028. The offsetting effects of the declines in funding and spending and the likelihood the pandemic will wane suggest it won't have a significant long-term effect on Medicare's finances, according to the trustees. Similarly, the long-term prospects of the Social Security trust funds remain unchanged by the pandemic, according to the funds' trustees. ### Key Takeaways * COVID-19 has been particularly deadly for Social Security and Medicare beneficiaries, with those 65 and older accounting for three-quarters of the more than 1 million U.S. deaths attributed to the pandemic as of July 2022. * Medicare spending fell 9.3% in 2021 as beneficiaries deferred care. * Medicare saved 1.5% of costs in 2020 and 2.9% in 2021 because beneficiaries who succumbed to COVID-19 used more services than the program's average. * Medicare's hospital insurance trust fund was projected by trustees in 2022 to deplete its reserves in 2028, two years later than predicted in 2021. * Social Security's old-age trust fund was projected in 2022 to run out of reserves in 2034, a year later than predicted the prior year, after economic growth in 2021 proved stronger than expected. * The COVID-19 pandemic is not expected to materially affect the long-term burdens imposed on the Social Security and Medicare trust funds by the aging of the U.S. population and rapidly increasing healthcare spending. ## How Social Security Works Social Security provides old-age and disability benefits financed by dedicated payroll taxes as well as the accumulated surplus of past receipts. Social Security tax receipts go into two [Social Security trust funds](https://www.investopedia.com/terms/s/social-security-trust-fund.asp) that use them to pay benefits, investing any surplus in U.S. government debt. For many years annual tax receipts exceeded benefit payouts by a wide margin, building up a surplus in the trust funds. That changed in 2021 as outlays topped receipts, and annual deficits are expected to widen significantly in the near future as more Baby Boomers retire, leaving fewer workers to fund benefits for each retiree. The trust fund for Social Security's old-age and survivors benefit is projected to run out of reserves in 2034 with ongoing receipts covering 77% of scheduled benefits, according to Social Security trustees' 2022 Annual Report. ## Impact of COVID-19 on the Social Security Trust Fund Social Security's projected [long-term funding shortfall](https://www.investopedia.com/articles/personal-finance/022516/will-baby-boomers-bankrupt-social-security.asp) isn't the result of COVID-19, nor did its extent change appreciably because of the pandemic. After moving up the projected year of depletion for the main Social Security trust fund from 2034 to 2033 in their annual report for 2021, Social Security's trustees moved it back to 2034 in the report for 2022. "The economic recovery from the brief recession in 2020 has been stronger and faster than assumed in last year’s report," the trustees noted. A rebound in births in 2021 led the trustees to assume no further decline in 2022, as they had a year earlier, and no change in the long-term fertility rate. Meanwhile, the pandemic was expected to keep death rates among those 65 and older elevated through 2023 albeit well below those prevailing in 2020-2021. ## Impact of COVID-19 Legislation on Social Security COVID-19 legislation affected Social Security and its recipients, as well as those receiving [Supplemental Security Income](https://www.investopedia.com/terms/s/ssi.asp) (SSI) also administered by the [Social Security Administration (SSA)](https://www.investopedia.com/terms/s/ssa.asp), in several ways: * Authorized [economic impact payments](https://www.investopedia.com/terms/s/stimulus-check.asp) of $1,200 ([Coronavirus Aid, Relief, and Economic Security [CARES] Act](https://www.investopedia.com/coronavirus-aid-relief-and-economic-security-cares-act-4800707)), $600 ([Consolidated Appropriations Act [CAA], 2021](https://www.investopedia.com/congress-agrees-on-second-stimulus-here-s-what-s-in-it-and-what-s-not-5093226)), and $1,400 ([American Rescue Plan Act](https://www.investopedia.com/american-rescue-plan-definition-5095694) of 2021) * Reduced [Federal Insurance Contributions Act (FICA)](https://www.investopedia.com/terms/f/fica.asp) taxes owed by certain employers, delayed FICA payments by employers, and ensured the Social Security Trust Fund would not be adversely affected by the delay (CARES Act) * Suspended collection of student loan debt from Social Security benefits (CARES Act) * Provided $300 million through Sept. 30, 2021, to help the SSA prevent, prepare for, and respond to the pandemic (CARES Act) * Extended the repayment due date for employers' payroll tax obligations (CAA) * Increased the [Child Tax Credit (CTC)](https://www.investopedia.com/terms/c/childtaxcredit.asp) and [Earned Income Tax Credit (EITC)](https://www.investopedia.com/terms/e/earnedincomecredit.asp) and expanded eligibility criteria for the benefits (American Rescue Plan Act of 2021) Social Security trustees have concluded that the long-range implications of COVID-19 on Social Security would be “minor,” with any pandemic-induced recession recovered by 2023 with “little permanent effect.” Over the near term, however, the agency predicts several outcomes that will affect Social Security, including: * Lower birth numbers in 2020 and 2021 * Higher-than-normal mortality rates in 2020 (12%), 2021 (6%), and 2022 (2%) * Disability applications lower in 2020 but higher in 2021 and 2022 * Employment reduced in 2020 but fully recovered by mid-2023 * [Gross domestic product](https://www.investopedia.com/terms/g/gdp.asp) (GDP), productivity, and earning levels permanently lowered by 1% ## How Medicare Works Medicare is a federal health insurance program for people age 65 or older, as well as younger people who are disabled or have end-stage renal disease. Medicare is funded with a combination of payroll taxes, government spending, and premiums paid by participants. It is run by a branch of the U.S. [Department of Health and Human Services](https://www.investopedia.com/terms/u/us-department-health-and-human-services-hhs.asp) (HHS) known as the [Centers for Medicare and Medicaid Services (CMS)](https://www.investopedia.com/terms/u/us-centers-medicare-and-medicaid-services-cms.asp). Medicare is paid for through two trust funds: the [Hospital Insurance (HI) Trust Fund](https://www.investopedia.com/terms/h/hospital-insurance-trust-fund.asp) and the Supplemental Medical Insurance (SMI) Trust Fund. HI pays for [Medicare Part A](https://www.investopedia.com/terms/m/medicare-part-hospital-insurance.asp) (hospitalization), while SMI covers [Part B](https://www.investopedia.com/terms/m/medicare-part-b-premiums.asp) (medical) and [Part D](https://www.investopedia.com/terms/m/medicarepartd.asp) (prescription drugs). The HI Trust Fund, like the Social Security trust funds, is primarily funded with payroll taxes. And as with Social Security, the HI Trust Fund was already on a trajectory to run out of reserves eventually when COVID-19 struck. The fund is now projected to be depleted in 2028, two years later than predicted in the trustees' 2021 report. At that point, ongoing fund receipts would cover 90% of scheduled benefits. The SMI Trust Fund is expected to remain adequately funded because government funding and premiums reset each year to cover spending on Medicare parts B and D. But the costs of those services are expected to outpace economic growth, requiring proportional appropriations and premium increases. Medicare trustees estimate SMI funding requirements will increase from 18.5% of personal and corporate income tax receipts in 2021 to 21.5% in 2030 and 30.5% by 2080. ## Impact of COVID-19 on Medicare Trust Funds COVID-19 caused the unusual 9.3% decline in Medicare outlays in 2021, as savings from the beneficiaries' deferral of elective care more than offset increased pandemic spending. As noted above, the reduced morbidity of Medicare's population following deaths caused by COVID-19 accounted for 2.9 percentage points of the savings, Medicare trustees estimate. Meanwhile, Medicare trust funds receipts declined by just 1.4%. Because spending fell so much more than income, Medicare trust funds' assets increased by $48.3 billion to $325.7 billion, including the HI fund's gain of $8.5 billion to $142.7 billion. The HI Trust fund is expected to register a larger surplus for 2022 in a continuation of the COVID-19 trends, before posing growing annual deficits in subsequent years. ## Impact of COVID-19 on Medicare Recipients The advanced age of most Medicare recipients makes them much more vulnerable to COVID-19 than the general population, on average. Negative outcomes of the pandemic extend beyond the deaths and hospitalizations it has caused. ### Medicare recipients (and others) are advised to follow up on all medical appointments, including physicals, to make sure that they continue to manage their health during the ongoing pandemic. One CMS survey found that during the pandemic: * 21% reported feeling more lonely or sad. * 15% reported feeling less financially secure. * 41% reported more stress or anxiety. * 38% said they were less connected with family and friends. For Medicare recipients receiving care at home, COVID-19 impact findings included: * The need for social service support increased. * Loneliness and depression increased. * Physical and mental health conditions became exacerbated. * Substance use and abuse increased. * Evidence of domestic violence increased. * Staff and equipment were limited. On the positive impact side of the equation: * COVID-19 vaccines are free for Medicare recipients. * Lab tests are provided at no cost. * Antibody tests and treatments are provided at no cost. * Expanded telehealth services are available at no cost. * Medically necessary hospitalization is covered. Providers, including physicians and hospitals, have been affected by the pandemic almost from the beginning. During the first six months of the pandemic, for example: * Payments declined by 39% for all fee-for-service (FFS) claims, 33% for inpatient services, and 49% for physician services. * By the week ending July 1, 2020, weekly payments had risen to 96% of 2019 levels, 93% for inpatient services, and 95% for physician services. * At the end of June 2020, cumulative payment deficits relative to 2019 ranged from 12% to 16%. * The use of individual preventive screening and surgical services declined substantially during March and April of 2020. * There was considerable geographic variation in the magnitude of both the utilization declines and the rate of recovery. ### More than 200 regulatory changes affecting Medicare went into effect between Jan. 1, 2020 and July 24, 2020. An additional 49 changes were made between July 25, 2020 and Jan. 8, 2021. ## Impact of COVID-19 Legislation on Medicare The impact of COVID-19 legislation on the Medicare program is reflected in the sheer volume of the resulting regulatory changes. COVID-19 legislation: * Expanded Medicare coverage for telehealth services (CARES Act) * Exempted COVID-19 vaccines from Medicare cost sharing rules (CARES Act) * Increased some Medicare payment rates to providers (CARES Act) * Waived some hospital length-of-stay requirements (CARES Act) * Further increased Medicare payment rates to physicians (CAA) * Eliminated Medicare’s sequestration cuts through March 2021 (CAA) The Medicare system provides healthcare coverage to people ages 65 and older and those under age 65 with disabilities. These populations are the most vulnerable when it comes to COVID-19. In addition to health concerns, these same populations will be financially vulnerable in the future. Before COVID-19, many Medicare beneficiaries with limited income and preexisting conditions [faced financial hardship with high out-of-pocket healthcare costs](https://www.investopedia.com/articles/personal-finance/070914/medicare-101-do-you-need-all-4-parts.asp). While regulatory changes have helped with the financial burden in the short term, many of those changes will expire or be rescinded once the health crisis is over. Lack of employment post-pandemic, which can lead to early retirement, only exacerbates the financial burden on Medicare recipients. The problem is even worse for older members of minority communities, who have disproportionately lower earnings during their working years, yielding lower Social Security payments and leaving them with lower retirement savings. While the Social Security system anticipates a number of short-term challenges, for Medicare recipients, the financial burden will continue to be a problem well into the future. ## How Has COVID-19 Affected Social Security? COVID-19 is not expected to have a significant long-term effect on Social Security, in part because the recovery from the recession caused by the pandemic proved stronger than Social Security trustees projected a year earlier. As a result, the trustees' 2022 report projects the Social Security trust fund paying old-age benefits will run out of reserves in 2034, a year later than projected in 2021. ## How Has COVID-19 Affected Medicare? COVID-19 has been deadly for Medicare clients, with those 65 and older accounting for about three-quarters of the more than 1 million U.S. deaths attributed to the pandemic as of July 2022. At the same time, the pandemic has been a big money saver for the Medicare program, which saw spending decline and reserves rise in 2021 amid deferrals of healthcare. The higher morbidity rate among Medicare's sickest recipients reduced costs by 1.5% in 2020 and 2.9% in 2021, Medicare trustees estimate, and is expected to continue generating savings until 2028. Medicare's hospital insurance trust fund is now expected to exhaust its reserves in 2028, two years later than projected in 2021. ## How Did the U.S. Government Respond to COVID-19? To address the consequences of the pandemic, U.S. Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act and the Consolidated Appropriations Act (CAA) during the presidency of Donald Trump, and the American Rescue Plan Act under President Joe Biden. The measures offered many Americans up to $3,200 in direct payments, in addition to many other provisions supporting the economy and addressing the pandemic.  

Social Security and Medicare are federal programs that provide old-age, disability, and health insurance benefits, mostly to older Americans, their survivors, and the disabled. COVID-19 has severely affected the beneficiaries of both programs without appreciably changing the programs' longer-term prospects, which were already troubled before the pandemic. As of July 20, 2022, more than 1 million Americans had died from COVID-19, with those 65 and older accounting for nearly three-quarters of that total. Medicare beneficiaries in nursing homes proved especially vulnerable, with 2 in 5 likely contracting COVID-19 in 2020 alone based on claims data, while the mortality rate in nursing homes rose to 22% that year, from 17% in 2019. Medicare's Hospital Insurance fund saw an initial receipts shortfall as the economic downturn caused by COVID-19 reduced payroll taxes, even as pandemic treatment and prevention costs increased. At the same time, the rise in those costs was more than offset by the decline in elective services as some patients avoided non-emergency care out of caution. Medicare patients who succumbed to the disease also incurred medical costs significantly above the program's average before the pandemic, so that the healthier profile of the survivors reduced program costs by 1.5% in 2020 and 2.9% in 2021, according to the Medicare Trustees' 2022 annual report, with smaller annual savings expected to persist as a result until 2028. The offsetting effects of the declines in funding and spending and the likelihood the pandemic will wane suggest it won't have a significant long-term effect on Medicare's finances, according to the trustees. Similarly, the long-term prospects of the Social Security trust funds remain unchanged by the pandemic, according to the funds' trustees. Key Takeaways COVID-19 has been particularly deadly for Social Security and Medicare beneficiaries, with those 65 and older accounting for three-quarters of the more than 1 million U.S. deaths attributed to the pandemic as of July 2022.Medicare spending fell 9.3% in 2021 as beneficiaries deferred care.Medicare saved 1.5% of costs in 2020 and 2.9% in 2021 because beneficiaries who succumbed to COVID-19 used more services than the program's average.Medicare's hospital insurance trust fund was projected by trustees in 2022 to deplete its reserves in 2028, two years later than predicted in 2021.Social Security's old-age trust fund was projected in 2022 to run out of reserves in 2034, a year later than predicted the prior year, after economic growth in 2021 proved stronger than expected.The COVID-19 pandemic is not expected to materially affect the long-term burdens imposed on the Social Security and Medicare trust funds by the aging of the U.S. population and rapidly increasing healthcare spending. How Social Security Works Social Security provides old-age and disability benefits financed by dedicated payroll taxes as well as the accumulated surplus of past receipts. Social Security tax receipts go into two Social Security trust funds that use them to pay benefits, investing any surplus in U.S. government debt. For many years annual tax receipts exceeded benefit payouts by a wide margin, building up a surplus in the trust funds. That changed in 2021 as outlays topped receipts, and annual deficits are expected to widen significantly in the near future as more Baby Boomers retire, leaving fewer workers to fund benefits for each retiree. The trust fund for Social Security's old-age and survivors benefit is projected to run out of reserves in 2034 with ongoing receipts covering 77% of scheduled benefits, according to Social Security trustees' 2022 Annual Report. Impact of COVID-19 on the Social Security Trust Fund Social Security's projected long-term funding shortfall isn't the result of COVID-19, nor did its extent change appreciably because of the pandemic. After moving up the projected year of depletion for the main Social Security trust fund from 2034 to 2033 in their annual report for 2021, Social Security's trustees moved it back to 2034 in the report for 2022. "The economic recovery from the brief recession in 2020 has been stronger and faster than assumed in last year’s report," the trustees noted. A rebound in births in 2021 led the trustees to assume no further decline in 2022, as they had a year earlier, and no change in the long-term fertility rate. Meanwhile, the pandemic was expected to keep death rates among those 65 and older elevated through 2023 albeit well below those prevailing in 2020-2021. Impact of COVID-19 Legislation on Social Security COVID-19 legislation affected Social Security and its recipients, as well as those receiving Supplemental Security Income (SSI) also administered by the Social Security Administration (SSA), in several ways: Authorized economic impact payments of $1,200 (Coronavirus Aid, Relief, and Economic Security [CARES] Act), $600 (Consolidated Appropriations Act [CAA], 2021), and $1,400 (American Rescue Plan Act of 2021) Reduced Federal Insurance Contributions Act (FICA) taxes owed by certain employers, delayed FICA payments by employers, and ensured the Social Security Trust Fund would not be adversely affected by the delay (CARES Act) Suspended collection of student loan debt from Social Security benefits (CARES Act) Provided $300 million through Sept. 30, 2021, to help the SSA prevent, prepare for, and respond to the pandemic (CARES Act) Extended the repayment due date for employers' payroll tax obligations (CAA) Increased the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) and expanded eligibility criteria for the benefits (American Rescue Plan Act of 2021) Social Security trustees have concluded that the long-range implications of COVID-19 on Social Security would be “minor,” with any pandemic-induced recession recovered by 2023 with “little permanent effect.” Over the near term, however, the agency predicts several outcomes that will affect Social Security, including: Lower birth numbers in 2020 and 2021 Higher-than-normal mortality rates in 2020 (12%), 2021 (6%), and 2022 (2%) Disability applications lower in 2020 but higher in 2021 and 2022 Employment reduced in 2020 but fully recovered by mid-2023 Gross domestic product (GDP), productivity, and earning levels permanently lowered by 1% How Medicare Works Medicare is a federal health insurance program for people age 65 or older, as well as younger people who are disabled or have end-stage renal disease. Medicare is funded with a combination of payroll taxes, government spending, and premiums paid by participants. It is run by a branch of the U.S. Department of Health and Human Services (HHS) known as the Centers for Medicare and Medicaid Services (CMS). Medicare is paid for through two trust funds: the Hospital Insurance (HI) Trust Fund and the Supplemental Medical Insurance (SMI) Trust Fund. HI pays for Medicare Part A (hospitalization), while SMI covers Part B (medical) and Part D (prescription drugs). The HI Trust Fund, like the Social Security trust funds, is primarily funded with payroll taxes. And as with Social Security, the HI Trust Fund was already on a trajectory to run out of reserves eventually when COVID-19 struck. The fund is now projected to be depleted in 2028, two years later than predicted in the trustees' 2021 report. At that point, ongoing fund receipts would cover 90% of scheduled benefits. The SMI Trust Fund is expected to remain adequately funded because government funding and premiums reset each year to cover spending on Medicare parts B and D. But the costs of those services are expected to outpace economic growth, requiring proportional appropriations and premium increases. Medicare trustees estimate SMI funding requirements will increase from 18.5% of personal and corporate income tax receipts in 2021 to 21.5% in 2030 and 30.5% by 2080. Impact of COVID-19 on Medicare Trust Funds COVID-19 caused the unusual 9.3% decline in Medicare outlays in 2021, as savings from the beneficiaries' deferral of elective care more than offset increased pandemic spending. As noted above, the reduced morbidity of Medicare's population following deaths caused by COVID-19 accounted for 2.9 percentage points of the savings, Medicare trustees estimate. Meanwhile, Medicare trust funds receipts declined by just 1.4%. Because spending fell so much more than income, Medicare trust funds' assets increased by $48.3 billion to $325.7 billion, including the HI fund's gain of $8.5 billion to $142.7 billion. The HI Trust fund is expected to register a larger surplus for 2022 in a continuation of the COVID-19 trends, before posing growing annual deficits in subsequent years. Impact of COVID-19 on Medicare Recipients The advanced age of most Medicare recipients makes them much more vulnerable to COVID-19 than the general population, on average. Negative outcomes of the pandemic extend beyond the deaths and hospitalizations it has caused. Medicare recipients (and others) are advised to follow up on all medical appointments, including physicals, to make sure that they continue to manage their health during the ongoing pandemic. One CMS survey found that during the pandemic: 21% reported feeling more lonely or sad.15% reported feeling less financially secure.41% reported more stress or anxiety.38% said they were less connected with family and friends. For Medicare recipients receiving care at home, COVID-19 impact findings included: The need for social service support increased.Loneliness and depression increased.Physical and mental health conditions became exacerbated.Substance use and abuse increased.Evidence of domestic violence increased.Staff and equipment were limited. On the positive impact side of the equation: COVID-19 vaccines are free for Medicare recipients.Lab tests are provided at no cost.Antibody tests and treatments are provided at no cost.Expanded telehealth services are available at no cost.Medically necessary hospitalization is covered. Providers, including physicians and hospitals, have been affected by the pandemic almost from the beginning. During the first six months of the pandemic, for example: Payments declined by 39% for all fee-for-service (FFS) claims, 33% for inpatient services, and 49% for physician services.By the week ending July 1, 2020, weekly payments had risen to 96% of 2019 levels, 93% for inpatient services, and 95% for physician services.At the end of June 2020, cumulative payment deficits relative to 2019 ranged from 12% to 16%.The use of individual preventive screening and surgical services declined substantially during March and April of 2020.There was considerable geographic variation in the magnitude of both the utilization declines and the rate of recovery. More than 200 regulatory changes affecting Medicare went into effect between Jan. 1, 2020 and July 24, 2020. An additional 49 changes were made between July 25, 2020 and Jan. 8, 2021. Impact of COVID-19 Legislation on Medicare The impact of COVID-19 legislation on the Medicare program is reflected in the sheer volume of the resulting regulatory changes. COVID-19 legislation: Expanded Medicare coverage for telehealth services (CARES Act)Exempted COVID-19 vaccines from Medicare cost sharing rules (CARES Act)Increased some Medicare payment rates to providers (CARES Act)Waived some hospital length-of-stay requirements (CARES Act)Further increased Medicare payment rates to physicians (CAA)Eliminated Medicare’s sequestration cuts through March 2021 (CAA) The Medicare system provides healthcare coverage to people ages 65 and older and those under age 65 with disabilities. These populations are the most vulnerable when it comes to COVID-19. In addition to health concerns, these same populations will be financially vulnerable in the future. Before COVID-19, many Medicare beneficiaries with limited income and preexisting conditions faced financial hardship with high out-of-pocket healthcare costs. While regulatory changes have helped with the financial burden in the short term, many of those changes will expire or be rescinded once the health crisis is over. Lack of employment post-pandemic, which can lead to early retirement, only exacerbates the financial burden on Medicare recipients. The problem is even worse for older members of minority communities, who have disproportionately lower earnings during their working years, yielding lower Social Security payments and leaving them with lower retirement savings. While the Social Security system anticipates a number of short-term challenges, for Medicare recipients, the financial burden will continue to be a problem well into the future. How Has COVID-19 Affected Social Security? COVID-19 is not expected to have a significant long-term effect on Social Security, in part because the recovery from the recession caused by the pandemic proved stronger than Social Security trustees projected a year earlier. As a result, the trustees' 2022 report projects the Social Security trust fund paying old-age benefits will run out of reserves in 2034, a year later than projected in 2021. How Has COVID-19 Affected Medicare? COVID-19 has been deadly for Medicare clients, with those 65 and older accounting for about three-quarters of the more than 1 million U.S. deaths attributed to the pandemic as of July 2022. At the same time, the pandemic has been a big money saver for the Medicare program, which saw spending decline and reserves rise in 2021 amid deferrals of healthcare. The higher morbidity rate among Medicare's sickest recipients reduced costs by 1.5% in 2020 and 2.9% in 2021, Medicare trustees estimate, and is expected to continue generating savings until 2028. Medicare's hospital insurance trust fund is now expected to exhaust its reserves in 2028, two years later than projected in 2021. How Did the U.S. Government Respond to COVID-19? To address the consequences of the pandemic, U.S. Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act and the Consolidated Appropriations Act (CAA) during the presidency of Donald Trump, and the American Rescue Plan Act under President Joe Biden. The measures offered many Americans up to $3,200 in direct payments, in addition to many other provisions supporting the economy and addressing the pandemic.  

https://www.investopedia.com/s-and-p-500-gains-and-losses-today-bright-growth-outlook-lifts-first-solar-stock-8651894

S&P 500 Gains and Losses Today: Bright Growth Outlook Lifts First Solar Stock

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The S&amp;P 500 added 0.3% on Tuesday, May 21, 2024, ahead of a noteworthy earnings report and as a Federal Reserve official expressed caution on rate cuts.</li><li>First Solar shares soared after UBS analysts boosted their price target on the stock, noting the solar panel maker is poised to benefit from tax credits.<br/></li><li>Shares of Nordson Corp. sank after the industrial equipment maker lowered its full-year outlook, citing challenges in its electronic end markets.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Major U.S. equities indexes ticked higher on Tuesday ahead of the eagerly awaited quarterly report from semiconductor behemoth Nvidia (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda">NVDA</a>), due to be released after the markets close on Wednesday afternoon. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Investors also heard from Federal Reserve Governor Christopher Waller, who became the latest central bank official to confirm that he <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-economy-news-today-may-21-8651718">needs to see more evidence</a> of a sustainable decline in inflation before supporting an interest rate cut. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The S&amp;P 500 advanced 0.3% on the day, edging past the record posted last Wednesday to notch a new all-time closing high. The Nasdaq added 0.2%, printing its second consecutive record close this week. The Dow was also up 0.2%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> First Solar (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=fslr">FSLR</a>) shares logged Tuesday's top performance in the S&amp;P 500, jumping 8.0% after UBS boosted its price target on the stock and reiterated its "buy" rating. Analysts expect the solar panel maker to grow its earnings per share (EPS) and gross margin as it benefits from domestic manufacturing tax credits under the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-reduction-act-of-2022-6362263">U.S. Inflation Reduction Act (IRA)</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Shares of Tesla (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=tsla">TSLA</a>) charged 6.7% higher after the company provided an update on its program to develop electric semi-trucks. Although the project has faced delays since its launch in 2017, the company said Monday production-spec deliveries of the Tesla Semi remain on track for 2026. Reports said the company is building a factory in Nevada and expects to eventually ramp up to a capacity of 50,000 EV trucks per year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Shares of Maryland-based electric utility Constellation Energy (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ceg">CEG</a>) gained 3.5% after Keybanc increased its price target on the stock. Analysts highlighted Constellation's initiatives to expand its energy production capacity, including upgrades to its existing fleet, the return to service of plants that had been shut down, and collaborations with other companies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Dollar General (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=dg">DG</a>) shares added 3.5% after Zacks included the company on a list of retailers that could be poised for gains after topping first-quarter earnings estimates. According to Zacks, Dollar General could drive market share gains and same-store sales growth through various value-creating initiatives, digitization, and the expansion of its private fleet. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Nordson Corp. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ndsn">NDSN</a>) shares suffered the S&amp;P 500's steepest losses, plunging 9.4% after the industrial equipment maker <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nordson-stock-tumbles-after-trimming-annual-sales-and-earnings-guidance-8651585">cut its full-year sales and profit guidance</a>. The company pointed to softness in electronic end markets and issues related to the agricultural cycle in Europe as factors behind its more muted outlook.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Shares of Keysight Technologies (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=keys">KEYS</a>), which makes electronics test and measurement equipment, tumbled 8.4% in the wake of the company's latest earnings report. Despite beating sales and profit estimates, Keysight reported a year-over-year revenue decline and issued lower-than-expected profit guidance for the current quarter, citing weakness in its consumer electronics and semiconductor end markets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Walgreens Boots Alliance (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=wba">WBA</a>) fell 6.4%, descending to its lowest level since 1998. With Tuesday's losses, Walgreens stock reversed the gains posted last week amid reports the pharmacy giant was seeking possible buyers for its U.K.-based Boots chain. The company has been striving to cut costs as it adjusts to its retail customers limiting their discretionary spending.<br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * The S&P 500 added 0.3% on Tuesday, May 21, 2024, ahead of a noteworthy earnings report and as a Federal Reserve official expressed caution on rate cuts. * First Solar shares soared after UBS analysts boosted their price target on the stock, noting the solar panel maker is poised to benefit from tax credits. * Shares of Nordson Corp. sank after the industrial equipment maker lowered its full-year outlook, citing challenges in its electronic end markets. Major U.S. equities indexes ticked higher on Tuesday ahead of the eagerly awaited quarterly report from semiconductor behemoth Nvidia ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda)), due to be released after the markets close on Wednesday afternoon. Investors also heard from Federal Reserve Governor Christopher Waller, who became the latest central bank official to confirm that he [needs to see more evidence](https://www.investopedia.com/us-economy-news-today-may-21-8651718) of a sustainable decline in inflation before supporting an interest rate cut. The S&P 500 advanced 0.3% on the day, edging past the record posted last Wednesday to notch a new all-time closing high. The Nasdaq added 0.2%, printing its second consecutive record close this week. The Dow was also up 0.2%. First Solar ([FSLR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=fslr)) shares logged Tuesday's top performance in the S&P 500, jumping 8.0% after UBS boosted its price target on the stock and reiterated its "buy" rating. Analysts expect the solar panel maker to grow its earnings per share (EPS) and gross margin as it benefits from domestic manufacturing tax credits under the [U.S. Inflation Reduction Act (IRA)](https://www.investopedia.com/inflation-reduction-act-of-2022-6362263). Shares of Tesla ([TSLA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=tsla)) charged 6.7% higher after the company provided an update on its program to develop electric semi-trucks. Although the project has faced delays since its launch in 2017, the company said Monday production-spec deliveries of the Tesla Semi remain on track for 2026. Reports said the company is building a factory in Nevada and expects to eventually ramp up to a capacity of 50,000 EV trucks per year. Shares of Maryland-based electric utility Constellation Energy ([CEG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ceg)) gained 3.5% after Keybanc increased its price target on the stock. Analysts highlighted Constellation's initiatives to expand its energy production capacity, including upgrades to its existing fleet, the return to service of plants that had been shut down, and collaborations with other companies. Dollar General ([DG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=dg)) shares added 3.5% after Zacks included the company on a list of retailers that could be poised for gains after topping first-quarter earnings estimates. According to Zacks, Dollar General could drive market share gains and same-store sales growth through various value-creating initiatives, digitization, and the expansion of its private fleet. Nordson Corp. ([NDSN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ndsn)) shares suffered the S&P 500's steepest losses, plunging 9.4% after the industrial equipment maker [cut its full-year sales and profit guidance](https://www.investopedia.com/nordson-stock-tumbles-after-trimming-annual-sales-and-earnings-guidance-8651585). The company pointed to softness in electronic end markets and issues related to the agricultural cycle in Europe as factors behind its more muted outlook. Shares of Keysight Technologies ([KEYS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=keys)), which makes electronics test and measurement equipment, tumbled 8.4% in the wake of the company's latest earnings report. Despite beating sales and profit estimates, Keysight reported a year-over-year revenue decline and issued lower-than-expected profit guidance for the current quarter, citing weakness in its consumer electronics and semiconductor end markets. Walgreens Boots Alliance ([WBA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=wba)) fell 6.4%, descending to its lowest level since 1998. With Tuesday's losses, Walgreens stock reversed the gains posted last week amid reports the pharmacy giant was seeking possible buyers for its U.K.-based Boots chain. The company has been striving to cut costs as it adjusts to its retail customers limiting their discretionary spending. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways The S&P 500 added 0.3% on Tuesday, May 21, 2024, ahead of a noteworthy earnings report and as a Federal Reserve official expressed caution on rate cuts.First Solar shares soared after UBS analysts boosted their price target on the stock, noting the solar panel maker is poised to benefit from tax credits.Shares of Nordson Corp. sank after the industrial equipment maker lowered its full-year outlook, citing challenges in its electronic end markets. Major U.S. equities indexes ticked higher on Tuesday ahead of the eagerly awaited quarterly report from semiconductor behemoth Nvidia (NVDA), due to be released after the markets close on Wednesday afternoon. Investors also heard from Federal Reserve Governor Christopher Waller, who became the latest central bank official to confirm that he needs to see more evidence of a sustainable decline in inflation before supporting an interest rate cut. The S&P 500 advanced 0.3% on the day, edging past the record posted last Wednesday to notch a new all-time closing high. The Nasdaq added 0.2%, printing its second consecutive record close this week. The Dow was also up 0.2%. First Solar (FSLR) shares logged Tuesday's top performance in the S&P 500, jumping 8.0% after UBS boosted its price target on the stock and reiterated its "buy" rating. Analysts expect the solar panel maker to grow its earnings per share (EPS) and gross margin as it benefits from domestic manufacturing tax credits under the U.S. Inflation Reduction Act (IRA). Shares of Tesla (TSLA) charged 6.7% higher after the company provided an update on its program to develop electric semi-trucks. Although the project has faced delays since its launch in 2017, the company said Monday production-spec deliveries of the Tesla Semi remain on track for 2026. Reports said the company is building a factory in Nevada and expects to eventually ramp up to a capacity of 50,000 EV trucks per year. Shares of Maryland-based electric utility Constellation Energy (CEG) gained 3.5% after Keybanc increased its price target on the stock. Analysts highlighted Constellation's initiatives to expand its energy production capacity, including upgrades to its existing fleet, the return to service of plants that had been shut down, and collaborations with other companies. Dollar General (DG) shares added 3.5% after Zacks included the company on a list of retailers that could be poised for gains after topping first-quarter earnings estimates. According to Zacks, Dollar General could drive market share gains and same-store sales growth through various value-creating initiatives, digitization, and the expansion of its private fleet. Nordson Corp. (NDSN) shares suffered the S&P 500's steepest losses, plunging 9.4% after the industrial equipment maker cut its full-year sales and profit guidance. The company pointed to softness in electronic end markets and issues related to the agricultural cycle in Europe as factors behind its more muted outlook. Shares of Keysight Technologies (KEYS), which makes electronics test and measurement equipment, tumbled 8.4% in the wake of the company's latest earnings report. Despite beating sales and profit estimates, Keysight reported a year-over-year revenue decline and issued lower-than-expected profit guidance for the current quarter, citing weakness in its consumer electronics and semiconductor end markets. Walgreens Boots Alliance (WBA) fell 6.4%, descending to its lowest level since 1998. With Tuesday's losses, Walgreens stock reversed the gains posted last week amid reports the pharmacy giant was seeking possible buyers for its U.K.-based Boots chain. The company has been striving to cut costs as it adjusts to its retail customers limiting their discretionary spending. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/blackrock-ceo-larry-fink-sees-a-case-for-spot-ethereum-etf-but-will-it-get-approval-8425769

Blackrock CEO Larry Fink Sees A Case For Spot Ethereum ETF, But Will It Get Approval?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Blackrock CEO Larry Fink said he "sees value" in an Ethereum ETF in a recent interview.</li><li>Blackrock, Fidelity, VanEck, and others have already filed for spot Ethereum ETFs, with some of the final deadlines for decisions from the U.S. Securities and Exchange Commission (SEC) scheduled for May.</li><li>A spot Ethereum ETF approval may be more problematic than was the case with bitcoin, as there is the potential for Ethereum's underlying crypto asset to be classified as a security.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Blackrock (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BLK">BLK</a>) CEO Larry Fink may have generated momentum for a spot Ethereum exchange-traded fund (ETF). However, the approval for such a product will likely face a big regulatory hurdle. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> "I see value in having an Ethereum ETF. As I said, these are just stepping stones towards tokenization," Fink said in an interview with CNBC Friday morning, just a day after the first spot bitcoin ETFs began trading in the U.S.<span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <span class="heading-toc" id="toc-why-finks-comments-matter-to-an-eth-etf"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Why Fink's Comments Matter To An ETH ETF? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Blackrock originally changed how people thought about whether a spot bitcoin ETF would even be possible when the financial titan <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/blackrock-files-for-a-spot-bitcoin-etf-7547609">filed for their own offering in June 2023</a>. They now have their own <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/blackrock-may-be-considering-an-ether-etf-ether-price-jumps-8400047">spot Ethereum ETF proposal</a> as well. Many of the other same financial institutions, such as Ark, and Fidelity, that saw their spot bitcoin ETF products launch on Thursday, have also filed for spot Ether ETFs with the SEC.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> VanEck is first in line for the potential approval of their spot Ethereum ETF product, with a final deadline for a decision from the SEC set for May 23rd.<span class="ql-inline-citation" data-cite="4"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-eth-etf-may-face-regulatory-hurdles"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> ETH ETF May Face Regulatory Hurdles </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> While ether is often lumped in with bitcoin (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCUSD">BTCUSD</a>) as the two major blue chip crypto projects, there are concerns that a spot ether ETF approval could be a more complex proposal. Much of the uncertainty around such a financial product has to do with the potential classification of ether <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ETHUSD">(ETHUSD</a>), which is the underlying crypto asset of the Ethereum system, as a security. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> When asked whether the approval of a spot bitcoin ETF could open the door for other crypto asset ETF approvals, such as a spot Ethereum ETF, SEC Chair Gary Gensler stated, "I look at what we did this week as its cabined to one non-security, commodity called bitcoin."<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> That said, Brown Rudnick Partner Preston Byrne says there may not be many regulatory roadblocks to a spot Ethereum ETF approval. "So far, the only American regulator to assert that Ethereum is a security in an enforcement action is the NYAG's office," Byrne told Investopedia. "Ethereum's possible status as an unregistered security is a minority view, especially given the fact that the Ethereum Foundation's 2014 sale of Ether is now well past the statute of limitations. I would expect diligent lawyering to address the point in required statutory investor disclosures, but would not expect too much more regulatory interference beyond that." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Bloomberg ETF Analyst Eric Balchunas has pegged the odds of a spot Ethereum ETF approval by May at 70%.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Notably, futures-based Ether ETF products are already available for trade in the U.S. market. However, these offerings have not gained much traction and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ether-futures-etfs-go-live-after-sec-approval-8303974">originally launched without much interest from traders</a>. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * Blackrock CEO Larry Fink said he "sees value" in an Ethereum ETF in a recent interview. * Blackrock, Fidelity, VanEck, and others have already filed for spot Ethereum ETFs, with some of the final deadlines for decisions from the U.S. Securities and Exchange Commission (SEC) scheduled for May. * A spot Ethereum ETF approval may be more problematic than was the case with bitcoin, as there is the potential for Ethereum's underlying crypto asset to be classified as a security. Blackrock ([BLK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BLK)) CEO Larry Fink may have generated momentum for a spot Ethereum exchange-traded fund (ETF). However, the approval for such a product will likely face a big regulatory hurdle. "I see value in having an Ethereum ETF. As I said, these are just stepping stones towards tokenization," Fink said in an interview with CNBC Friday morning, just a day after the first spot bitcoin ETFs began trading in the U.S. ## Why Fink's Comments Matter To An ETH ETF? Blackrock originally changed how people thought about whether a spot bitcoin ETF would even be possible when the financial titan [filed for their own offering in June 2023](https://www.investopedia.com/blackrock-files-for-a-spot-bitcoin-etf-7547609). They now have their own [spot Ethereum ETF proposal](https://www.investopedia.com/blackrock-may-be-considering-an-ether-etf-ether-price-jumps-8400047) as well. Many of the other same financial institutions, such as Ark, and Fidelity, that saw their spot bitcoin ETF products launch on Thursday, have also filed for spot Ether ETFs with the SEC. VanEck is first in line for the potential approval of their spot Ethereum ETF product, with a final deadline for a decision from the SEC set for May 23rd. ## ETH ETF May Face Regulatory Hurdles While ether is often lumped in with bitcoin ([BTCUSD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTCUSD)) as the two major blue chip crypto projects, there are concerns that a spot ether ETF approval could be a more complex proposal. Much of the uncertainty around such a financial product has to do with the potential classification of ether [(ETHUSD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ETHUSD)), which is the underlying crypto asset of the Ethereum system, as a security. When asked whether the approval of a spot bitcoin ETF could open the door for other crypto asset ETF approvals, such as a spot Ethereum ETF, SEC Chair Gary Gensler stated, "I look at what we did this week as its cabined to one non-security, commodity called bitcoin." That said, Brown Rudnick Partner Preston Byrne says there may not be many regulatory roadblocks to a spot Ethereum ETF approval. "So far, the only American regulator to assert that Ethereum is a security in an enforcement action is the NYAG's office," Byrne told Investopedia. "Ethereum's possible status as an unregistered security is a minority view, especially given the fact that the Ethereum Foundation's 2014 sale of Ether is now well past the statute of limitations. I would expect diligent lawyering to address the point in required statutory investor disclosures, but would not expect too much more regulatory interference beyond that." Bloomberg ETF Analyst Eric Balchunas has pegged the odds of a spot Ethereum ETF approval by May at 70%. Notably, futures-based Ether ETF products are already available for trade in the U.S. market. However, these offerings have not gained much traction and [originally launched without much interest from traders](https://www.investopedia.com/ether-futures-etfs-go-live-after-sec-approval-8303974). Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Blackrock CEO Larry Fink said he "sees value" in an Ethereum ETF in a recent interview.Blackrock, Fidelity, VanEck, and others have already filed for spot Ethereum ETFs, with some of the final deadlines for decisions from the U.S. Securities and Exchange Commission (SEC) scheduled for May.A spot Ethereum ETF approval may be more problematic than was the case with bitcoin, as there is the potential for Ethereum's underlying crypto asset to be classified as a security. Blackrock (BLK) CEO Larry Fink may have generated momentum for a spot Ethereum exchange-traded fund (ETF). However, the approval for such a product will likely face a big regulatory hurdle. "I see value in having an Ethereum ETF. As I said, these are just stepping stones towards tokenization," Fink said in an interview with CNBC Friday morning, just a day after the first spot bitcoin ETFs began trading in the U.S. Why Fink's Comments Matter To An ETH ETF? Blackrock originally changed how people thought about whether a spot bitcoin ETF would even be possible when the financial titan filed for their own offering in June 2023. They now have their own spot Ethereum ETF proposal as well. Many of the other same financial institutions, such as Ark, and Fidelity, that saw their spot bitcoin ETF products launch on Thursday, have also filed for spot Ether ETFs with the SEC. VanEck is first in line for the potential approval of their spot Ethereum ETF product, with a final deadline for a decision from the SEC set for May 23rd. ETH ETF May Face Regulatory Hurdles While ether is often lumped in with bitcoin (BTCUSD) as the two major blue chip crypto projects, there are concerns that a spot ether ETF approval could be a more complex proposal. Much of the uncertainty around such a financial product has to do with the potential classification of ether (ETHUSD), which is the underlying crypto asset of the Ethereum system, as a security. When asked whether the approval of a spot bitcoin ETF could open the door for other crypto asset ETF approvals, such as a spot Ethereum ETF, SEC Chair Gary Gensler stated, "I look at what we did this week as its cabined to one non-security, commodity called bitcoin." That said, Brown Rudnick Partner Preston Byrne says there may not be many regulatory roadblocks to a spot Ethereum ETF approval. "So far, the only American regulator to assert that Ethereum is a security in an enforcement action is the NYAG's office," Byrne told Investopedia. "Ethereum's possible status as an unregistered security is a minority view, especially given the fact that the Ethereum Foundation's 2014 sale of Ether is now well past the statute of limitations. I would expect diligent lawyering to address the point in required statutory investor disclosures, but would not expect too much more regulatory interference beyond that." Bloomberg ETF Analyst Eric Balchunas has pegged the odds of a spot Ethereum ETF approval by May at 70%. Notably, futures-based Ether ETF products are already available for trade in the U.S. market. However, these offerings have not gained much traction and originally launched without much interest from traders. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/how-often-should-you-monitor-your-checking-account-4798537

How Often Should You Monitor Your Checking Account?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/checkingaccount.asp">checking account</a> is a useful tool for paying bills and covering expenses when using a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp">debit card</a>. Thanks to online and mobile banking, it’s easier than ever to track debit and credit transactions. But how often should you monitor your checking account? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> According to a Lexington Law survey, 36% of Americans say they review their checking account daily, while 30% check it once weekly.<span class="ql-inline-citation" data-cite="10"></span> There are several good reasons to keep a close eye on your banking activity, particularly if you’re concerned about preventing fraud or minimizing fees. If you’re just getting started with your first checking account—or you’re wondering whether your current banking habits could use some improvement—these tips can help. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>More than a third of Americans check their bank accounts daily, while nearly 20% check in with their accounts less than once a month.</li><li>Checking your bank account regularly can be a helpful way to spot potentially fraudulent activity.</li><li>Keeping an eye on your checking account can also help you avoid costly banking fees.</li></ul></div></div></div> <span class="heading-toc" id="toc-benefits-of-monitoring-checking-account-activity"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Benefits of Monitoring Checking Account Activity </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> If you’re paying bills and spending regularly, then your checking account likely isn’t static. Money moves in and out, so looking at your account can be helpful in several ways. Here are some of the top reasons to stay in tune with your checking account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-subheading__text"> Catching Fraudulent Activity </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Bank account fraud can cost you big bucks, and it’s becoming an increasingly significant problem for banks and consumers alike. According to the American Bankers Association’s 2019 Deposit Account Fraud Survey Report, bank fraud totaled $25.1 billion in 2018. Check fraud accounted for $1.3 billion in losses, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/debit-card-fraud-at-risk.asp">while debit card fraud losses</a> totaled $1.2 billion.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Keeping an eye on your checking account regularly can help you spot potentially fraudulent activity and prevent financial losses before they happen. For example, an identity thief may obtain your debit card number and make a small test purchase hoping that you won’t notice. If the purchase goes through, the thief could then make larger purchases against your account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> That’s problematic, because debit cards don’t have the same fraud protections as credit cards. If you report your debit card lost or stolen before anyone uses it, you’re not responsible for any fraudulent purchases, according to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/ftc.asp">Federal Trade Commission</a>.<span class="ql-inline-citation" data-cite="3"></span> However, different rules apply once a fraudulent purchase happens. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Then your liability follows these guidelines: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_19-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th>If You Report</th> <th>Your Maximum Loss</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Before any unauthorized charges are made</td> <td>$0</td> </tr> <tr> <td>Within two business days after you learn about the loss or theft</td> <td>$50</td> </tr> <tr> <td>More than two business days after you learn about the loss or theft, but less than 60 calendar days after your statement is sent to you</td> <td>$500</td> </tr> <tr> <td>More than 60 calendar days after your statement is sent to you</td> <td>All the money taken from your ATM/debit card account and possibly more—for example, money in accounts linked to your debit account</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-subheading__text"> Watching for Excessive or Hidden fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Banking fees can eat away at your balance, and monitoring your checking account can help you avoid triggering certain ones, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/overdraft.asp">overdraft</a> fees and returned payment fees. A single overdraft fee can average around $34, according to the Consumer Financial Protection Bureau, so it pays to stay on top of your banking activity to make sure you’re not in danger of being hit with one.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If someone makes unauthorized transactions with your debit card number but your card isn’t lost, you’re not liable for those transactions if you report them within 60 days of your statement being sent to you.<span class="ql-inline-citation" data-cite="12"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> For example, say you deposit a check using mobile check deposit. You assume the money will clear your account in one to two business days, so you pay your bills, buy groceries, and fill up on gas using your debit card. However, the check ends up taking five days to clear your account and, in the meantime, all those transactions post, putting your balance in the negative. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> That could mean paying substantial <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/checking-accounts-4689732">overdraft fees</a> if any of your payments are returned for insufficient funds. Checking in with your bank account to make sure the check had posted would have been an easy way to avoid that. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Aside from overdraft fees, there are other banking fees to pay attention to, including: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <li>ATM fees (including surcharges from banks other than your own)</li><li>Monthly maintenance fees</li><li>Minimum balance fees</li><li>Paper statement fees</li><li>Balance inquiry fees</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> As of first half of 2021, the average banking customer pays $167 in checking account maintenance fees every year, excluding overdraft and ATM fees.<span class="ql-inline-citation" data-cite="13"></span> <strong> </strong>That’s not exactly a fortune, but it’s a decent amount of money that you could add to your emergency savings fund or use to pay down debt each year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Monitoring your checking account can help you spot these and other fees your bank may be charging you. You can also track your balance, which can help you avoid putting your checking account into the red and racking up expensive overdraft fees. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_38-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_39-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">Warning</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Some banks can charge you multiple overdraft fees in one day, with or without a limit; in some cases, the bank can add an excess overdraft fee once you incur a certain number of overdrafts.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-subheading__text"> Better Managing Your Financial Life </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> A third reason to monitor your checking account is simply to improve your financial situation. According to a poll from 2019, thirty-three percent of Americans, for example, don’t follow a budget plan.<span class="ql-inline-citation" data-cite="8"></span> And 74% of Americans live paycheck to paycheck, according to an American Payroll Association survey from 2019.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Either of those situations could spell trouble if you run into an unexpected expense and don’t have an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergency_fund.asp">emergency fund</a> or at least a little extra cash in checking to cover it. Monitoring your checking account can help you better identify where you can cut back expenses, so you can start saving money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <span class="heading-toc" id="toc-how-often-should-you-monitor-your-checking-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-heading__text"> How Often Should You Monitor Your Checking Account? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Not monitoring your checking account can be expensive in more ways than one. In terms of how often you should monitor your checking account, the answer is entirely personal. Still, it’s safe to say that only checking in once a month probably isn’t enough if you want to minimize fraud and fees, and stay on top of your finances. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> If you’re not used to monitoring your checking account regularly, you could ease into it by logging into your account once or twice a week. From there, you could graduate to once a day. For instance, you could scan your account activity in the morning or at the end of the day to see which debit and credit transactions have posted. It’s a simple way to keep up with your running available balance compared to writing everything down in a checking account register for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reconciliation.asp">account reconcilement</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> What should you monitor for? When reviewing your checking account activity, first scan for any transactions you don’t recognize. Then, check to see if any deposits or payments you’ve scheduled have posted, followed by your recent purchases. Finally, look through your accounts to see which fees, if any, your bank has charged. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> At least once a month you should check your personal information, including your email and phone number, to make sure those things are up to date. Also, you may want to change your mobile and online banking password every three to four months. Choosing a new, unique password regularly could make it that much harder for identity thieves to access your account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <span class="heading-toc" id="toc-tips-for-monitoring-your-checking-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-heading__text"> Tips for Monitoring Your Checking Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> There are several steps you can take to stay on top of your checking account and save time when managing your finances: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> <li>Sign up for online and mobile banking access if you haven’t yet, so you can log in and check transactions on the go.</li> <li>Consider <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-budgeting-apps-5085405">linking your checking account, savings account, and credit card accounts to a mobile budgeting app</a>, so you can see all of your account activity at a glance.</li> <li>Set up banking alerts to notify you when a new credit or debit transaction posts, when a failed login attempt occurs, or when changes are made to your password or personal information.</li> <li>Pencil in a date on your calendar to review your online statement. You can also request paper statements, but you should check first to see if there’s a fee for that.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Remember, if you see a fee that you weren’t aware of—or an activity that suggests fraud—get in touch with your bank right away. </p></div>

A [checking account](https://www.investopedia.com/terms/c/checkingaccount.asp) is a useful tool for paying bills and covering expenses when using a [debit card](https://www.investopedia.com/terms/d/debitcard.asp). Thanks to online and mobile banking, it’s easier than ever to track debit and credit transactions. But how often should you monitor your checking account? According to a Lexington Law survey, 36% of Americans say they review their checking account daily, while 30% check it once weekly. There are several good reasons to keep a close eye on your banking activity, particularly if you’re concerned about preventing fraud or minimizing fees. If you’re just getting started with your first checking account—or you’re wondering whether your current banking habits could use some improvement—these tips can help. ### Key Takeaways * More than a third of Americans check their bank accounts daily, while nearly 20% check in with their accounts less than once a month. * Checking your bank account regularly can be a helpful way to spot potentially fraudulent activity. * Keeping an eye on your checking account can also help you avoid costly banking fees. ## Benefits of Monitoring Checking Account Activity If you’re paying bills and spending regularly, then your checking account likely isn’t static. Money moves in and out, so looking at your account can be helpful in several ways. Here are some of the top reasons to stay in tune with your checking account. ### Catching Fraudulent Activity Bank account fraud can cost you big bucks, and it’s becoming an increasingly significant problem for banks and consumers alike. According to the American Bankers Association’s 2019 Deposit Account Fraud Survey Report, bank fraud totaled $25.1 billion in 2018. Check fraud accounted for $1.3 billion in losses, [while debit card fraud losses](https://www.investopedia.com/articles/pf/09/debit-card-fraud-at-risk.asp) totaled $1.2 billion. Keeping an eye on your checking account regularly can help you spot potentially fraudulent activity and prevent financial losses before they happen. For example, an identity thief may obtain your debit card number and make a small test purchase hoping that you won’t notice. If the purchase goes through, the thief could then make larger purchases against your account. That’s problematic, because debit cards don’t have the same fraud protections as credit cards. If you report your debit card lost or stolen before anyone uses it, you’re not responsible for any fraudulent purchases, according to the [Federal Trade Commission](https://www.investopedia.com/terms/f/ftc.asp). However, different rules apply once a fraudulent purchase happens. Then your liability follows these guidelines: | If You Report | Your Maximum Loss | | --- | --- | | Before any unauthorized charges are made | $0 | | Within two business days after you learn about the loss or theft | $50 | | More than two business days after you learn about the loss or theft, but less than 60 calendar days after your statement is sent to you | $500 | | More than 60 calendar days after your statement is sent to you | All the money taken from your ATM/debit card account and possibly more—for example, money in accounts linked to your debit account | ### Watching for Excessive or Hidden fees Banking fees can eat away at your balance, and monitoring your checking account can help you avoid triggering certain ones, such as [overdraft](https://www.investopedia.com/terms/o/overdraft.asp) fees and returned payment fees. A single overdraft fee can average around $34, according to the Consumer Financial Protection Bureau, so it pays to stay on top of your banking activity to make sure you’re not in danger of being hit with one. ### If someone makes unauthorized transactions with your debit card number but your card isn’t lost, you’re not liable for those transactions if you report them within 60 days of your statement being sent to you. For example, say you deposit a check using mobile check deposit. You assume the money will clear your account in one to two business days, so you pay your bills, buy groceries, and fill up on gas using your debit card. However, the check ends up taking five days to clear your account and, in the meantime, all those transactions post, putting your balance in the negative. That could mean paying substantial [overdraft fees](https://www.investopedia.com/checking-accounts-4689732) if any of your payments are returned for insufficient funds. Checking in with your bank account to make sure the check had posted would have been an easy way to avoid that. Aside from overdraft fees, there are other banking fees to pay attention to, including: * ATM fees (including surcharges from banks other than your own) * Monthly maintenance fees * Minimum balance fees * Paper statement fees * Balance inquiry fees As of first half of 2021, the average banking customer pays $167 in checking account maintenance fees every year, excluding overdraft and ATM fees. That’s not exactly a fortune, but it’s a decent amount of money that you could add to your emergency savings fund or use to pay down debt each year. Monitoring your checking account can help you spot these and other fees your bank may be charging you. You can also track your balance, which can help you avoid putting your checking account into the red and racking up expensive overdraft fees. ### Warning Some banks can charge you multiple overdraft fees in one day, with or without a limit; in some cases, the bank can add an excess overdraft fee once you incur a certain number of overdrafts. ### Better Managing Your Financial Life A third reason to monitor your checking account is simply to improve your financial situation. According to a poll from 2019, thirty-three percent of Americans, for example, don’t follow a budget plan. And 74% of Americans live paycheck to paycheck, according to an American Payroll Association survey from 2019. Either of those situations could spell trouble if you run into an unexpected expense and don’t have an [emergency fund](https://www.investopedia.com/terms/e/emergency_fund.asp) or at least a little extra cash in checking to cover it. Monitoring your checking account can help you better identify where you can cut back expenses, so you can start saving money. ## How Often Should You Monitor Your Checking Account? Not monitoring your checking account can be expensive in more ways than one. In terms of how often you should monitor your checking account, the answer is entirely personal. Still, it’s safe to say that only checking in once a month probably isn’t enough if you want to minimize fraud and fees, and stay on top of your finances. If you’re not used to monitoring your checking account regularly, you could ease into it by logging into your account once or twice a week. From there, you could graduate to once a day. For instance, you could scan your account activity in the morning or at the end of the day to see which debit and credit transactions have posted. It’s a simple way to keep up with your running available balance compared to writing everything down in a checking account register for [account reconcilement](https://www.investopedia.com/terms/r/reconciliation.asp). What should you monitor for? When reviewing your checking account activity, first scan for any transactions you don’t recognize. Then, check to see if any deposits or payments you’ve scheduled have posted, followed by your recent purchases. Finally, look through your accounts to see which fees, if any, your bank has charged. At least once a month you should check your personal information, including your email and phone number, to make sure those things are up to date. Also, you may want to change your mobile and online banking password every three to four months. Choosing a new, unique password regularly could make it that much harder for identity thieves to access your account. ## Tips for Monitoring Your Checking Account There are several steps you can take to stay on top of your checking account and save time when managing your finances: * Sign up for online and mobile banking access if you haven’t yet, so you can log in and check transactions on the go. * Consider [linking your checking account, savings account, and credit card accounts to a mobile budgeting app](https://www.investopedia.com/best-budgeting-apps-5085405), so you can see all of your account activity at a glance. * Set up banking alerts to notify you when a new credit or debit transaction posts, when a failed login attempt occurs, or when changes are made to your password or personal information. * Pencil in a date on your calendar to review your online statement. You can also request paper statements, but you should check first to see if there’s a fee for that. Remember, if you see a fee that you weren’t aware of—or an activity that suggests fraud—get in touch with your bank right away.

A checking account is a useful tool for paying bills and covering expenses when using a debit card. Thanks to online and mobile banking, it’s easier than ever to track debit and credit transactions. But how often should you monitor your checking account? According to a Lexington Law survey, 36% of Americans say they review their checking account daily, while 30% check it once weekly. There are several good reasons to keep a close eye on your banking activity, particularly if you’re concerned about preventing fraud or minimizing fees. If you’re just getting started with your first checking account—or you’re wondering whether your current banking habits could use some improvement—these tips can help. Key Takeaways More than a third of Americans check their bank accounts daily, while nearly 20% check in with their accounts less than once a month.Checking your bank account regularly can be a helpful way to spot potentially fraudulent activity.Keeping an eye on your checking account can also help you avoid costly banking fees. Benefits of Monitoring Checking Account Activity If you’re paying bills and spending regularly, then your checking account likely isn’t static. Money moves in and out, so looking at your account can be helpful in several ways. Here are some of the top reasons to stay in tune with your checking account. Catching Fraudulent Activity Bank account fraud can cost you big bucks, and it’s becoming an increasingly significant problem for banks and consumers alike. According to the American Bankers Association’s 2019 Deposit Account Fraud Survey Report, bank fraud totaled $25.1 billion in 2018. Check fraud accounted for $1.3 billion in losses, while debit card fraud losses totaled $1.2 billion. Keeping an eye on your checking account regularly can help you spot potentially fraudulent activity and prevent financial losses before they happen. For example, an identity thief may obtain your debit card number and make a small test purchase hoping that you won’t notice. If the purchase goes through, the thief could then make larger purchases against your account. That’s problematic, because debit cards don’t have the same fraud protections as credit cards. If you report your debit card lost or stolen before anyone uses it, you’re not responsible for any fraudulent purchases, according to the Federal Trade Commission. However, different rules apply once a fraudulent purchase happens. Then your liability follows these guidelines: If You Report Your Maximum Loss Before any unauthorized charges are made $0 Within two business days after you learn about the loss or theft $50 More than two business days after you learn about the loss or theft, but less than 60 calendar days after your statement is sent to you $500 More than 60 calendar days after your statement is sent to you All the money taken from your ATM/debit card account and possibly more—for example, money in accounts linked to your debit account Watching for Excessive or Hidden fees Banking fees can eat away at your balance, and monitoring your checking account can help you avoid triggering certain ones, such as overdraft fees and returned payment fees. A single overdraft fee can average around $34, according to the Consumer Financial Protection Bureau, so it pays to stay on top of your banking activity to make sure you’re not in danger of being hit with one. If someone makes unauthorized transactions with your debit card number but your card isn’t lost, you’re not liable for those transactions if you report them within 60 days of your statement being sent to you. For example, say you deposit a check using mobile check deposit. You assume the money will clear your account in one to two business days, so you pay your bills, buy groceries, and fill up on gas using your debit card. However, the check ends up taking five days to clear your account and, in the meantime, all those transactions post, putting your balance in the negative. That could mean paying substantial overdraft fees if any of your payments are returned for insufficient funds. Checking in with your bank account to make sure the check had posted would have been an easy way to avoid that. Aside from overdraft fees, there are other banking fees to pay attention to, including: ATM fees (including surcharges from banks other than your own)Monthly maintenance feesMinimum balance feesPaper statement feesBalance inquiry fees As of first half of 2021, the average banking customer pays $167 in checking account maintenance fees every year, excluding overdraft and ATM fees. That’s not exactly a fortune, but it’s a decent amount of money that you could add to your emergency savings fund or use to pay down debt each year. Monitoring your checking account can help you spot these and other fees your bank may be charging you. You can also track your balance, which can help you avoid putting your checking account into the red and racking up expensive overdraft fees. Warning Some banks can charge you multiple overdraft fees in one day, with or without a limit; in some cases, the bank can add an excess overdraft fee once you incur a certain number of overdrafts. Better Managing Your Financial Life A third reason to monitor your checking account is simply to improve your financial situation. According to a poll from 2019, thirty-three percent of Americans, for example, don’t follow a budget plan. And 74% of Americans live paycheck to paycheck, according to an American Payroll Association survey from 2019. Either of those situations could spell trouble if you run into an unexpected expense and don’t have an emergency fund or at least a little extra cash in checking to cover it. Monitoring your checking account can help you better identify where you can cut back expenses, so you can start saving money. How Often Should You Monitor Your Checking Account? Not monitoring your checking account can be expensive in more ways than one. In terms of how often you should monitor your checking account, the answer is entirely personal. Still, it’s safe to say that only checking in once a month probably isn’t enough if you want to minimize fraud and fees, and stay on top of your finances. If you’re not used to monitoring your checking account regularly, you could ease into it by logging into your account once or twice a week. From there, you could graduate to once a day. For instance, you could scan your account activity in the morning or at the end of the day to see which debit and credit transactions have posted. It’s a simple way to keep up with your running available balance compared to writing everything down in a checking account register for account reconcilement. What should you monitor for? When reviewing your checking account activity, first scan for any transactions you don’t recognize. Then, check to see if any deposits or payments you’ve scheduled have posted, followed by your recent purchases. Finally, look through your accounts to see which fees, if any, your bank has charged. At least once a month you should check your personal information, including your email and phone number, to make sure those things are up to date. Also, you may want to change your mobile and online banking password every three to four months. Choosing a new, unique password regularly could make it that much harder for identity thieves to access your account. Tips for Monitoring Your Checking Account There are several steps you can take to stay on top of your checking account and save time when managing your finances: Sign up for online and mobile banking access if you haven’t yet, so you can log in and check transactions on the go. Consider linking your checking account, savings account, and credit card accounts to a mobile budgeting app, so you can see all of your account activity at a glance. Set up banking alerts to notify you when a new credit or debit transaction posts, when a failed login attempt occurs, or when changes are made to your password or personal information. Pencil in a date on your calendar to review your online statement. You can also request paper statements, but you should check first to see if there’s a fee for that. Remember, if you see a fee that you weren’t aware of—or an activity that suggests fraud—get in touch with your bank right away.

https://www.investopedia.com/terms/b/bancassurance.asp

Bancassurance: Definition, How It Works, Pros & Cons

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-bancassurance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Bancassurance? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Bancassurance is an arrangement between a bank and an insurance company allowing the insurance company to sell its products to the bank's client base. This partnership arrangement can be profitable for both companies. Banks earn additional revenue by selling insurance products, and insurance companies expand their customer bases without increasing their sales force. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Bancassurance is an arrangement between a bank and an insurance company, through which the insurer can sell its products to the bank's customers. </li><li>The insurance company benefits from increased sales and a broader client base without having to expand its sales force.</li><li>The bank benefits by receiving additional revenue from the sale of insurance products.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-bancassurance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Bancassurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Bancassurance arrangements are common in Europe, where the practice has a long history. European banks, such as Crédit Agricole (France), ABN AMRO (Netherlands), BNP Paribas (France), and ING (Netherlands), dominate the global bancassurance market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> But the picture varies widely from country to country. A 2013 report found that while bancassurance accounted for 83.6% of life insurance sales in Italy, 66.2% in Spain, 64.2% in France, and 62.6% in Austria, its market share was lower in Eastern Europe and nonexistent in the United Kingdom and Ireland.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The United States has been slower than many nations to embrace the concept. In part, that's because the question of whether banks in the U.S. should be allowed to sell insurance was a matter of contentious debate for many years. Among the issues: unfair competition for insurance agents, possible risks to the banking sector, and the potential for banks to pressure customers into buying insurance in order to qualify for loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Advocates, meanwhile, maintained that both banks and insurance companies would profit from the arrangement, that it would also be a convenience for consumers, and that the added competition might lead to lower insurance prices. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The Bank Holding Company Act of 1956 effectively prohibited many large national banks from selling insurance products. However, whether a bank could sell insurance depended largely on the type of bank and which agency or agencies regulated it. As the U.S. General Accounting Office noted in a 1990 report, by the late 1980s, many states allowed state-chartered banks to sell most types of insurance, and "in towns with populations less than 6,000, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/one-bank-holding-company.asp">bank holding companies</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/national-bank.asp">national banks</a>, and some state banks can sell all types of insurance."<span class="ql-inline-citation" data-cite="6"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> In 1999, the federal Gramm-Leach-Bliley Act eliminated most of the remaining restrictions on U.S. banks selling insurance products while continuing to allow the states to regulate other aspects of insurance.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-bancassurance-industry-growth"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Bancassurance Industry Growth </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The bancassurance market is growing worldwide, particularly for life insurance and especially in the Asia-Pacific region. The research and consulting firm IMARC Group says the global bancassurance market reached a value of $1.268 trillion in 2021. IMARC expects the market to continue to grow at a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cagr.asp">compound annual growth rate (CAGR)</a> of 5.9% and attain a value of $1.802 trillion by 2027. A major factor driving the trend: a growing "geriatric population with greater need for health and life insurance as well as retirement plans."<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-the-advantages-and-disadvantages-of-bancassurance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> The Advantages and Disadvantages of Bancassurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> From a consumer point of view, bancassurance offers both advantages and disadvantages. On the plus side, buying insurance at the bank is convenient. That's especially true in small towns where insurance agents may be scarce, although less so now that insurance is widely available online. That convenience may also encourage more Americans who <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/who-needs-life-insurance-the-most-5075437">need life insurance</a> to buy some. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> On the negative side, the ease of buying at the bank may discourage consumers from shopping around and getting a competitive price on their insurance. There is also some question as to how qualified bank employees are to advise customers on their insurance needs, compared with insurance agents and brokers who specialize in the field. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> For banks that become involved in bancassurance, there appears to be little downside, except the possible risk to their reputation if the insurance products their employees sell prove inadequate or unsuitable for the consumer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_29-0"><span class="heading-toc" id="toc-when-did-bancassurance-begin"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Did Bancassurance Begin?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Bancassurance as we know it today appears to have begun in France in the 1970s (which would account for its seemingly French name). Spain was also an early adopter, in the 1980s.<span class="ql-inline-citation" data-cite="11"></span> Both of those countries continue to be bancassurance market share leaders.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-who-regulates-bancassurance-in-the-united-states"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Regulates Bancassurance in the United States?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Generally speaking, in the U.S., the individual states continue to regulate insurance products and sales practices as well as to license insurance salespeople. However, since the passage of the Gramm-Leach-Bliley Act in 1999, "state laws generally cannot 'prevent or restrict' insurance activities conducted by national banks and their subsidiaries," according to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/office-comptroller-currency-occ.asp">Office of the Comptroller of the Currency</a>.<span class="ql-inline-citation" data-cite="9"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-what-types-of-insurance-are-sold-at-banks"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Types of Insurance Are Sold at Banks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Depending on the country and the particular bank, consumers can buy a wide variety of insurance at their local banks, including life, health, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/property-insurance.asp">property</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/casualtyinsurance.asp">casualty</a> insurance. However, life insurance is the dominant product in the U.S. and most of the world. In 2018, for example, about 29% of life insurance globally was sold through bancassurance, while only about 2% of property and casualty insurance was, according to McKinsey &amp; Company.<span class="ql-inline-citation" data-cite="10"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Bancassurance is not a type of insurance but a sales channel for the selling of insurance products through banks. It is common in much of the world today and growing in acceptance in the United States. For banks and insurance companies, bancassurance can be a profitable enterprise. For consumers it can be convenient, although it may discourage comparison shopping and limit their access to expert advice. </p></div>

## What Is Bancassurance? Bancassurance is an arrangement between a bank and an insurance company allowing the insurance company to sell its products to the bank's client base. This partnership arrangement can be profitable for both companies. Banks earn additional revenue by selling insurance products, and insurance companies expand their customer bases without increasing their sales force. ### Key Takeaways * Bancassurance is an arrangement between a bank and an insurance company, through which the insurer can sell its products to the bank's customers. * The insurance company benefits from increased sales and a broader client base without having to expand its sales force. * The bank benefits by receiving additional revenue from the sale of insurance products. ## Understanding Bancassurance Bancassurance arrangements are common in Europe, where the practice has a long history. European banks, such as Crédit Agricole (France), ABN AMRO (Netherlands), BNP Paribas (France), and ING (Netherlands), dominate the global bancassurance market. But the picture varies widely from country to country. A 2013 report found that while bancassurance accounted for 83.6% of life insurance sales in Italy, 66.2% in Spain, 64.2% in France, and 62.6% in Austria, its market share was lower in Eastern Europe and nonexistent in the United Kingdom and Ireland. The United States has been slower than many nations to embrace the concept. In part, that's because the question of whether banks in the U.S. should be allowed to sell insurance was a matter of contentious debate for many years. Among the issues: unfair competition for insurance agents, possible risks to the banking sector, and the potential for banks to pressure customers into buying insurance in order to qualify for loans. Advocates, meanwhile, maintained that both banks and insurance companies would profit from the arrangement, that it would also be a convenience for consumers, and that the added competition might lead to lower insurance prices. The Bank Holding Company Act of 1956 effectively prohibited many large national banks from selling insurance products. However, whether a bank could sell insurance depended largely on the type of bank and which agency or agencies regulated it. As the U.S. General Accounting Office noted in a 1990 report, by the late 1980s, many states allowed state-chartered banks to sell most types of insurance, and "in towns with populations less than 6,000, [bank holding companies](https://www.investopedia.com/terms/o/one-bank-holding-company.asp), [national banks](https://www.investopedia.com/terms/n/national-bank.asp), and some state banks can sell all types of insurance." In 1999, the federal Gramm-Leach-Bliley Act eliminated most of the remaining restrictions on U.S. banks selling insurance products while continuing to allow the states to regulate other aspects of insurance. ## Bancassurance Industry Growth The bancassurance market is growing worldwide, particularly for life insurance and especially in the Asia-Pacific region. The research and consulting firm IMARC Group says the global bancassurance market reached a value of $1.268 trillion in 2021. IMARC expects the market to continue to grow at a [compound annual growth rate (CAGR)](https://www.investopedia.com/terms/c/cagr.asp) of 5.9% and attain a value of $1.802 trillion by 2027. A major factor driving the trend: a growing "geriatric population with greater need for health and life insurance as well as retirement plans." ## The Advantages and Disadvantages of Bancassurance From a consumer point of view, bancassurance offers both advantages and disadvantages. On the plus side, buying insurance at the bank is convenient. That's especially true in small towns where insurance agents may be scarce, although less so now that insurance is widely available online. That convenience may also encourage more Americans who [need life insurance](https://www.investopedia.com/who-needs-life-insurance-the-most-5075437) to buy some. On the negative side, the ease of buying at the bank may discourage consumers from shopping around and getting a competitive price on their insurance. There is also some question as to how qualified bank employees are to advise customers on their insurance needs, compared with insurance agents and brokers who specialize in the field. For banks that become involved in bancassurance, there appears to be little downside, except the possible risk to their reputation if the insurance products their employees sell prove inadequate or unsuitable for the consumer. ## When Did Bancassurance Begin? Bancassurance as we know it today appears to have begun in France in the 1970s (which would account for its seemingly French name). Spain was also an early adopter, in the 1980s. Both of those countries continue to be bancassurance market share leaders. ## Who Regulates Bancassurance in the United States? Generally speaking, in the U.S., the individual states continue to regulate insurance products and sales practices as well as to license insurance salespeople. However, since the passage of the Gramm-Leach-Bliley Act in 1999, "state laws generally cannot 'prevent or restrict' insurance activities conducted by national banks and their subsidiaries," according to the [Office of the Comptroller of the Currency](https://www.investopedia.com/terms/o/office-comptroller-currency-occ.asp). ## What Types of Insurance Are Sold at Banks? Depending on the country and the particular bank, consumers can buy a wide variety of insurance at their local banks, including life, health, and [property](https://www.investopedia.com/terms/p/property-insurance.asp) and [casualty](https://www.investopedia.com/terms/c/casualtyinsurance.asp) insurance. However, life insurance is the dominant product in the U.S. and most of the world. In 2018, for example, about 29% of life insurance globally was sold through bancassurance, while only about 2% of property and casualty insurance was, according to McKinsey & Company. ## The Bottom Line Bancassurance is not a type of insurance but a sales channel for the selling of insurance products through banks. It is common in much of the world today and growing in acceptance in the United States. For banks and insurance companies, bancassurance can be a profitable enterprise. For consumers it can be convenient, although it may discourage comparison shopping and limit their access to expert advice.

What Is Bancassurance? Bancassurance is an arrangement between a bank and an insurance company allowing the insurance company to sell its products to the bank's client base. This partnership arrangement can be profitable for both companies. Banks earn additional revenue by selling insurance products, and insurance companies expand their customer bases without increasing their sales force. Key Takeaways Bancassurance is an arrangement between a bank and an insurance company, through which the insurer can sell its products to the bank's customers. The insurance company benefits from increased sales and a broader client base without having to expand its sales force.The bank benefits by receiving additional revenue from the sale of insurance products. Understanding Bancassurance Bancassurance arrangements are common in Europe, where the practice has a long history. European banks, such as Crédit Agricole (France), ABN AMRO (Netherlands), BNP Paribas (France), and ING (Netherlands), dominate the global bancassurance market. But the picture varies widely from country to country. A 2013 report found that while bancassurance accounted for 83.6% of life insurance sales in Italy, 66.2% in Spain, 64.2% in France, and 62.6% in Austria, its market share was lower in Eastern Europe and nonexistent in the United Kingdom and Ireland. The United States has been slower than many nations to embrace the concept. In part, that's because the question of whether banks in the U.S. should be allowed to sell insurance was a matter of contentious debate for many years. Among the issues: unfair competition for insurance agents, possible risks to the banking sector, and the potential for banks to pressure customers into buying insurance in order to qualify for loans. Advocates, meanwhile, maintained that both banks and insurance companies would profit from the arrangement, that it would also be a convenience for consumers, and that the added competition might lead to lower insurance prices. The Bank Holding Company Act of 1956 effectively prohibited many large national banks from selling insurance products. However, whether a bank could sell insurance depended largely on the type of bank and which agency or agencies regulated it. As the U.S. General Accounting Office noted in a 1990 report, by the late 1980s, many states allowed state-chartered banks to sell most types of insurance, and "in towns with populations less than 6,000, bank holding companies, national banks, and some state banks can sell all types of insurance." In 1999, the federal Gramm-Leach-Bliley Act eliminated most of the remaining restrictions on U.S. banks selling insurance products while continuing to allow the states to regulate other aspects of insurance. Bancassurance Industry Growth The bancassurance market is growing worldwide, particularly for life insurance and especially in the Asia-Pacific region. The research and consulting firm IMARC Group says the global bancassurance market reached a value of $1.268 trillion in 2021. IMARC expects the market to continue to grow at a compound annual growth rate (CAGR) of 5.9% and attain a value of $1.802 trillion by 2027. A major factor driving the trend: a growing "geriatric population with greater need for health and life insurance as well as retirement plans." The Advantages and Disadvantages of Bancassurance From a consumer point of view, bancassurance offers both advantages and disadvantages. On the plus side, buying insurance at the bank is convenient. That's especially true in small towns where insurance agents may be scarce, although less so now that insurance is widely available online. That convenience may also encourage more Americans who need life insurance to buy some. On the negative side, the ease of buying at the bank may discourage consumers from shopping around and getting a competitive price on their insurance. There is also some question as to how qualified bank employees are to advise customers on their insurance needs, compared with insurance agents and brokers who specialize in the field. For banks that become involved in bancassurance, there appears to be little downside, except the possible risk to their reputation if the insurance products their employees sell prove inadequate or unsuitable for the consumer. When Did Bancassurance Begin? Bancassurance as we know it today appears to have begun in France in the 1970s (which would account for its seemingly French name). Spain was also an early adopter, in the 1980s. Both of those countries continue to be bancassurance market share leaders. Who Regulates Bancassurance in the United States? Generally speaking, in the U.S., the individual states continue to regulate insurance products and sales practices as well as to license insurance salespeople. However, since the passage of the Gramm-Leach-Bliley Act in 1999, "state laws generally cannot 'prevent or restrict' insurance activities conducted by national banks and their subsidiaries," according to the Office of the Comptroller of the Currency. What Types of Insurance Are Sold at Banks? Depending on the country and the particular bank, consumers can buy a wide variety of insurance at their local banks, including life, health, and property and casualty insurance. However, life insurance is the dominant product in the U.S. and most of the world. In 2018, for example, about 29% of life insurance globally was sold through bancassurance, while only about 2% of property and casualty insurance was, according to McKinsey & Company. The Bottom Line Bancassurance is not a type of insurance but a sales channel for the selling of insurance products through banks. It is common in much of the world today and growing in acceptance in the United States. For banks and insurance companies, bancassurance can be a profitable enterprise. For consumers it can be convenient, although it may discourage comparison shopping and limit their access to expert advice.

https://www.investopedia.com/terms/e/excess-loss-reinsurance.asp

Excess of Loss Reinsurance Definition and How It Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-excess-of-loss-reinsurance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Excess of Loss Reinsurance? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Excess of loss reinsurance is a type of reinsurance in which the reinsurer indemnifies–or compensates–the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/ceding-company.asp">ceding company</a> for losses that exceed a specified limit. A reinsurer is a company that provides financial protection to insurance companies; a ceding company is an insurance company that transfers the insurance portfolio to a reinsurer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Excess of loss reinsurance is a form of non-proportional <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/081716/facultative-vs-treaty-reinsurance-differences-and-examples.asp">reinsurance</a>. Non-proportional reinsurance is based on loss retention. With non-proportional reinsurance, the ceding company agrees to accept all losses up to a predetermined level. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Depending on the language of the contract, excess of loss reinsurance can apply to either all loss events during the policy period or losses in aggregate. Treaties may also use bands of losses that are reduced with each claim. Reinsurers and ceding companies will use cost calculations such as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/burning-cost-ratio.asp">burning-cost ratio</a> to determine prices. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_9-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Excess of loss reinsurance is a type of reinsurance in which the reinsurer indemnifies–or compensates–the ceding company for losses that exceed a specified limit.</li><li>Excess of loss reinsurance takes a different approach than a treaty or facultative reinsurance policy; the reinsurance company is held responsible for the total amount of losses above a certain limit.</li><li>Excess of loss reinsurance can also work in a slightly different way; rather than require the reinsurer to be responsible for all losses over a certain amount, the contract may instead indicate that the reinsurer is responsible for a percentage of losses over that threshold.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-excess-of-loss-reinsurance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Understanding Excess of Loss Reinsurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treaty-reinsurance.asp">Treaty</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/facultative-reinsurance.asp">facultative reinsurance</a> contracts often specify a limit in losses for which the reinsurer will be responsible. This limit is agreed to in the reinsurance contract; it protects the reinsurance company from dealing with <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unlimited-liability.asp">unlimited liability</a>. In this way, treaty and facultative reinsurance contracts are similar to a standard insurance contract, which provides coverage up to a specific amount. While this is beneficial to the reinsurer, it places the onus on the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/010715/worlds-top-10-insurance-companies.asp">insurance company</a> to reduce losses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Excess of loss reinsurance takes a different approach than treaty or facultative reinsurance. The reinsurance company is held responsible for the total amount of losses above a certain limit. For example, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reinsurance.asp">reinsurance contract</a> with an excess of loss provision may indicate that the reinsurer is responsible for losses over $500,000. In this case, if aggregate losses amount to $600,000, then the reinsurer will be responsible for $100,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Excess of loss reinsurance can also work in a slightly different way. Rather than require the reinsurer to be responsible for all losses over a certain amount, the contract may instead indicate that the reinsurer is responsible for a percentage of losses over that threshold. This means that the ceding company and the reinsurer will share aggregate losses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> For example, a reinsurance contract with an excess of loss provision may indicate that the reinsurer is responsible for 50% of the losses over $500,000. In this case, if aggregate losses amount to $600,000, the reinsurer will be responsible for $50,000 and the ceding company will be responsible for $50,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> By <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/excess-limits-premium.asp">covering itself against excessive losses</a>, an excess of loss reinsurance policy gives the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reinsurance-ceded.asp">ceding insurer more security</a> for its equity and solvency. It can also provide more stability when unusual or major events occur. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Reinsurance also allows an insurer to underwrite policies that cover a larger volume of risks without excessively raising the costs of covering their solvency margins–the amount by which the assets of the insurance company, at fair values, are considered to exceed its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liability.asp">liabilities</a> and other comparable commitments. In fact, reinsurance makes substantial liquid assets available for insurers in case of exceptional losses. </p></div>

## What Is Excess of Loss Reinsurance? Excess of loss reinsurance is a type of reinsurance in which the reinsurer indemnifies–or compensates–the [ceding company](https://www.investopedia.com/terms/c/ceding-company.asp) for losses that exceed a specified limit. A reinsurer is a company that provides financial protection to insurance companies; a ceding company is an insurance company that transfers the insurance portfolio to a reinsurer. Excess of loss reinsurance is a form of non-proportional [reinsurance](https://www.investopedia.com/articles/markets/081716/facultative-vs-treaty-reinsurance-differences-and-examples.asp). Non-proportional reinsurance is based on loss retention. With non-proportional reinsurance, the ceding company agrees to accept all losses up to a predetermined level. Depending on the language of the contract, excess of loss reinsurance can apply to either all loss events during the policy period or losses in aggregate. Treaties may also use bands of losses that are reduced with each claim. Reinsurers and ceding companies will use cost calculations such as the [burning-cost ratio](https://www.investopedia.com/terms/b/burning-cost-ratio.asp) to determine prices. ### Key Takeaways * Excess of loss reinsurance is a type of reinsurance in which the reinsurer indemnifies–or compensates–the ceding company for losses that exceed a specified limit. * Excess of loss reinsurance takes a different approach than a treaty or facultative reinsurance policy; the reinsurance company is held responsible for the total amount of losses above a certain limit. * Excess of loss reinsurance can also work in a slightly different way; rather than require the reinsurer to be responsible for all losses over a certain amount, the contract may instead indicate that the reinsurer is responsible for a percentage of losses over that threshold. ## Understanding Excess of Loss Reinsurance [Treaty](https://www.investopedia.com/terms/t/treaty-reinsurance.asp) or [facultative reinsurance](https://www.investopedia.com/terms/f/facultative-reinsurance.asp) contracts often specify a limit in losses for which the reinsurer will be responsible. This limit is agreed to in the reinsurance contract; it protects the reinsurance company from dealing with [unlimited liability](https://www.investopedia.com/terms/u/unlimited-liability.asp). In this way, treaty and facultative reinsurance contracts are similar to a standard insurance contract, which provides coverage up to a specific amount. While this is beneficial to the reinsurer, it places the onus on the [insurance company](https://www.investopedia.com/articles/personal-finance/010715/worlds-top-10-insurance-companies.asp) to reduce losses. Excess of loss reinsurance takes a different approach than treaty or facultative reinsurance. The reinsurance company is held responsible for the total amount of losses above a certain limit. For example, a [reinsurance contract](https://www.investopedia.com/terms/r/reinsurance.asp) with an excess of loss provision may indicate that the reinsurer is responsible for losses over $500,000. In this case, if aggregate losses amount to $600,000, then the reinsurer will be responsible for $100,000. Excess of loss reinsurance can also work in a slightly different way. Rather than require the reinsurer to be responsible for all losses over a certain amount, the contract may instead indicate that the reinsurer is responsible for a percentage of losses over that threshold. This means that the ceding company and the reinsurer will share aggregate losses. For example, a reinsurance contract with an excess of loss provision may indicate that the reinsurer is responsible for 50% of the losses over $500,000. In this case, if aggregate losses amount to $600,000, the reinsurer will be responsible for $50,000 and the ceding company will be responsible for $50,000. By [covering itself against excessive losses](https://www.investopedia.com/terms/e/excess-limits-premium.asp), an excess of loss reinsurance policy gives the [ceding insurer more security](https://www.investopedia.com/terms/r/reinsurance-ceded.asp) for its equity and solvency. It can also provide more stability when unusual or major events occur. Reinsurance also allows an insurer to underwrite policies that cover a larger volume of risks without excessively raising the costs of covering their solvency margins–the amount by which the assets of the insurance company, at fair values, are considered to exceed its [liabilities](https://www.investopedia.com/terms/l/liability.asp) and other comparable commitments. In fact, reinsurance makes substantial liquid assets available for insurers in case of exceptional losses.

What Is Excess of Loss Reinsurance? Excess of loss reinsurance is a type of reinsurance in which the reinsurer indemnifies–or compensates–the ceding company for losses that exceed a specified limit. A reinsurer is a company that provides financial protection to insurance companies; a ceding company is an insurance company that transfers the insurance portfolio to a reinsurer. Excess of loss reinsurance is a form of non-proportional reinsurance. Non-proportional reinsurance is based on loss retention. With non-proportional reinsurance, the ceding company agrees to accept all losses up to a predetermined level. Depending on the language of the contract, excess of loss reinsurance can apply to either all loss events during the policy period or losses in aggregate. Treaties may also use bands of losses that are reduced with each claim. Reinsurers and ceding companies will use cost calculations such as the burning-cost ratio to determine prices. Key Takeaways Excess of loss reinsurance is a type of reinsurance in which the reinsurer indemnifies–or compensates–the ceding company for losses that exceed a specified limit.Excess of loss reinsurance takes a different approach than a treaty or facultative reinsurance policy; the reinsurance company is held responsible for the total amount of losses above a certain limit.Excess of loss reinsurance can also work in a slightly different way; rather than require the reinsurer to be responsible for all losses over a certain amount, the contract may instead indicate that the reinsurer is responsible for a percentage of losses over that threshold. Understanding Excess of Loss Reinsurance Treaty or facultative reinsurance contracts often specify a limit in losses for which the reinsurer will be responsible. This limit is agreed to in the reinsurance contract; it protects the reinsurance company from dealing with unlimited liability. In this way, treaty and facultative reinsurance contracts are similar to a standard insurance contract, which provides coverage up to a specific amount. While this is beneficial to the reinsurer, it places the onus on the insurance company to reduce losses. Excess of loss reinsurance takes a different approach than treaty or facultative reinsurance. The reinsurance company is held responsible for the total amount of losses above a certain limit. For example, a reinsurance contract with an excess of loss provision may indicate that the reinsurer is responsible for losses over $500,000. In this case, if aggregate losses amount to $600,000, then the reinsurer will be responsible for $100,000. Excess of loss reinsurance can also work in a slightly different way. Rather than require the reinsurer to be responsible for all losses over a certain amount, the contract may instead indicate that the reinsurer is responsible for a percentage of losses over that threshold. This means that the ceding company and the reinsurer will share aggregate losses. For example, a reinsurance contract with an excess of loss provision may indicate that the reinsurer is responsible for 50% of the losses over $500,000. In this case, if aggregate losses amount to $600,000, the reinsurer will be responsible for $50,000 and the ceding company will be responsible for $50,000. By covering itself against excessive losses, an excess of loss reinsurance policy gives the ceding insurer more security for its equity and solvency. It can also provide more stability when unusual or major events occur. Reinsurance also allows an insurer to underwrite policies that cover a larger volume of risks without excessively raising the costs of covering their solvency margins–the amount by which the assets of the insurance company, at fair values, are considered to exceed its liabilities and other comparable commitments. In fact, reinsurance makes substantial liquid assets available for insurers in case of exceptional losses.

https://www.investopedia.com/articles/retirement/021117/how-retire-uk-american.asp

How to Retire in the U.K. as an American

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> If you want to retire in the United Kingdom as an American, you may think that the transition will be easy—everything's in English, right? The U.K. does indeed offer some advantages to retirees, but many aspects of life there can take some adjustment, from the metric system to the autos—they drive on the left side of the road and the steering wheel's on the right side of the car—to the uniquely moist chill-to-the-bones climate. Here's what you should know before you cross the pond (or attempt to) permanently. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Americans need to qualify for a visa before making a permanent move to retire in the U.K.</li><li>Although the U.K. is expensive, prices are more reasonable if you choose to retire outside of London.</li><li>American ex-pats can't join the U. K.'s National Health Service.</li></ul></div></div></div> <span class="heading-toc" id="toc-necessary-paperwork"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Necessary Paperwork </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Americans can visit the U.K. as tourists and stay for up to six months without the need for a visa. But you’ll need to qualify for one if you want to stay in the country beyond the six-month limit. There are several circumstances that may help you secure the necessary paperwork to become a resident. You may qualify for British residency if: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li>You have family ties to the United Kingdom</li><li>You have established business connections in the U.K.</li><li>You have the right of abode in the country</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> For instance, you may be granted residency without a visa if you can prove that at least one of your parents was born in and was a citizen of the U.K. when you were either born or adopted.<span class="ql-inline-citation" data-cite="10"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> There's a common myth that owning property and/or making significant investments automatically grants you the right to residency in certain countries. But that's not always the case, including in the U.K. Although <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expatriate.asp">ex-pats</a> can own property, it doesn't guarantee a long-term visa or permanent British residency.<span class="ql-inline-citation" data-cite="14"></span> The U.K. government also withdrew the process for new Tier 1 visa applications for investors although those who already have this visa can apply for extensions or the right to remain.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You may apply for residency in the U.K. if you are a citizen of a Commonwealth country, such as Australia, Canada, Hong Kong, India, Singapore, Uganda, and Zimbabwe (among others) if you arrived in the U.K. before 1989.<span class="ql-inline-citation" data-cite="11"></span></p></div></div></div> <span class="heading-toc" id="toc-location-choices"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Location Choices </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The location you choose depends entirely on the kind of life you want to lead, which gives you several options to consider: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> <li>Urban or rural</li><li>A busy city like London, Birmingham, or Edinburgh</li><li>A smaller city like Exeter, Cheltenham, York, or Bath</li><li>A small town like St. Ives, Wotton-under-Edge, Ambleside, Tenby, Beaumaris, Much Wenlock, or Chipping Norton</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <em>International Living</em>’s report on retiring in England cites the east coast county of Suffolk as an attractive choice. Within commuting distance of London, Suffolk is “a treasure trove of squat-towered churches and high-hedged lanes...thatched roof cottages painted in summertime colors...medieval towns of crooked streets and half-timbered Tudor houses.”<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Devon, another county amply equipped with hedgerows and thatched cottages, as “miles of countryside walks for ramblers” and “splendid seascapes” as well.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_25-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_26-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>People who were already in the U.K. as a "retired person of independent means" were able to apply to extend their stay up to a maximum period of five years or for indefinite leave to remain, according to the UK Home Office. This categorization was defined as those having a minimum yearly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disposableincome.asp">disposable income</a> of £25,000 and meeting several other requirements. As of November 2022, the government stopped accepting applications under this provision.<span class="ql-inline-citation" data-cite="1"></span><br/></p></div></div></div> <span class="heading-toc" id="toc-cost-of-living"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> Cost of Living </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Living in the United Kingdom is expensive. “In my experience, it’s more than Spain, about the same as France, and far more than Latin America,” according to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.liveandinvestoverseas.com/author/lucy-culpepper/">Lucy Culpepper</a>, European correspondent for ex-pat-oriented site Live and Invest Overseas. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Of course, actual costs vary widely depending on where you choose to live. Not surprisingly, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/100115/most-expensive-neighborhoods-london.asp">London</a> is the U.K.’s most expensive destination. In Expatistan’s ranking of 282 cities in the world, it’s the 4th most expensive. London ranks highest in the U.K. and third in Europe. Its public transportation is the most expensive in the world and housing costs are the highest in Western Europe.<span class="ql-inline-citation" data-cite="4"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Numbeo, which also compiles cost-of-living data from cities around the world, reports an average rent of<strong> </strong>$2,612 for a one-bedroom apartment in London’s city center and $1,845 outside the city center as of June 2023.<span class="ql-inline-citation" data-cite="6"></span> The average price to buy an apartment in the center of London is around $1,560 per square foot—about $100 more than a comparable apartment in New York City.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Once you leave London, things get more reasonable. Edinburgh’s rental <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/total_housing_expense.asp">housing costs</a> are 95.9% lower than in London, local transportation is 47.4% less, and groceries are about 17.9% cheaper.<span class="ql-inline-citation" data-cite="5"></span> Head for Plymouth and rent is 63.6% less than in London, restaurants are about 20.3% cheaper, and overall, you would need around $7,255.70 (£5,700) in London to maintain the same <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/standard-of-living.asp">standard of living</a> that you can have with $4,362.40 (£3,427.10) in Plymouth.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-healthcare"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Healthcare </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> As an American retiree living in the U.K., you won’t be able to take advantage of the comprehensive National Health Service, except for emergencies. This means that you'll be out-of-pocket for non-emergency care. As such, you will be required to purchase private <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/healthinsurance.asp">health insurance</a>—the same way you do in the U.S.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Information on insurance and many other matters including paying <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxes.asp">taxes</a>, buying property, and arranging your move can be found on a number of ex-pat websites such as Expatica.com and UK-Yankee.com. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_41-0"><span class="heading-toc" id="toc-is-the-uk-a-good-place-to-retire"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the U.K. a Good Place to Retire?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>That depends on which part of the country you choose to call home during retirement. Rural areas of the U.K. offer quiet, peaceful locales while major cities like London offer more bustling environments. If you choose to live in a metropolitan area like central London, be prepared to pay top dollar. The cost of living is considerably lower in rural communities and other cultural centers like Edinburgh. But make sure you qualify for residency before you pack your bags.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_43-0"><span class="heading-toc" id="toc-im-an-american-and-want-to-retire-in-the-united-kingdom-what-do-i-need"></span> <h2 class="mntl-sc-block-questionandanswer__question">I'm an American and Want to Retire in the United Kingdom. What Do I Need?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can move to the United Kingdom if you can prove that you have the right of abode. You have the right of abode because of your parents, you, or your spouse. You also have the right of abode if you have a British passport or are a citizen of a Commonwealth country who meets certain eligibility criteria.<span class="ql-inline-citation" data-cite="10"></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-can-americans-access-the-national-healthcare-system-in-the-united-kingdom"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Americans Access the National Healthcare System in the United Kingdom?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes and no. Visitors to the United Kingdom can access healthcare services through the NHS. But you will be charged for certain non-emergency services at 150% of the standard rate charged by the NHS. These include visits to a family physician and certain diagnostic testing. Exemptions apply, though, if you are admitted to the hospital for an emergency or are being treated for an infectious disease. The NHS also offers free COVID-19 testing and treatment for everyone—regardless of residency.<span class="ql-inline-citation" data-cite="12"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> The United Kingdom is an attractive place for Americans to retire, according to Culpepper. American ex-pats are welcome in the U.K. “In the provincial towns, Americans are still viewed as unusual, and as 'cool' among the younger generation,” she says (though she advises staying away from political discussions). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> The U.K. “is a safe country. It is a fantastic place for anyone who loves history, the countryside, eating out...Anyone who loves the outdoors and hiking will revel in the freedom to walk almost anywhere unrestricted...And it’s small enough to be able to travel quickly from one region to another and experience a complete change in culture.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Beyond that, connections to Europe are good and cheap.<strong> </strong>One note of caution: Americans who come from the warmer/blue sky states may struggle with the weather. </p></div>

If you want to retire in the United Kingdom as an American, you may think that the transition will be easy—everything's in English, right? The U.K. does indeed offer some advantages to retirees, but many aspects of life there can take some adjustment, from the metric system to the autos—they drive on the left side of the road and the steering wheel's on the right side of the car—to the uniquely moist chill-to-the-bones climate. Here's what you should know before you cross the pond (or attempt to) permanently. ### Key Takeaways * Americans need to qualify for a visa before making a permanent move to retire in the U.K. * Although the U.K. is expensive, prices are more reasonable if you choose to retire outside of London. * American ex-pats can't join the U. K.'s National Health Service. ## Necessary Paperwork Americans can visit the U.K. as tourists and stay for up to six months without the need for a visa. But you’ll need to qualify for one if you want to stay in the country beyond the six-month limit. There are several circumstances that may help you secure the necessary paperwork to become a resident. You may qualify for British residency if: * You have family ties to the United Kingdom * You have established business connections in the U.K. * You have the right of abode in the country For instance, you may be granted residency without a visa if you can prove that at least one of your parents was born in and was a citizen of the U.K. when you were either born or adopted. There's a common myth that owning property and/or making significant investments automatically grants you the right to residency in certain countries. But that's not always the case, including in the U.K. Although [ex-pats](https://www.investopedia.com/terms/e/expatriate.asp) can own property, it doesn't guarantee a long-term visa or permanent British residency. The U.K. government also withdrew the process for new Tier 1 visa applications for investors although those who already have this visa can apply for extensions or the right to remain. ### You may apply for residency in the U.K. if you are a citizen of a Commonwealth country, such as Australia, Canada, Hong Kong, India, Singapore, Uganda, and Zimbabwe (among others) if you arrived in the U.K. before 1989. ## Location Choices The location you choose depends entirely on the kind of life you want to lead, which gives you several options to consider: * Urban or rural * A busy city like London, Birmingham, or Edinburgh * A smaller city like Exeter, Cheltenham, York, or Bath * A small town like St. Ives, Wotton-under-Edge, Ambleside, Tenby, Beaumaris, Much Wenlock, or Chipping Norton *International Living*’s report on retiring in England cites the east coast county of Suffolk as an attractive choice. Within commuting distance of London, Suffolk is “a treasure trove of squat-towered churches and high-hedged lanes...thatched roof cottages painted in summertime colors...medieval towns of crooked streets and half-timbered Tudor houses.” Devon, another county amply equipped with hedgerows and thatched cottages, as “miles of countryside walks for ramblers” and “splendid seascapes” as well. ### People who were already in the U.K. as a "retired person of independent means" were able to apply to extend their stay up to a maximum period of five years or for indefinite leave to remain, according to the UK Home Office. This categorization was defined as those having a minimum yearly [disposable income](https://www.investopedia.com/terms/d/disposableincome.asp) of £25,000 and meeting several other requirements. As of November 2022, the government stopped accepting applications under this provision. ## Cost of Living Living in the United Kingdom is expensive. “In my experience, it’s more than Spain, about the same as France, and far more than Latin America,” according to [Lucy Culpepper](https://www.liveandinvestoverseas.com/author/lucy-culpepper/), European correspondent for ex-pat-oriented site Live and Invest Overseas. Of course, actual costs vary widely depending on where you choose to live. Not surprisingly, [London](https://www.investopedia.com/articles/personal-finance/100115/most-expensive-neighborhoods-london.asp) is the U.K.’s most expensive destination. In Expatistan’s ranking of 282 cities in the world, it’s the 4th most expensive. London ranks highest in the U.K. and third in Europe. Its public transportation is the most expensive in the world and housing costs are the highest in Western Europe.  Numbeo, which also compiles cost-of-living data from cities around the world, reports an average rent of$2,612 for a one-bedroom apartment in London’s city center and $1,845 outside the city center as of June 2023. The average price to buy an apartment in the center of London is around $1,560 per square foot—about $100 more than a comparable apartment in New York City. Once you leave London, things get more reasonable. Edinburgh’s rental [housing costs](https://www.investopedia.com/terms/t/total_housing_expense.asp) are 95.9% lower than in London, local transportation is 47.4% less, and groceries are about 17.9% cheaper. Head for Plymouth and rent is 63.6% less than in London, restaurants are about 20.3% cheaper, and overall, you would need around $7,255.70 (£5,700) in London to maintain the same [standard of living](https://www.investopedia.com/terms/s/standard-of-living.asp) that you can have with $4,362.40 (£3,427.10) in Plymouth. ## Healthcare As an American retiree living in the U.K., you won’t be able to take advantage of the comprehensive National Health Service, except for emergencies. This means that you'll be out-of-pocket for non-emergency care. As such, you will be required to purchase private [health insurance](https://www.investopedia.com/terms/h/healthinsurance.asp)—the same way you do in the U.S. Information on insurance and many other matters including paying [taxes](https://www.investopedia.com/terms/t/taxes.asp), buying property, and arranging your move can be found on a number of ex-pat websites such as Expatica.com and UK-Yankee.com. ## Is the U.K. a Good Place to Retire? That depends on which part of the country you choose to call home during retirement. Rural areas of the U.K. offer quiet, peaceful locales while major cities like London offer more bustling environments. If you choose to live in a metropolitan area like central London, be prepared to pay top dollar. The cost of living is considerably lower in rural communities and other cultural centers like Edinburgh. But make sure you qualify for residency before you pack your bags. ## I'm an American and Want to Retire in the United Kingdom. What Do I Need? You can move to the United Kingdom if you can prove that you have the right of abode. You have the right of abode because of your parents, you, or your spouse. You also have the right of abode if you have a British passport or are a citizen of a Commonwealth country who meets certain eligibility criteria. ## Can Americans Access the National Healthcare System in the United Kingdom? Yes and no. Visitors to the United Kingdom can access healthcare services through the NHS. But you will be charged for certain non-emergency services at 150% of the standard rate charged by the NHS. These include visits to a family physician and certain diagnostic testing. Exemptions apply, though, if you are admitted to the hospital for an emergency or are being treated for an infectious disease. The NHS also offers free COVID-19 testing and treatment for everyone—regardless of residency. ## The Bottom Line The United Kingdom is an attractive place for Americans to retire, according to Culpepper. American ex-pats are welcome in the U.K. “In the provincial towns, Americans are still viewed as unusual, and as 'cool' among the younger generation,” she says (though she advises staying away from political discussions). The U.K. “is a safe country. It is a fantastic place for anyone who loves history, the countryside, eating out...Anyone who loves the outdoors and hiking will revel in the freedom to walk almost anywhere unrestricted...And it’s small enough to be able to travel quickly from one region to another and experience a complete change in culture.” Beyond that, connections to Europe are good and cheap.One note of caution: Americans who come from the warmer/blue sky states may struggle with the weather.

If you want to retire in the United Kingdom as an American, you may think that the transition will be easy—everything's in English, right? The U.K. does indeed offer some advantages to retirees, but many aspects of life there can take some adjustment, from the metric system to the autos—they drive on the left side of the road and the steering wheel's on the right side of the car—to the uniquely moist chill-to-the-bones climate. Here's what you should know before you cross the pond (or attempt to) permanently. Key Takeaways Americans need to qualify for a visa before making a permanent move to retire in the U.K.Although the U.K. is expensive, prices are more reasonable if you choose to retire outside of London.American ex-pats can't join the U. K.'s National Health Service. Necessary Paperwork Americans can visit the U.K. as tourists and stay for up to six months without the need for a visa. But you’ll need to qualify for one if you want to stay in the country beyond the six-month limit. There are several circumstances that may help you secure the necessary paperwork to become a resident. You may qualify for British residency if: You have family ties to the United KingdomYou have established business connections in the U.K.You have the right of abode in the country For instance, you may be granted residency without a visa if you can prove that at least one of your parents was born in and was a citizen of the U.K. when you were either born or adopted. There's a common myth that owning property and/or making significant investments automatically grants you the right to residency in certain countries. But that's not always the case, including in the U.K. Although ex-pats can own property, it doesn't guarantee a long-term visa or permanent British residency. The U.K. government also withdrew the process for new Tier 1 visa applications for investors although those who already have this visa can apply for extensions or the right to remain. You may apply for residency in the U.K. if you are a citizen of a Commonwealth country, such as Australia, Canada, Hong Kong, India, Singapore, Uganda, and Zimbabwe (among others) if you arrived in the U.K. before 1989. Location Choices The location you choose depends entirely on the kind of life you want to lead, which gives you several options to consider: Urban or ruralA busy city like London, Birmingham, or EdinburghA smaller city like Exeter, Cheltenham, York, or BathA small town like St. Ives, Wotton-under-Edge, Ambleside, Tenby, Beaumaris, Much Wenlock, or Chipping Norton International Living’s report on retiring in England cites the east coast county of Suffolk as an attractive choice. Within commuting distance of London, Suffolk is “a treasure trove of squat-towered churches and high-hedged lanes...thatched roof cottages painted in summertime colors...medieval towns of crooked streets and half-timbered Tudor houses.” Devon, another county amply equipped with hedgerows and thatched cottages, as “miles of countryside walks for ramblers” and “splendid seascapes” as well. People who were already in the U.K. as a "retired person of independent means" were able to apply to extend their stay up to a maximum period of five years or for indefinite leave to remain, according to the UK Home Office. This categorization was defined as those having a minimum yearly disposable income of £25,000 and meeting several other requirements. As of November 2022, the government stopped accepting applications under this provision. Cost of Living Living in the United Kingdom is expensive. “In my experience, it’s more than Spain, about the same as France, and far more than Latin America,” according to Lucy Culpepper, European correspondent for ex-pat-oriented site Live and Invest Overseas. Of course, actual costs vary widely depending on where you choose to live. Not surprisingly, London is the U.K.’s most expensive destination. In Expatistan’s ranking of 282 cities in the world, it’s the 4th most expensive. London ranks highest in the U.K. and third in Europe. Its public transportation is the most expensive in the world and housing costs are the highest in Western Europe.  Numbeo, which also compiles cost-of-living data from cities around the world, reports an average rent of $2,612 for a one-bedroom apartment in London’s city center and $1,845 outside the city center as of June 2023. The average price to buy an apartment in the center of London is around $1,560 per square foot—about $100 more than a comparable apartment in New York City. Once you leave London, things get more reasonable. Edinburgh’s rental housing costs are 95.9% lower than in London, local transportation is 47.4% less, and groceries are about 17.9% cheaper. Head for Plymouth and rent is 63.6% less than in London, restaurants are about 20.3% cheaper, and overall, you would need around $7,255.70 (£5,700) in London to maintain the same standard of living that you can have with $4,362.40 (£3,427.10) in Plymouth. Healthcare As an American retiree living in the U.K., you won’t be able to take advantage of the comprehensive National Health Service, except for emergencies. This means that you'll be out-of-pocket for non-emergency care. As such, you will be required to purchase private health insurance—the same way you do in the U.S. Information on insurance and many other matters including paying taxes, buying property, and arranging your move can be found on a number of ex-pat websites such as Expatica.com and UK-Yankee.com. Is the U.K. a Good Place to Retire? That depends on which part of the country you choose to call home during retirement. Rural areas of the U.K. offer quiet, peaceful locales while major cities like London offer more bustling environments. If you choose to live in a metropolitan area like central London, be prepared to pay top dollar. The cost of living is considerably lower in rural communities and other cultural centers like Edinburgh. But make sure you qualify for residency before you pack your bags. I'm an American and Want to Retire in the United Kingdom. What Do I Need? You can move to the United Kingdom if you can prove that you have the right of abode. You have the right of abode because of your parents, you, or your spouse. You also have the right of abode if you have a British passport or are a citizen of a Commonwealth country who meets certain eligibility criteria. Can Americans Access the National Healthcare System in the United Kingdom? Yes and no. Visitors to the United Kingdom can access healthcare services through the NHS. But you will be charged for certain non-emergency services at 150% of the standard rate charged by the NHS. These include visits to a family physician and certain diagnostic testing. Exemptions apply, though, if you are admitted to the hospital for an emergency or are being treated for an infectious disease. The NHS also offers free COVID-19 testing and treatment for everyone—regardless of residency. The Bottom Line The United Kingdom is an attractive place for Americans to retire, according to Culpepper. American ex-pats are welcome in the U.K. “In the provincial towns, Americans are still viewed as unusual, and as 'cool' among the younger generation,” she says (though she advises staying away from political discussions). The U.K. “is a safe country. It is a fantastic place for anyone who loves history, the countryside, eating out...Anyone who loves the outdoors and hiking will revel in the freedom to walk almost anywhere unrestricted...And it’s small enough to be able to travel quickly from one region to another and experience a complete change in culture.” Beyond that, connections to Europe are good and cheap. One note of caution: Americans who come from the warmer/blue sky states may struggle with the weather.

https://www.investopedia.com/tech-stocks-on-the-move-today-alibaba-blackberry-and-more-8648282

Tech Stocks on the Move Today: Alibaba, BlackBerry, and More

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Tech stocks gained in intraday trading Tuesday, with the S&amp;P 500 Information Technology Sector Index up 0.7% as of 2:30 p.m. ET Tuesday, while the broader S&amp;P 500 was up 0.3%, and the tech-heavy Nasdaq rose 0.6%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Alibaba Group (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BABA">BABA</a>) <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American depositary receipts (ADRs)</a> tumbled after the Chinese e-commerce giant reported its <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/alibaba-stock-sinks-as-profit-plunges-on-investment-losses-8648037">profit plunged 86%</a>, while BlackBerry (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BB">BB</a>) shares took off as the cybersecurity firm benefited from the resurgence of the <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/meme-stock-5206762">meme-stock craze</a> that roiled the markets in early 2021. Shares of hydrogen technology firm Plug Power (<a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PLUG">PLUG</a>) soared after getting a loan guarantee from the U.S. Department of Energy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <span class="heading-toc" id="toc-alibaba-adrs-tumble-as-e-commerce-giants-profit-drops-on-investment-losses"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Alibaba ADRs Tumble as E-Commerce Giant's Profit Drops on Investment Losses </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Alibaba ADRs were nearly 7% lower at $78.77 following its financial report, which showed earnings sank 86% from year ago and missed analysts’ estimates. The Chinese e-commerce firm blamed the decline primarily on losses from its investments in publicly traded companies. Alibaba’s revenue rose more than expected, as all three of its divisions posted sales increases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-roaring-kittys-return-raises-meme-stock-excitement-boosting-blackberry"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> 'Roaring Kitty's' Return Raises Meme-Stock Excitement, Boosting BlackBerry </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> BlackBerry shares gained close to 11% to $3.44, advancing for a second straight session, as the stock got lifted by excitement about another <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/gamestop-amc-entertainment-continue-surging-amid-meme-stock-revival-8647950">meme-stock rally</a>. Shares of other meme stocks including AMC Entertaiment (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMC">AMC</a>) and GameStop (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME">GME</a>) exploded Monday after the first social media post in almost three years by a trader who goes by the name of “<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/keith-gill-roaring-kitty-8303143">Roaring Kitty</a>.” He was one of the leading drivers behind the meme-stock craze of 2021. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-plug-power-stock-soars-on-conditional-166b-government-loan-to-expand"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> Plug Power Stock Soars on Conditional $1.66B Government Loan To Expand </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Plug Power shares soared 24% to $3.59 after reporting it received a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/plug-power-stock-soars-on-usd1-66b-conditional-loan-for-green-hydrogen-production-8648095">conditional loan</a> of up to $1.66 billion from the Department of Energy to expand its green hydrogen production operations. The company said it would use the money to add six facilities that would produce green hydrogen for applications in the material handling, transportation, and industrial sectors. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

Tech stocks gained in intraday trading Tuesday, with the S&P 500 Information Technology Sector Index up 0.7% as of 2:30 p.m. ET Tuesday, while the broader S&P 500 was up 0.3%, and the tech-heavy Nasdaq rose 0.6%. Alibaba Group ([BABA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BABA)) [American depositary receipts (ADRs)](https://www.investopedia.com/terms/a/adr.asp) tumbled after the Chinese e-commerce giant reported its [profit plunged 86%](https://www.investopedia.com/alibaba-stock-sinks-as-profit-plunges-on-investment-losses-8648037), while BlackBerry ([BB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BB)) shares took off as the cybersecurity firm benefited from the resurgence of the [meme-stock craze](https://www.investopedia.com/meme-stock-5206762) that roiled the markets in early 2021. Shares of hydrogen technology firm Plug Power ([PLUG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PLUG)) soared after getting a loan guarantee from the U.S. Department of Energy. ## Alibaba ADRs Tumble as E-Commerce Giant's Profit Drops on Investment Losses Alibaba ADRs were nearly 7% lower at $78.77 following its financial report, which showed earnings sank 86% from year ago and missed analysts’ estimates. The Chinese e-commerce firm blamed the decline primarily on losses from its investments in publicly traded companies. Alibaba’s revenue rose more than expected, as all three of its divisions posted sales increases. ## 'Roaring Kitty's' Return Raises Meme-Stock Excitement, Boosting BlackBerry BlackBerry shares gained close to 11% to $3.44, advancing for a second straight session, as the stock got lifted by excitement about another [meme-stock rally](https://www.investopedia.com/gamestop-amc-entertainment-continue-surging-amid-meme-stock-revival-8647950). Shares of other meme stocks including AMC Entertaiment ([AMC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMC)) and GameStop ([GME](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GME)) exploded Monday after the first social media post in almost three years by a trader who goes by the name of “[Roaring Kitty](https://www.investopedia.com/keith-gill-roaring-kitty-8303143).” He was one of the leading drivers behind the meme-stock craze of 2021. ## Plug Power Stock Soars on Conditional $1.66B Government Loan To Expand Plug Power shares soared 24% to $3.59 after reporting it received a [conditional loan](https://www.investopedia.com/plug-power-stock-soars-on-usd1-66b-conditional-loan-for-green-hydrogen-production-8648095) of up to $1.66 billion from the Department of Energy to expand its green hydrogen production operations. The company said it would use the money to add six facilities that would produce green hydrogen for applications in the material handling, transportation, and industrial sectors. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Tech stocks gained in intraday trading Tuesday, with the S&P 500 Information Technology Sector Index up 0.7% as of 2:30 p.m. ET Tuesday, while the broader S&P 500 was up 0.3%, and the tech-heavy Nasdaq rose 0.6%. Alibaba Group (BABA) American depositary receipts (ADRs) tumbled after the Chinese e-commerce giant reported its profit plunged 86%, while BlackBerry (BB) shares took off as the cybersecurity firm benefited from the resurgence of the meme-stock craze that roiled the markets in early 2021. Shares of hydrogen technology firm Plug Power (PLUG) soared after getting a loan guarantee from the U.S. Department of Energy. Alibaba ADRs Tumble as E-Commerce Giant's Profit Drops on Investment Losses Alibaba ADRs were nearly 7% lower at $78.77 following its financial report, which showed earnings sank 86% from year ago and missed analysts’ estimates. The Chinese e-commerce firm blamed the decline primarily on losses from its investments in publicly traded companies. Alibaba’s revenue rose more than expected, as all three of its divisions posted sales increases. 'Roaring Kitty's' Return Raises Meme-Stock Excitement, Boosting BlackBerry BlackBerry shares gained close to 11% to $3.44, advancing for a second straight session, as the stock got lifted by excitement about another meme-stock rally. Shares of other meme stocks including AMC Entertaiment (AMC) and GameStop (GME) exploded Monday after the first social media post in almost three years by a trader who goes by the name of “Roaring Kitty.” He was one of the leading drivers behind the meme-stock craze of 2021. Plug Power Stock Soars on Conditional $1.66B Government Loan To Expand Plug Power shares soared 24% to $3.59 after reporting it received a conditional loan of up to $1.66 billion from the Department of Energy to expand its green hydrogen production operations. The company said it would use the money to add six facilities that would produce green hydrogen for applications in the material handling, transportation, and industrial sectors. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/what-happens-early-loan-payoff-7505190

What Happens If You Pay Off a Car Loan Early?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> If you pay off your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/auto-loans-4689734">car loan</a> early, you can save money on the total cost of the loan as you reduce the amount of interest you pay. However, there are also downsides to consider with paying off your loan early, such as that you may have less cash to put toward other debt or investments and may have to pay a prepayment penalty. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Paying off a car loan early can save you money in interest in the long term.</li><li>When you pay off a car loan early, you also reduce the total amount of money that you owe, which may boost your credit score.</li><li>Some lenders charge prepayment penalties that can offset what you would save in interest.<br/></li><li>Paying off a car loan early can cause your credit score to temporarily decline if your car loan was your only installment loan.</li></ul></div></div></div> <span class="heading-toc" id="toc-why-paying-off-your-car-impacts-your-credit-score"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Why Paying Off Your Car Impacts Your Credit Score  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Many people use <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">car loans</a> to finance new cars, so they are paying for the cost of the car and the cost of the loan through <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a>. In recent years, car loan terms have been getting longer so that borrowers can better afford the monthly payments. Car loans can have terms as long as 96 months, but the average repayment term is 69 months.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="2"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> In some cases, borrowers find themselves in a position to pay off their car loan early. Paying off your car loan early can save you money, and it can also impact your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a>. Whether it makes sense to pay off your car loan early depends on the terms of your loan and your personal financial situation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Your credit score is calculated by factoring in: your payment history, the length of your credit history, the amounts owed, your credit mix, and whether you’ve applied for new credit. Let’s look in more detail about how paying off a car loan will affect each component of your credit score.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <li><strong>Payment history</strong>: If you have made all your payments on time, closing a car loan early will likely have little impact on your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a>. It can ensure that you will not be at risk for making any late payments in the future. In fact, if you have no negative payments, your positive payment history can remain on your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a> for up to 10 years. Your payment history accounts for about 35% of your FICO credit score.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="6"></span></li> <li><strong>Length of credit history</strong>: If your car loan is among the first loans you have had, closing the loan could potentially negatively affect your credit score. However, the effect will likely be minimal. The length of your credit history accounts for about 15% of your FICO credit score.<span class="ql-inline-citation" data-cite="10"></span></li> <li><strong>Amounts owed</strong>: Paying off your car loan early can have a significant positive impact on your credit score by reducing the total amount of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt.asp">debt</a> you carry. The amounts owed accounts for about 30% of your FICO credit score.<span class="ql-inline-citation" data-cite="11"></span></li> <li><strong>Credit mix</strong>: If a car loan is the only fixed-rate installment loan that you carry, it could potentially have a minor negative impact on your credit score if you close the loan. Your <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-mix.asp">credit mix</a> accounts for about 10% of your FICO credit score.<span class="ql-inline-citation" data-cite="12"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>New credit</strong>: Closing a car loan early will have no impact on whether or not you’ve applied for new credit. New credit accounts for 10% of your FICO credit score.<span class="ql-inline-citation" data-cite="13"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Generally, any decrease in your credit score as a result of paying down debt is temporary. But if you make all of your other payments on time and keep your credit card balances low, your credit score should recover within a few months.<span class="ql-inline-citation" data-cite="5"></span></p></div></div></div> <span class="heading-toc" id="toc-what-to-consider-before-paying-off-your-car-loan-early"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> What to Consider Before Paying Off Your Car Loan Early </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Before paying off your car loan early, weigh the advantages of saving money with potential negative consequences like paying a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prepaymentpenalty.asp">prepayment penalty</a> or not having extra money to put toward other goals. Here are some questions to consider. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Does the Lender Charge Prepayment Penalties?  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lenders</a> charge prepayment penalties. Typically, paying off a loan early helps you save money, but prepayment penalties could cut into your savings. Prepayment penalties are usually a percentage of the loan amount, such as 1% of the original loan amount if the loan is paid off before its scheduled payoff date. For example, if you had a $10,000 loan and your lender charged a prepayment penalty of 1%, you would pay $100 in a prepayment penalty.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> In many cases, the savings you would get from paying off your loan early would outweigh the prepayment penalty. Calculate your prepayment costs and potential interest savings for your situation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>If you aren’t sure whether your lender charges a prepayment penalty, review your loan agreement and Truth in Lending Disclosure form or contact your lender’s customer service department. </p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-subheading__text"> Do You Have Other Debt with Higher Interest Rates?  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Paying down debt is usually a good idea, but in some cases, it may make more sense to target other debt with higher interest before paying off a car loan early. Car loans typically have lower <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a> than, for example, credit cards or personal loans. So paying those debts off first could save you significantly more money than paying off a car loan early.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-subheading__text"> Do You Have an Emergency Fund?  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Before putting extra money toward your debt, consider building an <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergency_fund.asp">emergency fund</a>. Many financial experts recommend having at least three months’ worth of necessary expenses saved to help you avoid financial turmoil in the event of unexpected expenses like medical bills. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_32-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_33-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Pros and Cons of Paying Off a Car Loan Early</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>You could save money in interest.</p></li> <li><p>You would improve your debt-to-income (DTI) ratio.</p></li> <li><p>You would have more money for other goals like investing or saving.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>You may face prepayment penalties.</p></li> <li><p>Your credit score may temporarily decrease.</p></li> <li><p>You may have less money for other goals like investing.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-examples-of-paying-off-a-car-loan-early"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> Examples of Paying Off a Car Loan Early  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <br/>Here are several scenarios in which a borrower may pay off a car loan early. With these examples, you can better understand the pros and cons of early <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repayment</a> of your car loan so you can decide if it’s right for you. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <li><strong>You bought a car from a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buy-here-pay-here.asp">buy-here, pay-here dealer</a></strong>: Buy-here, pay-here dealers charge much higher <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">annual percentage rates (APRs)</a> than traditional lenders. According to the Consumer Financial Protection Bureau (CFPB), typical buy-here, pay-here rates can be 15% to 20%. With such a high rate, paying off the loan as quickly as possible can help you save a significant amount of money.<span class="ql-inline-citation" data-cite="7"></span> </li> <li><strong>You had poor credit when you bought the car</strong>: Borrowers with poor or fair credit tend to pay much higher rates than those with very good to excellent credit.<span class="ql-inline-citation" data-cite="14"></span> If you bought a car with less-than-perfect credit and have improved your score since then, you can likely save money by paying off the loan faster or by <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/refinance.asp">refinancing</a> it. </li> <li><strong>You have a co-signer</strong>: If you had a friend or relative <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/co_sign.asp">co-sign</a> your car loan when you took it out, paying it off ahead of its scheduled payoff date will free your co-signer from their responsibility for the loan. </li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_40-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_41-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>If you have a car loan with a high interest rate but can’t pay it off faster, consider <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-refinance-loans-5069118">auto loan refinancing</a>. You may qualify for a lower rate that allows you to save a substantial amount of money and allows you to pay the loan off sooner.</p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_42-0"><span class="heading-toc" id="toc-how-long-does-a-car-loan-stay-on-a-credit-report"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does a Car Loan Stay on a Credit Report?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If your account is paid in full with no negative account history, the closed account will remain on your credit report for 10 years from the paid date. If you had late payments before it was paid off, it will remain on your credit report for seven years after the original delinquency date.<span class="ql-inline-citation" data-cite="6"></span> </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_44-0"><span class="heading-toc" id="toc-how-long-does-it-take-for-your-credit-score-to-go-up-after-paying-off-a-car"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Does It Take for Your Credit Score to Go Up After Paying Off a Car?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Although your score may decrease after paying off a car loan, the impact is usually temporary. You should see your credit score improve within one or two months if you have no other negative factors affecting it.<span class="ql-inline-citation" data-cite="5"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-how-much-do-you-save-on-interest-when-you-pay-off-a-car-loan-early"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Do You Save on Interest When You Pay Off a Car Loan Early?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>How much you can save by paying off a car loan early depends on the APR on the loan and the length of time remaining on your debt. You can use an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/car-loan-calculator-5084761">auto loan calculator</a> to estimate how much interest you’ll pay over the life of your car loan based on when you pay off your particular loan.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-can-paying-off-a-car-loan-early-have-other-cost-benefits"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Paying Off a Car Loan Early Have Other Cost Benefits?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, potentially. If the car isn’t new or isn’t worth a significant sum of money, you could lower the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/auto-insurance.asp">insurance</a> cost by either raising the deductible or dropping the collision coverage entirely. When there is a lien on the title, the lender requires full insurance coverage, but once your loan is paid off, then that requirement is lifted.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-does-refinancing-a-car-hurt-your-credit"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Refinancing a Car Hurt Your Credit?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Refinancing an auto loan can cause a minor temporary decrease in your credit score. When you apply for a loan, it will show up as a new credit inquiry, and it can affect your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dti.asp">debt-to-income (DTI) ratio</a>.<span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="15"></span> Lenders view applications for new credit as a sign of risk. However, if you make on-time payments, refinancing to a better rate can save you money in the long run.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Paying off a car loan early can be a good way to save money and eliminate financial stress, but, depending on your situation, it may not be the best decision. In some cases, it may be better to put your money toward other financial goals, such as paying down higher-interest debt or building an emergency fund.<br> </br></p></div>

If you pay off your [car loan](https://www.investopedia.com/auto-loans-4689734) early, you can save money on the total cost of the loan as you reduce the amount of interest you pay. However, there are also downsides to consider with paying off your loan early, such as that you may have less cash to put toward other debt or investments and may have to pay a prepayment penalty. ### Key Takeaways * Paying off a car loan early can save you money in interest in the long term. * When you pay off a car loan early, you also reduce the total amount of money that you owe, which may boost your credit score. * Some lenders charge prepayment penalties that can offset what you would save in interest. * Paying off a car loan early can cause your credit score to temporarily decline if your car loan was your only installment loan. ## Why Paying Off Your Car Impacts Your Credit Score Many people use [car loans](https://www.investopedia.com/best-auto-loan-rates-4846394) to finance new cars, so they are paying for the cost of the car and the cost of the loan through [interest](https://www.investopedia.com/terms/i/interest.asp). In recent years, car loan terms have been getting longer so that borrowers can better afford the monthly payments. Car loans can have terms as long as 96 months, but the average repayment term is 69 months.  In some cases, borrowers find themselves in a position to pay off their car loan early. Paying off your car loan early can save you money, and it can also impact your [credit score](https://www.investopedia.com/terms/c/credit_score.asp). Whether it makes sense to pay off your car loan early depends on the terms of your loan and your personal financial situation. Your credit score is calculated by factoring in: your payment history, the length of your credit history, the amounts owed, your credit mix, and whether you’ve applied for new credit. Let’s look in more detail about how paying off a car loan will affect each component of your credit score. * **Payment history**: If you have made all your payments on time, closing a car loan early will likely have little impact on your [credit history](https://www.investopedia.com/terms/c/credit-history.asp). It can ensure that you will not be at risk for making any late payments in the future. In fact, if you have no negative payments, your positive payment history can remain on your [credit report](https://www.investopedia.com/terms/c/creditreport.asp) for up to 10 years. Your payment history accounts for about 35% of your FICO credit score. * **Length of credit history**: If your car loan is among the first loans you have had, closing the loan could potentially negatively affect your credit score. However, the effect will likely be minimal. The length of your credit history accounts for about 15% of your FICO credit score. * **Amounts owed**: Paying off your car loan early can have a significant positive impact on your credit score by reducing the total amount of [debt](https://www.investopedia.com/terms/d/debt.asp) you carry. The amounts owed accounts for about 30% of your FICO credit score. * **Credit mix**: If a car loan is the only fixed-rate installment loan that you carry, it could potentially have a minor negative impact on your credit score if you close the loan. Your [credit mix](https://www.investopedia.com/terms/c/credit-mix.asp) accounts for about 10% of your FICO credit score. * **New credit**: Closing a car loan early will have no impact on whether or not you’ve applied for new credit. New credit accounts for 10% of your FICO credit score. ### Note Generally, any decrease in your credit score as a result of paying down debt is temporary. But if you make all of your other payments on time and keep your credit card balances low, your credit score should recover within a few months. ## What to Consider Before Paying Off Your Car Loan Early Before paying off your car loan early, weigh the advantages of saving money with potential negative consequences like paying a [prepayment penalty](https://www.investopedia.com/terms/p/prepaymentpenalty.asp) or not having extra money to put toward other goals. Here are some questions to consider. ### Does the Lender Charge Prepayment Penalties? Some [lenders](https://www.investopedia.com/terms/l/lender.asp) charge prepayment penalties. Typically, paying off a loan early helps you save money, but prepayment penalties could cut into your savings. Prepayment penalties are usually a percentage of the loan amount, such as 1% of the original loan amount if the loan is paid off before its scheduled payoff date. For example, if you had a $10,000 loan and your lender charged a prepayment penalty of 1%, you would pay $100 in a prepayment penalty. In many cases, the savings you would get from paying off your loan early would outweigh the prepayment penalty. Calculate your prepayment costs and potential interest savings for your situation. ### If you aren’t sure whether your lender charges a prepayment penalty, review your loan agreement and Truth in Lending Disclosure form or contact your lender’s customer service department.  ### Do You Have Other Debt with Higher Interest Rates? Paying down debt is usually a good idea, but in some cases, it may make more sense to target other debt with higher interest before paying off a car loan early. Car loans typically have lower [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) than, for example, credit cards or personal loans. So paying those debts off first could save you significantly more money than paying off a car loan early. ### Do You Have an Emergency Fund? Before putting extra money toward your debt, consider building an [emergency fund](https://www.investopedia.com/terms/e/emergency_fund.asp). Many financial experts recommend having at least three months’ worth of necessary expenses saved to help you avoid financial turmoil in the event of unexpected expenses like medical bills. ### Pros and Cons of Paying Off a Car Loan Early Pros * You could save money in interest. * You would improve your debt-to-income (DTI) ratio. * You would have more money for other goals like investing or saving. Cons * You may face prepayment penalties. * Your credit score may temporarily decrease. * You may have less money for other goals like investing. ## Examples of Paying Off a Car Loan Early Here are several scenarios in which a borrower may pay off a car loan early. With these examples, you can better understand the pros and cons of early [repayment](https://www.investopedia.com/terms/r/repayment.asp) of your car loan so you can decide if it’s right for you. * **You bought a car from a [buy-here, pay-here dealer](https://www.investopedia.com/terms/b/buy-here-pay-here.asp)**: Buy-here, pay-here dealers charge much higher [annual percentage rates (APRs)](https://www.investopedia.com/terms/a/apr.asp) than traditional lenders. According to the Consumer Financial Protection Bureau (CFPB), typical buy-here, pay-here rates can be 15% to 20%. With such a high rate, paying off the loan as quickly as possible can help you save a significant amount of money. * **You had poor credit when you bought the car**: Borrowers with poor or fair credit tend to pay much higher rates than those with very good to excellent credit. If you bought a car with less-than-perfect credit and have improved your score since then, you can likely save money by paying off the loan faster or by [refinancing](https://www.investopedia.com/terms/r/refinance.asp) it. * **You have a co-signer**: If you had a friend or relative [co-sign](https://www.investopedia.com/terms/c/co_sign.asp) your car loan when you took it out, paying it off ahead of its scheduled payoff date will free your co-signer from their responsibility for the loan. ### If you have a car loan with a high interest rate but can’t pay it off faster, consider [auto loan refinancing](https://www.investopedia.com/best-auto-refinance-loans-5069118). You may qualify for a lower rate that allows you to save a substantial amount of money and allows you to pay the loan off sooner. ## How Long Does a Car Loan Stay on a Credit Report? If your account is paid in full with no negative account history, the closed account will remain on your credit report for 10 years from the paid date. If you had late payments before it was paid off, it will remain on your credit report for seven years after the original delinquency date.  ## How Long Does It Take for Your Credit Score to Go Up After Paying Off a Car? Although your score may decrease after paying off a car loan, the impact is usually temporary. You should see your credit score improve within one or two months if you have no other negative factors affecting it. ## How Much Do You Save on Interest When You Pay Off a Car Loan Early? How much you can save by paying off a car loan early depends on the APR on the loan and the length of time remaining on your debt. You can use an [auto loan calculator](https://www.investopedia.com/car-loan-calculator-5084761) to estimate how much interest you’ll pay over the life of your car loan based on when you pay off your particular loan. ## Can Paying Off a Car Loan Early Have Other Cost Benefits? Yes, potentially. If the car isn’t new or isn’t worth a significant sum of money, you could lower the [insurance](https://www.investopedia.com/terms/a/auto-insurance.asp) cost by either raising the deductible or dropping the collision coverage entirely. When there is a lien on the title, the lender requires full insurance coverage, but once your loan is paid off, then that requirement is lifted. ## Does Refinancing a Car Hurt Your Credit? Refinancing an auto loan can cause a minor temporary decrease in your credit score. When you apply for a loan, it will show up as a new credit inquiry, and it can affect your [debt-to-income (DTI) ratio](https://www.investopedia.com/terms/d/dti.asp). Lenders view applications for new credit as a sign of risk. However, if you make on-time payments, refinancing to a better rate can save you money in the long run. ## The Bottom Line Paying off a car loan early can be a good way to save money and eliminate financial stress, but, depending on your situation, it may not be the best decision. In some cases, it may be better to put your money toward other financial goals, such as paying down higher-interest debt or building an emergency fund.

If you pay off your car loan early, you can save money on the total cost of the loan as you reduce the amount of interest you pay. However, there are also downsides to consider with paying off your loan early, such as that you may have less cash to put toward other debt or investments and may have to pay a prepayment penalty. Key Takeaways Paying off a car loan early can save you money in interest in the long term.When you pay off a car loan early, you also reduce the total amount of money that you owe, which may boost your credit score.Some lenders charge prepayment penalties that can offset what you would save in interest.Paying off a car loan early can cause your credit score to temporarily decline if your car loan was your only installment loan. Why Paying Off Your Car Impacts Your Credit Score  Many people use car loans to finance new cars, so they are paying for the cost of the car and the cost of the loan through interest. In recent years, car loan terms have been getting longer so that borrowers can better afford the monthly payments. Car loans can have terms as long as 96 months, but the average repayment term is 69 months.  In some cases, borrowers find themselves in a position to pay off their car loan early. Paying off your car loan early can save you money, and it can also impact your credit score. Whether it makes sense to pay off your car loan early depends on the terms of your loan and your personal financial situation. Your credit score is calculated by factoring in: your payment history, the length of your credit history, the amounts owed, your credit mix, and whether you’ve applied for new credit. Let’s look in more detail about how paying off a car loan will affect each component of your credit score. Payment history: If you have made all your payments on time, closing a car loan early will likely have little impact on your credit history. It can ensure that you will not be at risk for making any late payments in the future. In fact, if you have no negative payments, your positive payment history can remain on your credit report for up to 10 years. Your payment history accounts for about 35% of your FICO credit score. Length of credit history: If your car loan is among the first loans you have had, closing the loan could potentially negatively affect your credit score. However, the effect will likely be minimal. The length of your credit history accounts for about 15% of your FICO credit score. Amounts owed: Paying off your car loan early can have a significant positive impact on your credit score by reducing the total amount of debt you carry. The amounts owed accounts for about 30% of your FICO credit score. Credit mix: If a car loan is the only fixed-rate installment loan that you carry, it could potentially have a minor negative impact on your credit score if you close the loan. Your credit mix accounts for about 10% of your FICO credit score. New credit: Closing a car loan early will have no impact on whether or not you’ve applied for new credit. New credit accounts for 10% of your FICO credit score. Note Generally, any decrease in your credit score as a result of paying down debt is temporary. But if you make all of your other payments on time and keep your credit card balances low, your credit score should recover within a few months. What to Consider Before Paying Off Your Car Loan Early Before paying off your car loan early, weigh the advantages of saving money with potential negative consequences like paying a prepayment penalty or not having extra money to put toward other goals. Here are some questions to consider. Does the Lender Charge Prepayment Penalties?  Some lenders charge prepayment penalties. Typically, paying off a loan early helps you save money, but prepayment penalties could cut into your savings. Prepayment penalties are usually a percentage of the loan amount, such as 1% of the original loan amount if the loan is paid off before its scheduled payoff date. For example, if you had a $10,000 loan and your lender charged a prepayment penalty of 1%, you would pay $100 in a prepayment penalty. In many cases, the savings you would get from paying off your loan early would outweigh the prepayment penalty. Calculate your prepayment costs and potential interest savings for your situation. If you aren’t sure whether your lender charges a prepayment penalty, review your loan agreement and Truth in Lending Disclosure form or contact your lender’s customer service department.  Do You Have Other Debt with Higher Interest Rates?  Paying down debt is usually a good idea, but in some cases, it may make more sense to target other debt with higher interest before paying off a car loan early. Car loans typically have lower interest rates than, for example, credit cards or personal loans. So paying those debts off first could save you significantly more money than paying off a car loan early. Do You Have an Emergency Fund?  Before putting extra money toward your debt, consider building an emergency fund. Many financial experts recommend having at least three months’ worth of necessary expenses saved to help you avoid financial turmoil in the event of unexpected expenses like medical bills. Pros and Cons of Paying Off a Car Loan Early Pros You could save money in interest. You would improve your debt-to-income (DTI) ratio. You would have more money for other goals like investing or saving. Cons You may face prepayment penalties. Your credit score may temporarily decrease. You may have less money for other goals like investing. Examples of Paying Off a Car Loan Early  Here are several scenarios in which a borrower may pay off a car loan early. With these examples, you can better understand the pros and cons of early repayment of your car loan so you can decide if it’s right for you. You bought a car from a buy-here, pay-here dealer: Buy-here, pay-here dealers charge much higher annual percentage rates (APRs) than traditional lenders. According to the Consumer Financial Protection Bureau (CFPB), typical buy-here, pay-here rates can be 15% to 20%. With such a high rate, paying off the loan as quickly as possible can help you save a significant amount of money.  You had poor credit when you bought the car: Borrowers with poor or fair credit tend to pay much higher rates than those with very good to excellent credit. If you bought a car with less-than-perfect credit and have improved your score since then, you can likely save money by paying off the loan faster or by refinancing it.  You have a co-signer: If you had a friend or relative co-sign your car loan when you took it out, paying it off ahead of its scheduled payoff date will free your co-signer from their responsibility for the loan.  If you have a car loan with a high interest rate but can’t pay it off faster, consider auto loan refinancing. You may qualify for a lower rate that allows you to save a substantial amount of money and allows you to pay the loan off sooner. How Long Does a Car Loan Stay on a Credit Report? If your account is paid in full with no negative account history, the closed account will remain on your credit report for 10 years from the paid date. If you had late payments before it was paid off, it will remain on your credit report for seven years after the original delinquency date.  How Long Does It Take for Your Credit Score to Go Up After Paying Off a Car? Although your score may decrease after paying off a car loan, the impact is usually temporary. You should see your credit score improve within one or two months if you have no other negative factors affecting it. How Much Do You Save on Interest When You Pay Off a Car Loan Early? How much you can save by paying off a car loan early depends on the APR on the loan and the length of time remaining on your debt. You can use an auto loan calculator to estimate how much interest you’ll pay over the life of your car loan based on when you pay off your particular loan. Can Paying Off a Car Loan Early Have Other Cost Benefits? Yes, potentially. If the car isn’t new or isn’t worth a significant sum of money, you could lower the insurance cost by either raising the deductible or dropping the collision coverage entirely. When there is a lien on the title, the lender requires full insurance coverage, but once your loan is paid off, then that requirement is lifted. Does Refinancing a Car Hurt Your Credit? Refinancing an auto loan can cause a minor temporary decrease in your credit score. When you apply for a loan, it will show up as a new credit inquiry, and it can affect your debt-to-income (DTI) ratio. Lenders view applications for new credit as a sign of risk. However, if you make on-time payments, refinancing to a better rate can save you money in the long run. The Bottom Line Paying off a car loan early can be a good way to save money and eliminate financial stress, but, depending on your situation, it may not be the best decision. In some cases, it may be better to put your money toward other financial goals, such as paying down higher-interest debt or building an emergency fund.

https://www.investopedia.com/cost-cancel-student-debt-8585118

How Much Would It Cost to Cancel Student Debt?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> While the Biden administration has already canceled almost $132 billion in student loan debt throughout its first term, the President has plans for further debt cancellation.<span class="ql-inline-citation" data-cite="1"></span> However, debt cancellation does come at a price to taxpayers. If all student loan debt is forgiven, it would cost taxpayers an estimated $1.6 trillion.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Biden administration has canceled more than $132 billion in student loan debt as of December 2023.</li><li>Nealy 7 million borrowers are enrolled in the Saving on a Valuable Education (SAVE) plan, which will cancel their student debt after a certain amount of time.</li><li>Canceling all student loan debt in the U.S. would cost approximately $1.6 trillion.</li></ul></div></div></div> <span class="heading-toc" id="toc-current-proposals-for-student-debt-cancellation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Current Proposals for Student Debt Cancellation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> There are a few different proposals for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-impact-of-cancelling-student-debt-5101053">student debt cancellation</a> as of February 2024, with both the Biden administration as well as several members of Congress offering possible solutions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-subheading__text"> Biden-Harris Administration's Plan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> President Joe Biden has canceled more than $132 billion in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/student-debt.asp">student loan debt</a> since taking office.<span class="ql-inline-citation" data-cite="1"></span> But now the Biden-Harris administration is planning to accelerate its newly developed <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/saving-on-a-valuable-education-plan-7559022">Saving on a Valuable Education (SAVE) Plan</a>. This means borrowers who are currently enrolled in the SAVE <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/income-driven-repayment-plans-7562851">income-driven repayment (IDR) plan</a> for their federal student loans (which you can enroll in at any time, so long as you qualify) and originally took out $12,000 or less to pay for college and have been repaying for at least 10 years could have their remaining loans forgiven.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Right now, almost 7 million borrowers are enrolled in the SAVE plan, putting them on the path to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-debt-2019-statistics-and-outlook-4772007">student loan debt cancellation</a>.<span class="ql-inline-citation" data-cite="4"></span> The United States Department of Education estimates that within 10 years, 85% of borrowers who took out money for community college (which typically costs less than a four-year college) could be rid of their student loans.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-student-loans-4775346">Private student loans</a> aren't typically eligible for forgiveness, so it's important to take advantage of as much federal student aid as you can get. Ideally, you should only use private student loans to fill any remaining funding gaps after you've exhausted all possible sources of federal aid.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-subheading__text"> Senators Warren, Pressley, Schumer, and Sanders' Plan </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> U.S. Senator Elizabeth Warren (D-Mass.), alongside several other senators, wants President Biden and the U.S. Department of Education to expand the relief for student loans. She's proposed the following:<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <li>Eliminating all student loan debt that’s more than the original <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a> balance of the loan. So if a borrower's debt has accrued so much <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest</a> that it’s greater than what they originally took out, that debt is forgiven.</li> <li>Cancel all debt for borrowers who have paid their original principal balance. </li> <li>Bump up the date for borrowers who entered repayment at least 25 years ago. </li> <li>Expand hardship qualifications. While there are already some hardship indicators that help folks qualify for cancellation, this proposal suggests adding non-income-based measures, such as incarceration or a history of evictions. The senators also want to see a catch-all provision so borrowers can qualify on a case-by-case basis, rather than be disqualified if their hardship isn’t listed.</li> <li>Include borrowers who have been victims of student loan servicer misconduct. This includes people who may have been forced into <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forbearance.asp">forbearance</a> or those who were qualified for IDR plans but were not put into them.</li> <li>Remove the currently lengthy application process to qualify for relief. Instead, the senators propose that borrowers automatically qualify.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-factors-affecting-the-cost-of-student-debt-cancellation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Factors Affecting the Cost of Student Debt Cancellation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Student loan debt has risen to more than $1.6 trillion. While less than 1% of that debt is more than 90 days <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/delinquent.asp">delinquent</a>, the Federal Reserve Bank of New York expects that number to grow at the end of 2024. This is when federal student loan delinquencies will start to be reported to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditbureau.asp">credit bureaus</a>.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_24-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Borrowers who become delinquent on their student loans will see their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit scores</a> take a hit. If you're struggling to bring your credit score back up after missing student loan payments, you may want to consider working with a reputable <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-counseling-services-5179499">credit counseling service</a>.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> While total student loan debt in the U.S. is still less than total mortgage debt ($12.25 trillion), it’s still more than total credit card debt ($1.13 trillion). That means <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loan-debt-too-much-8576649">borrowers have higher student loan balances</a> than credit card balances. Essentially, student loan debt is the largest non-mortgage debt in the U.S.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Most borrowers are repaying federal student loans, which is about $37,088 per borrower.<span class="ql-inline-citation" data-cite="7"></span> Even though President Biden has been able to cancel billions of dollars in student debt, the U.S. Supreme Court struck down his original cancellation plan in 2023. If it had gone through, it would’ve cost taxpayers an estimated $330 billion to $390 billion, according to the Committee for a Responsible Federal Budget. If all federal loans are forgiven for all 43 million borrowers, it would cost about $1.6 trillion.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_29-0"><span class="heading-toc" id="toc-is-canceling-student-loan-debt-a-good-idea"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Canceling Student Loan Debt a Good Idea?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you have student loan debt, canceling student loan debt likely seems like a good idea, as it would let you and other borrowers put money toward paying for necessities, saving for retirement, or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discretionary-expense.asp">discretionary expenses</a>. But if you didn’t have any student loan debt or already paid yours off, you may feel that taxpayers shouldn't be responsible for paying off other people's student debt.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-how-much-will-it-cost-taxpayers-for-student-loan-forgiveness"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Will it Cost Taxpayers for Student Loan Forgiveness?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If all student loan debt is forgiven, it would cost taxpayers upwards of $1.6 trillion. A plan proposed by President Biden, which was later struck down by the Supreme Court, would have cost taxpayers an estimated $330 billion to $390 billion.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-are-student-loans-forgiven-after-20-years"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Student Loans Forgiven After 20 Years?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>By default, student loans aren't forgiven after any amount of time. However, for borrowers who qualify for an IDR plan, any remaining balance on their loans will be forgiven after 20 or 25 years (depending on the plan) of on-time payments.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Canceling student debt can have its upsides, especially for folks who can’t pay for the things they need, whether that’s housing, food, or basic utilities. With more than $1.6 trillion in student loan debt, those who have their federal loans forgiven <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-debt-affect-economy-8550501">can put those funds back into the economy</a>. But canceling student loan debt can also negatively impact other folks, costing Americans roughly $1.6 trillion to cancel all outstanding student loan debt.<span class="ql-inline-citation" data-cite="2"></span> </p></div>

While the Biden administration has already canceled almost $132 billion in student loan debt throughout its first term, the President has plans for further debt cancellation. However, debt cancellation does come at a price to taxpayers. If all student loan debt is forgiven, it would cost taxpayers an estimated $1.6 trillion. ### Key Takeaways * The Biden administration has canceled more than $132 billion in student loan debt as of December 2023. * Nealy 7 million borrowers are enrolled in the Saving on a Valuable Education (SAVE) plan, which will cancel their student debt after a certain amount of time. * Canceling all student loan debt in the U.S. would cost approximately $1.6 trillion. ## Current Proposals for Student Debt Cancellation There are a few different proposals for [student debt cancellation](https://www.investopedia.com/the-impact-of-cancelling-student-debt-5101053) as of February 2024, with both the Biden administration as well as several members of Congress offering possible solutions. ### Biden-Harris Administration's Plan President Joe Biden has canceled more than $132 billion in [student loan debt](https://www.investopedia.com/terms/s/student-debt.asp) since taking office. But now the Biden-Harris administration is planning to accelerate its newly developed [Saving on a Valuable Education (SAVE) Plan](https://www.investopedia.com/saving-on-a-valuable-education-plan-7559022). This means borrowers who are currently enrolled in the SAVE [income-driven repayment (IDR) plan](https://www.investopedia.com/income-driven-repayment-plans-7562851) for their federal student loans (which you can enroll in at any time, so long as you qualify) and originally took out $12,000 or less to pay for college and have been repaying for at least 10 years could have their remaining loans forgiven. Right now, almost 7 million borrowers are enrolled in the SAVE plan, putting them on the path to [student loan debt cancellation](https://www.investopedia.com/student-loan-debt-2019-statistics-and-outlook-4772007). The United States Department of Education estimates that within 10 years, 85% of borrowers who took out money for community college (which typically costs less than a four-year college) could be rid of their student loans. ### [Private student loans](https://www.investopedia.com/best-student-loans-4775346) aren't typically eligible for forgiveness, so it's important to take advantage of as much federal student aid as you can get. Ideally, you should only use private student loans to fill any remaining funding gaps after you've exhausted all possible sources of federal aid. ### Senators Warren, Pressley, Schumer, and Sanders' Plan U.S. Senator Elizabeth Warren (D-Mass.), alongside several other senators, wants President Biden and the U.S. Department of Education to expand the relief for student loans. She's proposed the following: * Eliminating all student loan debt that’s more than the original [principal](https://www.investopedia.com/terms/p/principal.asp) balance of the loan. So if a borrower's debt has accrued so much [interest](https://www.investopedia.com/terms/i/interestrate.asp) that it’s greater than what they originally took out, that debt is forgiven. * Cancel all debt for borrowers who have paid their original principal balance. * Bump up the date for borrowers who entered repayment at least 25 years ago. * Expand hardship qualifications. While there are already some hardship indicators that help folks qualify for cancellation, this proposal suggests adding non-income-based measures, such as incarceration or a history of evictions. The senators also want to see a catch-all provision so borrowers can qualify on a case-by-case basis, rather than be disqualified if their hardship isn’t listed. * Include borrowers who have been victims of student loan servicer misconduct. This includes people who may have been forced into [forbearance](https://www.investopedia.com/terms/f/forbearance.asp) or those who were qualified for IDR plans but were not put into them. * Remove the currently lengthy application process to qualify for relief. Instead, the senators propose that borrowers automatically qualify. ## Factors Affecting the Cost of Student Debt Cancellation Student loan debt has risen to more than $1.6 trillion. While less than 1% of that debt is more than 90 days [delinquent](https://www.investopedia.com/terms/d/delinquent.asp), the Federal Reserve Bank of New York expects that number to grow at the end of 2024. This is when federal student loan delinquencies will start to be reported to the [credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp). ### Borrowers who become delinquent on their student loans will see their [credit scores](https://www.investopedia.com/terms/c/credit_score.asp) take a hit. If you're struggling to bring your credit score back up after missing student loan payments, you may want to consider working with a reputable [credit counseling service](https://www.investopedia.com/best-credit-counseling-services-5179499). While total student loan debt in the U.S. is still less than total mortgage debt ($12.25 trillion), it’s still more than total credit card debt ($1.13 trillion). That means [borrowers have higher student loan balances](https://www.investopedia.com/student-loan-debt-too-much-8576649) than credit card balances. Essentially, student loan debt is the largest non-mortgage debt in the U.S. Most borrowers are repaying federal student loans, which is about $37,088 per borrower. Even though President Biden has been able to cancel billions of dollars in student debt, the U.S. Supreme Court struck down his original cancellation plan in 2023. If it had gone through, it would’ve cost taxpayers an estimated $330 billion to $390 billion, according to the Committee for a Responsible Federal Budget. If all federal loans are forgiven for all 43 million borrowers, it would cost about $1.6 trillion. ## Is Canceling Student Loan Debt a Good Idea? If you have student loan debt, canceling student loan debt likely seems like a good idea, as it would let you and other borrowers put money toward paying for necessities, saving for retirement, or [discretionary expenses](https://www.investopedia.com/terms/d/discretionary-expense.asp). But if you didn’t have any student loan debt or already paid yours off, you may feel that taxpayers shouldn't be responsible for paying off other people's student debt. ## How Much Will it Cost Taxpayers for Student Loan Forgiveness? If all student loan debt is forgiven, it would cost taxpayers upwards of $1.6 trillion. A plan proposed by President Biden, which was later struck down by the Supreme Court, would have cost taxpayers an estimated $330 billion to $390 billion. ## Are Student Loans Forgiven After 20 Years? By default, student loans aren't forgiven after any amount of time. However, for borrowers who qualify for an IDR plan, any remaining balance on their loans will be forgiven after 20 or 25 years (depending on the plan) of on-time payments. ## The Bottom Line Canceling student debt can have its upsides, especially for folks who can’t pay for the things they need, whether that’s housing, food, or basic utilities. With more than $1.6 trillion in student loan debt, those who have their federal loans forgiven [can put those funds back into the economy](https://www.investopedia.com/student-debt-affect-economy-8550501). But canceling student loan debt can also negatively impact other folks, costing Americans roughly $1.6 trillion to cancel all outstanding student loan debt.

While the Biden administration has already canceled almost $132 billion in student loan debt throughout its first term, the President has plans for further debt cancellation. However, debt cancellation does come at a price to taxpayers. If all student loan debt is forgiven, it would cost taxpayers an estimated $1.6 trillion. Key Takeaways The Biden administration has canceled more than $132 billion in student loan debt as of December 2023.Nealy 7 million borrowers are enrolled in the Saving on a Valuable Education (SAVE) plan, which will cancel their student debt after a certain amount of time.Canceling all student loan debt in the U.S. would cost approximately $1.6 trillion. Current Proposals for Student Debt Cancellation There are a few different proposals for student debt cancellation as of February 2024, with both the Biden administration as well as several members of Congress offering possible solutions. Biden-Harris Administration's Plan President Joe Biden has canceled more than $132 billion in student loan debt since taking office. But now the Biden-Harris administration is planning to accelerate its newly developed Saving on a Valuable Education (SAVE) Plan. This means borrowers who are currently enrolled in the SAVE income-driven repayment (IDR) plan for their federal student loans (which you can enroll in at any time, so long as you qualify) and originally took out $12,000 or less to pay for college and have been repaying for at least 10 years could have their remaining loans forgiven. Right now, almost 7 million borrowers are enrolled in the SAVE plan, putting them on the path to student loan debt cancellation. The United States Department of Education estimates that within 10 years, 85% of borrowers who took out money for community college (which typically costs less than a four-year college) could be rid of their student loans. Private student loans aren't typically eligible for forgiveness, so it's important to take advantage of as much federal student aid as you can get. Ideally, you should only use private student loans to fill any remaining funding gaps after you've exhausted all possible sources of federal aid. Senators Warren, Pressley, Schumer, and Sanders' Plan U.S. Senator Elizabeth Warren (D-Mass.), alongside several other senators, wants President Biden and the U.S. Department of Education to expand the relief for student loans. She's proposed the following: Eliminating all student loan debt that’s more than the original principal balance of the loan. So if a borrower's debt has accrued so much interest that it’s greater than what they originally took out, that debt is forgiven. Cancel all debt for borrowers who have paid their original principal balance.  Bump up the date for borrowers who entered repayment at least 25 years ago.  Expand hardship qualifications. While there are already some hardship indicators that help folks qualify for cancellation, this proposal suggests adding non-income-based measures, such as incarceration or a history of evictions. The senators also want to see a catch-all provision so borrowers can qualify on a case-by-case basis, rather than be disqualified if their hardship isn’t listed. Include borrowers who have been victims of student loan servicer misconduct. This includes people who may have been forced into forbearance or those who were qualified for IDR plans but were not put into them. Remove the currently lengthy application process to qualify for relief. Instead, the senators propose that borrowers automatically qualify. Factors Affecting the Cost of Student Debt Cancellation Student loan debt has risen to more than $1.6 trillion. While less than 1% of that debt is more than 90 days delinquent, the Federal Reserve Bank of New York expects that number to grow at the end of 2024. This is when federal student loan delinquencies will start to be reported to the credit bureaus. Borrowers who become delinquent on their student loans will see their credit scores take a hit. If you're struggling to bring your credit score back up after missing student loan payments, you may want to consider working with a reputable credit counseling service. While total student loan debt in the U.S. is still less than total mortgage debt ($12.25 trillion), it’s still more than total credit card debt ($1.13 trillion). That means borrowers have higher student loan balances than credit card balances. Essentially, student loan debt is the largest non-mortgage debt in the U.S. Most borrowers are repaying federal student loans, which is about $37,088 per borrower. Even though President Biden has been able to cancel billions of dollars in student debt, the U.S. Supreme Court struck down his original cancellation plan in 2023. If it had gone through, it would’ve cost taxpayers an estimated $330 billion to $390 billion, according to the Committee for a Responsible Federal Budget. If all federal loans are forgiven for all 43 million borrowers, it would cost about $1.6 trillion. Is Canceling Student Loan Debt a Good Idea? If you have student loan debt, canceling student loan debt likely seems like a good idea, as it would let you and other borrowers put money toward paying for necessities, saving for retirement, or discretionary expenses. But if you didn’t have any student loan debt or already paid yours off, you may feel that taxpayers shouldn't be responsible for paying off other people's student debt. How Much Will it Cost Taxpayers for Student Loan Forgiveness? If all student loan debt is forgiven, it would cost taxpayers upwards of $1.6 trillion. A plan proposed by President Biden, which was later struck down by the Supreme Court, would have cost taxpayers an estimated $330 billion to $390 billion. Are Student Loans Forgiven After 20 Years? By default, student loans aren't forgiven after any amount of time. However, for borrowers who qualify for an IDR plan, any remaining balance on their loans will be forgiven after 20 or 25 years (depending on the plan) of on-time payments. The Bottom Line Canceling student debt can have its upsides, especially for folks who can’t pay for the things they need, whether that’s housing, food, or basic utilities. With more than $1.6 trillion in student loan debt, those who have their federal loans forgiven can put those funds back into the economy. But canceling student loan debt can also negatively impact other folks, costing Americans roughly $1.6 trillion to cancel all outstanding student loan debt.

https://www.investopedia.com/commodity-vs-security-7509422

Commodity vs. Security: What's the Difference?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A commodity is a basic good that can be interchanged with other goods of the same type, often a raw material used in producing other goods or services. Meanwhile, a security describes a tradable financial instrument with monetary value.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> While they are both <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a> that traders can buy and sell, securities receive stricter regulatory oversight than commodities. Companies that issue securities like <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock.asp">stocks</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp">bonds</a> must provide investors with detailed, transparent information, while commodities are subject to less stringent reporting requirements.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The distinction between trading basic goods and trading financial instruments seems clear enough. However, when it comes to digital assets like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrency</a>, the classification becomes murkier. Depending on your perspective, cryptocurrencies could be considered commodities or securities. How this debate is resolved could have a big impact on the future of crypto.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_7-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_8-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A commodity is a basic good that can be exchanged with other goods of the same type, while a security is a financial instrument representing an investment in a common enterprise.</li><li>Commodities are subject to less stringent regulations, while securities involve strict reporting requirements designed to ensure transparency for all investors.</li><li>The classification of cryptocurrencies remains a subject of debate, and the determination of whether digital assets are commodities or securities could have widespread implications.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-a-commodity"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> What Is a Commodity? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> A commodity is a tangible product, often a raw material that can be used to make other products. Hard commodities include energy goods like oil and gas as well as metals like gold and silver, while <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/softcommodity.asp">soft commodities</a> are generally agricultural goods like grains, livestock, and cotton. Traders can buy and sell commodities on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spotmarket.asp">spot market</a> or by using derivatives such as futures and options. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> A lot of commodities trading takes place between companies that use the goods, like food producers that depend on agricultural products, and industrial companies that use metals. However, it is generally recommended that all investors have some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-invest-in-commodities-7480946">exposure to commodities</a> as part of a diversified portfolio. That's because commodities tend to have a low or negative <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/correlation.asp">correlation</a> with other assets like stocks and bonds, often performing well when other areas of the financial market are struggling. Commodities may also be a useful tool for investors aiming to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation-hedge.asp">hedge against inflation</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cftc.asp">Commodity Futures Trading Commission (CFTC)</a> regulates the trading of derivatives in the U.S. When the commission was established in 1974, agricultural products dominated futures trading. Since then, the markets overseen by the CFTC have become more complex, with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fintech.asp">fintech</a> and digital currencies underpinning more intricate commodities transactions.<span class="ql-inline-citation" data-cite="8"></span></p></div></div></div> <span class="heading-toc" id="toc-what-is-a-security"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> What Is a Security? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> A security is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fungibility.asp">fungible</a> and tradable financial instrument issued by corporations and governments to raise capital. In general, securities represent <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equity</a> (the rights to an ownership share in an enterprise), <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtsecurity.asp">debt</a> (loans that are repaid in periodic installments), or a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hybridsecurity.asp">hybrid</a> of equity and debt.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Securities typically refer to stocks and bonds along with related products like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual funds</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a>. However, the legal interpretation of what constitutes a financial security is quite broad. In the case of Howey vs. SEC in 1946, the Supreme Court determined that a contract involving the sale of agricultural land and services represented a security.<span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> This case resulted in a list of criteria—known as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/howey-test.asp">Howey Test</a>—to determine whether instruments should be regulated as a security. According to federal laws, a financial contract meets the threshold of a security if there is an investment of money made in a common enterprise in anticipation of a profit driven by the efforts of others.<span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_24-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>In the U.S., the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission (SEC)</a> regulates the buying and selling of instruments that meet the criteria to be classified as securities.<span class="ql-inline-citation" data-cite="4"></span> <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sro.asp">Self-regulatory organizations (SROs)</a> such as the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasd.asp">National Association of Securities Dealers (NASD)</a> and the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finra.asp">Financial Industry Regulatory Authority (FINRA)</a> also play a role in regulating securities.<br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> When a corporation or government entity wants to raise capital from the public by issuing securities, it must follow strict reporting requirements set out by the SEC. These rules are designed to ensure transparency in the securities market, ensuring that investors have access to all the information they need to make informed decisions.<span class="ql-inline-citation" data-cite="4"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <span class="heading-toc" id="toc-key-differences"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> Key Differences </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The fundamental difference between a commodity and a security hinges on what is being bought and sold. Commodities are basic goods that can be traded or exchanged, while securities involve taking an ownership stake or providing credit to a common enterprise with the hopes of earning a profit.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> This distinction is evident in the different regulatory organizations and regimes put in place to supervise the commodities and securities markets. In general, commodities are subject to less stringent oversight by the CFTC, while securities are required to meet the stricter regulatory and enforcement policies of the SEC.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-is-cryptocurrency-a-commodity-or-security"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> Is Cryptocurrency a Commodity or Security? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The differentiation between commodities and securities may seem relatively straightforward when it comes to traditional assets like gold and oil or stocks and bonds. However, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/digital-asset-framework.asp">digital assets</a> like cryptocurrencies have stretched the delineation between the two types of assets.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The debate over whether cryptocurrencies constitute commodities or securities remains unresolved. In fact, the intricacies of the question may make it impractical to come up with a one-size-fits-all solution, with some cryptocurrency <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crypto-token.asp">tokens</a> presenting characteristics more like commodities, while there are valid arguments for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/does-crypto-pass-the-howey-test-8385183">considering some cryptocurrencies as securities</a>.<span class="ql-inline-citation" data-cite="3"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The ultimate determination of how to classify crypto will likely have a significant impact on how digital assets are regulated and determine the future of the cryptocurrency industry.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-subheading__text"> Cryptocurrencies as Commodities </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Since securities are subject to tighter regulations, it may come as no surprise that crypto industry executives and proponents argue that cryptocurrencies should be considered commodities. According to their perspective, cryptocurrencies are used as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/storeofvalue.asp">store of value</a>, similar to commodities like gold. Traders and investors may purchase crypto assets for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/speculation.asp">speculative purposes</a>—hoping to profit from price swings—which is another way that cryptocurrencies mirror commodities.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Another key argument that cryptocurrencies should not be considered securities revolves around their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/decentralizedmarket.asp">decentralized</a> nature. The Howey test specifies that a security involves investing in a common enterprise and profiting from the efforts of a third party. The lack of a centralized entity underlying cryptocurrencies supports the idea that they should be classified as commodities rather than securities.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-subheading__text"> Cryptocurrencies as Securities </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Although crypto advocates generally argue against the more stringent regulations that would come from classifying the digital assets as securities, subjecting crypto to securities rules could make the assets more attractive to a wider range of investors.<span class="ql-inline-citation" data-cite="2"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> In addition, there are some elements of the cryptocurrency markets that seem to fall closer in line with the definition of a security. For instance, when <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain</a> or crypto-related companies raise capital through <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp">initial coin offerings (ICOs)</a>, they issue digital coins that allow investors to participate in the crypto project and earn a share of its profits. Therefore, ICOs resemble the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offerings (IPOs)</a> that companies use to bring their stock onto the public markets, lending credence to the idea that they should be similarly regulated as securities.<span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Other areas of the crypto markets are reminiscent of debt securities. For example, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/crypto-lending-5443191">crypto lenders</a> may provide credit in the form of cryptocurrency in exchange for interest or fees—a structure that closely resembles bonds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-is-bitcoin-a-security-or-a-commodity"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Bitcoin a Security or a Commodity?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There is an ongoing debate about whether <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp">Bitcoin</a> and other cryptocurrencies should be classified as a security or a commodity. The decentralized nature of Bitcoin raises questions about whether the asset meets the criteria of the Howey Test that would classify it as a security. The Commodity Futures Trading Commission (CFTC) considers Bitcoin to be a commodity and asserts that it holds regulatory authority over BTC under the Commodity Exchange Act.<span class="ql-inline-citation" data-cite="5"></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-is-ethereum-a-commodity-or-security"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Ethereum a Commodity or Security?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Much like Bitcoin, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ethereum.asp">Ethereum</a> remains in a regulatory grey area and subject to differences in opinion about its classification. When it filed its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cftc-charges-binance-founder-with-willful-evasion-7371649">lawsuit against Binance</a>, the CFTC explicitly declared that Ethereum, along with Bitcoin and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/litecoin.asp">Litecoin</a>, are considered commodities.<span class="ql-inline-citation" data-cite="6"></span> However, the SEC has applied the Howey Test and argued that other crypto tokens such as Ripple's <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-xrp-6362550">XRP</a> are securities and should be subject to the associated regulations.<span class="ql-inline-citation" data-cite="7"></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-why-is-a-commodity-not-a-security"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is a Commodity Not a Security?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Commodities—such as energy assets like oil, metals like gold, and agriculture products like corn—are not considered securities because they do not involve investing in a common enterprise and profiting from the efforts of others.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-can-a-commodity-become-a-security"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can a Commodity Become a Security?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Commodities can serve as the underlying asset for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp">derivatives</a> such as futures and options. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">Futures</a> establish an obligation to buy or sell a commodity at a set price and date in the future, while <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp">options</a> provide holders with the right (but not the obligation) to buy or sell the commodity.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_59-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Assets are traditionally classified as either commodities, which are basic goods used in making other products, or securities, which are financial instruments designed to generate profits from a shared enterprise. Digital assets like cryptocurrencies have stretched the limits of these categorizations, with different perspectives on how to classify digital assets. A concrete determination on whether crypto counts as a commodity or a security could have broad implications for the regulatory framework and the future of cryptocurrencies.<br/> </p></div>

A commodity is a basic good that can be interchanged with other goods of the same type, often a raw material used in producing other goods or services. Meanwhile, a security describes a tradable financial instrument with monetary value. While they are both [assets](https://www.investopedia.com/terms/a/asset.asp) that traders can buy and sell, securities receive stricter regulatory oversight than commodities. Companies that issue securities like [stocks](https://www.investopedia.com/terms/s/stock.asp) and [bonds](https://www.investopedia.com/terms/b/bond.asp) must provide investors with detailed, transparent information, while commodities are subject to less stringent reporting requirements. The distinction between trading basic goods and trading financial instruments seems clear enough. However, when it comes to digital assets like [cryptocurrency](https://www.investopedia.com/terms/c/cryptocurrency.asp), the classification becomes murkier. Depending on your perspective, cryptocurrencies could be considered commodities or securities. How this debate is resolved could have a big impact on the future of crypto. ### Key Takeaways * A commodity is a basic good that can be exchanged with other goods of the same type, while a security is a financial instrument representing an investment in a common enterprise. * Commodities are subject to less stringent regulations, while securities involve strict reporting requirements designed to ensure transparency for all investors. * The classification of cryptocurrencies remains a subject of debate, and the determination of whether digital assets are commodities or securities could have widespread implications. ## What Is a Commodity? A commodity is a tangible product, often a raw material that can be used to make other products. Hard commodities include energy goods like oil and gas as well as metals like gold and silver, while [soft commodities](https://www.investopedia.com/terms/s/softcommodity.asp) are generally agricultural goods like grains, livestock, and cotton. Traders can buy and sell commodities on the [spot market](https://www.investopedia.com/terms/s/spotmarket.asp) or by using derivatives such as futures and options. A lot of commodities trading takes place between companies that use the goods, like food producers that depend on agricultural products, and industrial companies that use metals. However, it is generally recommended that all investors have some [exposure to commodities](https://www.investopedia.com/how-to-invest-in-commodities-7480946) as part of a diversified portfolio. That's because commodities tend to have a low or negative [correlation](https://www.investopedia.com/terms/c/correlation.asp) with other assets like stocks and bonds, often performing well when other areas of the financial market are struggling. Commodities may also be a useful tool for investors aiming to [hedge against inflation](https://www.investopedia.com/terms/i/inflation-hedge.asp). ### The [Commodity Futures Trading Commission (CFTC)](https://www.investopedia.com/terms/c/cftc.asp) regulates the trading of derivatives in the U.S. When the commission was established in 1974, agricultural products dominated futures trading. Since then, the markets overseen by the CFTC have become more complex, with [fintech](https://www.investopedia.com/terms/f/fintech.asp) and digital currencies underpinning more intricate commodities transactions. ## What Is a Security? A security is a [fungible](https://www.investopedia.com/terms/f/fungibility.asp) and tradable financial instrument issued by corporations and governments to raise capital. In general, securities represent [equity](https://www.investopedia.com/terms/e/equity.asp) (the rights to an ownership share in an enterprise), [debt](https://www.investopedia.com/terms/d/debtsecurity.asp) (loans that are repaid in periodic installments), or a [hybrid](https://www.investopedia.com/terms/h/hybridsecurity.asp) of equity and debt. Securities typically refer to stocks and bonds along with related products like [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) and [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp). However, the legal interpretation of what constitutes a financial security is quite broad. In the case of Howey vs. SEC in 1946, the Supreme Court determined that a contract involving the sale of agricultural land and services represented a security. This case resulted in a list of criteria—known as the [Howey Test](https://www.investopedia.com/terms/h/howey-test.asp)—to determine whether instruments should be regulated as a security. According to federal laws, a financial contract meets the threshold of a security if there is an investment of money made in a common enterprise in anticipation of a profit driven by the efforts of others. ### In the U.S., the [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) regulates the buying and selling of instruments that meet the criteria to be classified as securities. [Self-regulatory organizations (SROs)](https://www.investopedia.com/terms/s/sro.asp) such as the [National Association of Securities Dealers (NASD)](https://www.investopedia.com/terms/n/nasd.asp) and the [Financial Industry Regulatory Authority (FINRA)](https://www.investopedia.com/terms/f/finra.asp) also play a role in regulating securities. When a corporation or government entity wants to raise capital from the public by issuing securities, it must follow strict reporting requirements set out by the SEC. These rules are designed to ensure transparency in the securities market, ensuring that investors have access to all the information they need to make informed decisions. ## Key Differences The fundamental difference between a commodity and a security hinges on what is being bought and sold. Commodities are basic goods that can be traded or exchanged, while securities involve taking an ownership stake or providing credit to a common enterprise with the hopes of earning a profit. This distinction is evident in the different regulatory organizations and regimes put in place to supervise the commodities and securities markets. In general, commodities are subject to less stringent oversight by the CFTC, while securities are required to meet the stricter regulatory and enforcement policies of the SEC. ## Is Cryptocurrency a Commodity or Security? The differentiation between commodities and securities may seem relatively straightforward when it comes to traditional assets like gold and oil or stocks and bonds. However, [digital assets](https://www.investopedia.com/terms/d/digital-asset-framework.asp) like cryptocurrencies have stretched the delineation between the two types of assets. The debate over whether cryptocurrencies constitute commodities or securities remains unresolved. In fact, the intricacies of the question may make it impractical to come up with a one-size-fits-all solution, with some cryptocurrency [tokens](https://www.investopedia.com/terms/c/crypto-token.asp) presenting characteristics more like commodities, while there are valid arguments for [considering some cryptocurrencies as securities](https://www.investopedia.com/does-crypto-pass-the-howey-test-8385183). The ultimate determination of how to classify crypto will likely have a significant impact on how digital assets are regulated and determine the future of the cryptocurrency industry. ### Cryptocurrencies as Commodities Since securities are subject to tighter regulations, it may come as no surprise that crypto industry executives and proponents argue that cryptocurrencies should be considered commodities. According to their perspective, cryptocurrencies are used as a [store of value](https://www.investopedia.com/terms/s/storeofvalue.asp), similar to commodities like gold. Traders and investors may purchase crypto assets for [speculative purposes](https://www.investopedia.com/terms/s/speculation.asp)—hoping to profit from price swings—which is another way that cryptocurrencies mirror commodities. Another key argument that cryptocurrencies should not be considered securities revolves around their [decentralized](https://www.investopedia.com/terms/d/decentralizedmarket.asp) nature. The Howey test specifies that a security involves investing in a common enterprise and profiting from the efforts of a third party. The lack of a centralized entity underlying cryptocurrencies supports the idea that they should be classified as commodities rather than securities. ### Cryptocurrencies as Securities Although crypto advocates generally argue against the more stringent regulations that would come from classifying the digital assets as securities, subjecting crypto to securities rules could make the assets more attractive to a wider range of investors. In addition, there are some elements of the cryptocurrency markets that seem to fall closer in line with the definition of a security. For instance, when [blockchain](https://www.investopedia.com/terms/b/blockchain.asp) or crypto-related companies raise capital through [initial coin offerings (ICOs)](https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp), they issue digital coins that allow investors to participate in the crypto project and earn a share of its profits. Therefore, ICOs resemble the [initial public offerings (IPOs)](https://www.investopedia.com/terms/i/ipo.asp) that companies use to bring their stock onto the public markets, lending credence to the idea that they should be similarly regulated as securities. Other areas of the crypto markets are reminiscent of debt securities. For example, [crypto lenders](https://www.investopedia.com/crypto-lending-5443191) may provide credit in the form of cryptocurrency in exchange for interest or fees—a structure that closely resembles bonds. ## Is Bitcoin a Security or a Commodity? There is an ongoing debate about whether [Bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp) and other cryptocurrencies should be classified as a security or a commodity. The decentralized nature of Bitcoin raises questions about whether the asset meets the criteria of the Howey Test that would classify it as a security. The Commodity Futures Trading Commission (CFTC) considers Bitcoin to be a commodity and asserts that it holds regulatory authority over BTC under the Commodity Exchange Act. ## Is Ethereum a Commodity or Security? Much like Bitcoin, [Ethereum](https://www.investopedia.com/terms/e/ethereum.asp) remains in a regulatory grey area and subject to differences in opinion about its classification. When it filed its [lawsuit against Binance](https://www.investopedia.com/cftc-charges-binance-founder-with-willful-evasion-7371649), the CFTC explicitly declared that Ethereum, along with Bitcoin and [Litecoin](https://www.investopedia.com/terms/l/litecoin.asp), are considered commodities. However, the SEC has applied the Howey Test and argued that other crypto tokens such as Ripple's [XRP](https://www.investopedia.com/what-is-xrp-6362550) are securities and should be subject to the associated regulations. ## Why Is a Commodity Not a Security? Commodities—such as energy assets like oil, metals like gold, and agriculture products like corn—are not considered securities because they do not involve investing in a common enterprise and profiting from the efforts of others. ## Can a Commodity Become a Security? Commodities can serve as the underlying asset for [derivatives](https://www.investopedia.com/terms/d/derivative.asp) such as futures and options. [Futures](https://www.investopedia.com/terms/f/futures.asp) establish an obligation to buy or sell a commodity at a set price and date in the future, while [options](https://www.investopedia.com/terms/o/option.asp) provide holders with the right (but not the obligation) to buy or sell the commodity. ## The Bottom Line Assets are traditionally classified as either commodities, which are basic goods used in making other products, or securities, which are financial instruments designed to generate profits from a shared enterprise. Digital assets like cryptocurrencies have stretched the limits of these categorizations, with different perspectives on how to classify digital assets. A concrete determination on whether crypto counts as a commodity or a security could have broad implications for the regulatory framework and the future of cryptocurrencies.

A commodity is a basic good that can be interchanged with other goods of the same type, often a raw material used in producing other goods or services. Meanwhile, a security describes a tradable financial instrument with monetary value. While they are both assets that traders can buy and sell, securities receive stricter regulatory oversight than commodities. Companies that issue securities like stocks and bonds must provide investors with detailed, transparent information, while commodities are subject to less stringent reporting requirements. The distinction between trading basic goods and trading financial instruments seems clear enough. However, when it comes to digital assets like cryptocurrency, the classification becomes murkier. Depending on your perspective, cryptocurrencies could be considered commodities or securities. How this debate is resolved could have a big impact on the future of crypto. Key Takeaways A commodity is a basic good that can be exchanged with other goods of the same type, while a security is a financial instrument representing an investment in a common enterprise.Commodities are subject to less stringent regulations, while securities involve strict reporting requirements designed to ensure transparency for all investors.The classification of cryptocurrencies remains a subject of debate, and the determination of whether digital assets are commodities or securities could have widespread implications. What Is a Commodity? A commodity is a tangible product, often a raw material that can be used to make other products. Hard commodities include energy goods like oil and gas as well as metals like gold and silver, while soft commodities are generally agricultural goods like grains, livestock, and cotton. Traders can buy and sell commodities on the spot market or by using derivatives such as futures and options. A lot of commodities trading takes place between companies that use the goods, like food producers that depend on agricultural products, and industrial companies that use metals. However, it is generally recommended that all investors have some exposure to commodities as part of a diversified portfolio. That's because commodities tend to have a low or negative correlation with other assets like stocks and bonds, often performing well when other areas of the financial market are struggling. Commodities may also be a useful tool for investors aiming to hedge against inflation. The Commodity Futures Trading Commission (CFTC) regulates the trading of derivatives in the U.S. When the commission was established in 1974, agricultural products dominated futures trading. Since then, the markets overseen by the CFTC have become more complex, with fintech and digital currencies underpinning more intricate commodities transactions. What Is a Security? A security is a fungible and tradable financial instrument issued by corporations and governments to raise capital. In general, securities represent equity (the rights to an ownership share in an enterprise), debt (loans that are repaid in periodic installments), or a hybrid of equity and debt. Securities typically refer to stocks and bonds along with related products like mutual funds and exchange-traded funds (ETFs). However, the legal interpretation of what constitutes a financial security is quite broad. In the case of Howey vs. SEC in 1946, the Supreme Court determined that a contract involving the sale of agricultural land and services represented a security. This case resulted in a list of criteria—known as the Howey Test—to determine whether instruments should be regulated as a security. According to federal laws, a financial contract meets the threshold of a security if there is an investment of money made in a common enterprise in anticipation of a profit driven by the efforts of others. In the U.S., the Securities and Exchange Commission (SEC) regulates the buying and selling of instruments that meet the criteria to be classified as securities. Self-regulatory organizations (SROs) such as the National Association of Securities Dealers (NASD) and the Financial Industry Regulatory Authority (FINRA) also play a role in regulating securities. When a corporation or government entity wants to raise capital from the public by issuing securities, it must follow strict reporting requirements set out by the SEC. These rules are designed to ensure transparency in the securities market, ensuring that investors have access to all the information they need to make informed decisions. Key Differences The fundamental difference between a commodity and a security hinges on what is being bought and sold. Commodities are basic goods that can be traded or exchanged, while securities involve taking an ownership stake or providing credit to a common enterprise with the hopes of earning a profit. This distinction is evident in the different regulatory organizations and regimes put in place to supervise the commodities and securities markets. In general, commodities are subject to less stringent oversight by the CFTC, while securities are required to meet the stricter regulatory and enforcement policies of the SEC. Is Cryptocurrency a Commodity or Security? The differentiation between commodities and securities may seem relatively straightforward when it comes to traditional assets like gold and oil or stocks and bonds. However, digital assets like cryptocurrencies have stretched the delineation between the two types of assets. The debate over whether cryptocurrencies constitute commodities or securities remains unresolved. In fact, the intricacies of the question may make it impractical to come up with a one-size-fits-all solution, with some cryptocurrency tokens presenting characteristics more like commodities, while there are valid arguments for considering some cryptocurrencies as securities. The ultimate determination of how to classify crypto will likely have a significant impact on how digital assets are regulated and determine the future of the cryptocurrency industry. Cryptocurrencies as Commodities Since securities are subject to tighter regulations, it may come as no surprise that crypto industry executives and proponents argue that cryptocurrencies should be considered commodities. According to their perspective, cryptocurrencies are used as a store of value, similar to commodities like gold. Traders and investors may purchase crypto assets for speculative purposes—hoping to profit from price swings—which is another way that cryptocurrencies mirror commodities. Another key argument that cryptocurrencies should not be considered securities revolves around their decentralized nature. The Howey test specifies that a security involves investing in a common enterprise and profiting from the efforts of a third party. The lack of a centralized entity underlying cryptocurrencies supports the idea that they should be classified as commodities rather than securities. Cryptocurrencies as Securities Although crypto advocates generally argue against the more stringent regulations that would come from classifying the digital assets as securities, subjecting crypto to securities rules could make the assets more attractive to a wider range of investors. In addition, there are some elements of the cryptocurrency markets that seem to fall closer in line with the definition of a security. For instance, when blockchain or crypto-related companies raise capital through initial coin offerings (ICOs), they issue digital coins that allow investors to participate in the crypto project and earn a share of its profits. Therefore, ICOs resemble the initial public offerings (IPOs) that companies use to bring their stock onto the public markets, lending credence to the idea that they should be similarly regulated as securities. Other areas of the crypto markets are reminiscent of debt securities. For example, crypto lenders may provide credit in the form of cryptocurrency in exchange for interest or fees—a structure that closely resembles bonds. Is Bitcoin a Security or a Commodity? There is an ongoing debate about whether Bitcoin and other cryptocurrencies should be classified as a security or a commodity. The decentralized nature of Bitcoin raises questions about whether the asset meets the criteria of the Howey Test that would classify it as a security. The Commodity Futures Trading Commission (CFTC) considers Bitcoin to be a commodity and asserts that it holds regulatory authority over BTC under the Commodity Exchange Act. Is Ethereum a Commodity or Security? Much like Bitcoin, Ethereum remains in a regulatory grey area and subject to differences in opinion about its classification. When it filed its lawsuit against Binance, the CFTC explicitly declared that Ethereum, along with Bitcoin and Litecoin, are considered commodities. However, the SEC has applied the Howey Test and argued that other crypto tokens such as Ripple's XRP are securities and should be subject to the associated regulations. Why Is a Commodity Not a Security? Commodities—such as energy assets like oil, metals like gold, and agriculture products like corn—are not considered securities because they do not involve investing in a common enterprise and profiting from the efforts of others. Can a Commodity Become a Security? Commodities can serve as the underlying asset for derivatives such as futures and options. Futures establish an obligation to buy or sell a commodity at a set price and date in the future, while options provide holders with the right (but not the obligation) to buy or sell the commodity. The Bottom Line Assets are traditionally classified as either commodities, which are basic goods used in making other products, or securities, which are financial instruments designed to generate profits from a shared enterprise. Digital assets like cryptocurrencies have stretched the limits of these categorizations, with different perspectives on how to classify digital assets. A concrete determination on whether crypto counts as a commodity or a security could have broad implications for the regulatory framework and the future of cryptocurrencies.

https://www.investopedia.com/cyber-insurance-increasingly-a-necessity-for-businesses-5086947

Far More Companies Are Buying Cybersecurity Insurance

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> New findings by Zurich North America and Advisen Ltd. show that the number of corporate risk managers who have purchased some form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cyber-insurance-5069694" rel="noopener noreferrer">cybersecurity insurance coverage</a> has more than doubled since 2011.<span class="ql-inline-citation" data-cite="1"></span> The need for such coverage has increased since the coronavirus pandemic began and many more employees started working from home. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Seventy-eight percent of corporate risk managers have purchased some type of cyber insurance coverage, up from just 34% in 2011.</li><li>As more employees work from home because of the pandemic, risk managers see increased potential for ransomware and business interruptions.</li><li>Other major risks that companies are looking to insure against include funds transfer fraud, system failure, and reputational harm.</li></ul></div></div></div> <span class="heading-toc" id="toc-working-from-home-has-increased-the-risks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Working From Home Has Increased the Risks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> More than four in 10 people in the labor force are now working from home full-time, according to nationwide surveys conducted by Stanford University.<span class="ql-inline-citation" data-cite="2"></span> While the new work arrangement is good for fighting a pandemic, corporate risk managers see the potential for more cybersecurity risks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Top concerns in the Zurich North America and Advisen study included employees unintentionally <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-antivirus-software-5084503">infecting the company’s network</a> with malware or giving sensitive information to a third party.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Other cyber hazards that risk managers are interested in insuring against, according to the study, include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <li>Bricking (when a cyberattack renders a device unusable) – 72% </li> <li>Contingent business interruption – 72%</li> <li>System failure – 70%</li> <li>Funds transfer fraud – 66%</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/social-engineering.asp">Social engineering</a> – 66%</li> <li>Internet media liability – 63%</li> <li>Reputational harm – 60%</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Of the firms that have cyber insurance, 55% purchased coverage in the form of a standalone policy, while 13% got it as part of a professional liability or other type of policy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-price-is-an-obstacle-for-some-companies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Price Is an Obstacle for Some Companies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The study found that 12% of risk managers do not have cyber insurance and aren’t in the process of buying it. The primary reasons given by the respondents were the price of coverage and a lack of buy-in from executives and IT professionals in the organization.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> That said, the results of the study made it clear that most organizations no longer view cyber coverage as an extravagance but as necessity.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The study included organizations across a number of sectors, including finance, banking, insurance, manufacturing, healthcare, technology, education, and nonprofits. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

New findings by Zurich North America and Advisen Ltd. show that the number of corporate risk managers who have purchased some form of [cybersecurity insurance coverage](https://www.investopedia.com/best-cyber-insurance-5069694) has more than doubled since 2011. The need for such coverage has increased since the coronavirus pandemic began and many more employees started working from home. ### Key Takeaways * Seventy-eight percent of corporate risk managers have purchased some type of cyber insurance coverage, up from just 34% in 2011. * As more employees work from home because of the pandemic, risk managers see increased potential for ransomware and business interruptions. * Other major risks that companies are looking to insure against include funds transfer fraud, system failure, and reputational harm. ## Working From Home Has Increased the Risks More than four in 10 people in the labor force are now working from home full-time, according to nationwide surveys conducted by Stanford University. While the new work arrangement is good for fighting a pandemic, corporate risk managers see the potential for more cybersecurity risks. Top concerns in the Zurich North America and Advisen study included employees unintentionally [infecting the company’s network](https://www.investopedia.com/best-antivirus-software-5084503) with malware or giving sensitive information to a third party.  Other cyber hazards that risk managers are interested in insuring against, according to the study, include: * Bricking (when a cyberattack renders a device unusable) – 72% * Contingent business interruption – 72% * System failure – 70% * Funds transfer fraud – 66% * [Social engineering](https://www.investopedia.com/terms/s/social-engineering.asp) – 66% * Internet media liability – 63% * Reputational harm – 60% Of the firms that have cyber insurance, 55% purchased coverage in the form of a standalone policy, while 13% got it as part of a professional liability or other type of policy. ## Price Is an Obstacle for Some Companies The study found that 12% of risk managers do not have cyber insurance and aren’t in the process of buying it. The primary reasons given by the respondents were the price of coverage and a lack of buy-in from executives and IT professionals in the organization.  That said, the results of the study made it clear that most organizations no longer view cyber coverage as an extravagance but as necessity.  The study included organizations across a number of sectors, including finance, banking, insurance, manufacturing, healthcare, technology, education, and nonprofits. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

New findings by Zurich North America and Advisen Ltd. show that the number of corporate risk managers who have purchased some form of cybersecurity insurance coverage has more than doubled since 2011. The need for such coverage has increased since the coronavirus pandemic began and many more employees started working from home. Key Takeaways Seventy-eight percent of corporate risk managers have purchased some type of cyber insurance coverage, up from just 34% in 2011.As more employees work from home because of the pandemic, risk managers see increased potential for ransomware and business interruptions.Other major risks that companies are looking to insure against include funds transfer fraud, system failure, and reputational harm. Working From Home Has Increased the Risks More than four in 10 people in the labor force are now working from home full-time, according to nationwide surveys conducted by Stanford University. While the new work arrangement is good for fighting a pandemic, corporate risk managers see the potential for more cybersecurity risks. Top concerns in the Zurich North America and Advisen study included employees unintentionally infecting the company’s network with malware or giving sensitive information to a third party.  Other cyber hazards that risk managers are interested in insuring against, according to the study, include: Bricking (when a cyberattack renders a device unusable) – 72%  Contingent business interruption – 72% System failure – 70% Funds transfer fraud – 66% Social engineering – 66% Internet media liability – 63% Reputational harm – 60% Of the firms that have cyber insurance, 55% purchased coverage in the form of a standalone policy, while 13% got it as part of a professional liability or other type of policy. Price Is an Obstacle for Some Companies The study found that 12% of risk managers do not have cyber insurance and aren’t in the process of buying it. The primary reasons given by the respondents were the price of coverage and a lack of buy-in from executives and IT professionals in the organization.  That said, the results of the study made it clear that most organizations no longer view cyber coverage as an extravagance but as necessity.  The study included organizations across a number of sectors, including finance, banking, insurance, manufacturing, healthcare, technology, education, and nonprofits. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/hesai-biggest-chinese-ipo-since-didi-7107610

Hesai Raises $190 Million in Biggest Chinese U.S. IPO Since 2021

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Hesai Group raised $190 million in its IPO, the largest U.S. listing by a Chinese company since 2021.</li><li>Didi Global amassed $4.4 billion in a 2021 IPO, but the stock crashed shortly after amid data security probes.</li><li>Chinese companies have been hesitant to sell public shares in the U.S. amid high inflation, strict COVID policies, and turmoil surrounding Didi's delisting in 2022.</li><li>Trade between China and the U.S. has increased, though, despite ongoing political tension.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Hesai Group (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HSAI">HSAI</a>), the self-driving car technology company, raised $190 million in a U.S. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering</a> (IPO), the largest by a Chinese company since 2021, in a sign that economic ties between the two nations are on the mend even amid simmering political tension.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> In its Nasdaq debut, Hesai sold 10 million <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American depositary receipts</a> (ADRs) for $19 each. The last time a Chinese company had a larger IPO was ride-sharing service Didi Global Inc. in 2021. Didi raised over $4 billion before a data security scandal tanked its stock days later, eventually leading to probes by U.S. and Chinese authorities, and the stock being delisted in the U.S. in May 2022.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Last year was slow for U.S. IPOs generally and Chinese companies in particular, as the Asian nation's strict COVID policies, high inflation, and hesitation after the Didi crash diminished incentives to list. Both China and the U.S. instituted rules regarding data security and other concerns for Chinese companies hoping to trade on American exchanges.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-trade-increases-tensions-linger"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> Trade Increases, Tensions Linger </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The environment for Chinese IPOs is slowly improving. China eased its pandemic restrictions at the end of last year, and Nasdaq Vice Chairman Bob McCooey has said there's a strong pipeline of Chinese companies seeking to list on the exchange in the coming months.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> At the same time, U.S.-China trade is increasing to levels not seen since before the pandemic. The U.S. imported about $537 billion in Chinese goods in 2022, 6.3% more than in 2021 and just shy of the record set in 2018. U.S. exports to China also climbed in 2022, though at a slower rate.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Trade is strengthening while political turmoil between the two nations remains high after former President Donald Trump imposed sweeping tariffs on Chinese goods. President Biden's administration has kept many of those tariffs in place. The Chinese surveillance balloon that the U.S. spotted and destroyed last week has fed further tension.<span class="ql-inline-citation" data-cite="6"></span><br/> </p></div>

### Key Takeaways * Hesai Group raised $190 million in its IPO, the largest U.S. listing by a Chinese company since 2021. * Didi Global amassed $4.4 billion in a 2021 IPO, but the stock crashed shortly after amid data security probes. * Chinese companies have been hesitant to sell public shares in the U.S. amid high inflation, strict COVID policies, and turmoil surrounding Didi's delisting in 2022. * Trade between China and the U.S. has increased, though, despite ongoing political tension. Hesai Group ([HSAI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HSAI)), the self-driving car technology company, raised $190 million in a U.S. [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO), the largest by a Chinese company since 2021, in a sign that economic ties between the two nations are on the mend even amid simmering political tension. In its Nasdaq debut, Hesai sold 10 million [American depositary receipts](https://www.investopedia.com/terms/a/adr.asp) (ADRs) for $19 each. The last time a Chinese company had a larger IPO was ride-sharing service Didi Global Inc. in 2021. Didi raised over $4 billion before a data security scandal tanked its stock days later, eventually leading to probes by U.S. and Chinese authorities, and the stock being delisted in the U.S. in May 2022. Last year was slow for U.S. IPOs generally and Chinese companies in particular, as the Asian nation's strict COVID policies, high inflation, and hesitation after the Didi crash diminished incentives to list. Both China and the U.S. instituted rules regarding data security and other concerns for Chinese companies hoping to trade on American exchanges. ## Trade Increases, Tensions Linger The environment for Chinese IPOs is slowly improving. China eased its pandemic restrictions at the end of last year, and Nasdaq Vice Chairman Bob McCooey has said there's a strong pipeline of Chinese companies seeking to list on the exchange in the coming months. At the same time, U.S.-China trade is increasing to levels not seen since before the pandemic. The U.S. imported about $537 billion in Chinese goods in 2022, 6.3% more than in 2021 and just shy of the record set in 2018. U.S. exports to China also climbed in 2022, though at a slower rate. Trade is strengthening while political turmoil between the two nations remains high after former President Donald Trump imposed sweeping tariffs on Chinese goods. President Biden's administration has kept many of those tariffs in place. The Chinese surveillance balloon that the U.S. spotted and destroyed last week has fed further tension.

Key Takeaways Hesai Group raised $190 million in its IPO, the largest U.S. listing by a Chinese company since 2021.Didi Global amassed $4.4 billion in a 2021 IPO, but the stock crashed shortly after amid data security probes.Chinese companies have been hesitant to sell public shares in the U.S. amid high inflation, strict COVID policies, and turmoil surrounding Didi's delisting in 2022.Trade between China and the U.S. has increased, though, despite ongoing political tension. Hesai Group (HSAI), the self-driving car technology company, raised $190 million in a U.S. initial public offering (IPO), the largest by a Chinese company since 2021, in a sign that economic ties between the two nations are on the mend even amid simmering political tension. In its Nasdaq debut, Hesai sold 10 million American depositary receipts (ADRs) for $19 each. The last time a Chinese company had a larger IPO was ride-sharing service Didi Global Inc. in 2021. Didi raised over $4 billion before a data security scandal tanked its stock days later, eventually leading to probes by U.S. and Chinese authorities, and the stock being delisted in the U.S. in May 2022. Last year was slow for U.S. IPOs generally and Chinese companies in particular, as the Asian nation's strict COVID policies, high inflation, and hesitation after the Didi crash diminished incentives to list. Both China and the U.S. instituted rules regarding data security and other concerns for Chinese companies hoping to trade on American exchanges. Trade Increases, Tensions Linger The environment for Chinese IPOs is slowly improving. China eased its pandemic restrictions at the end of last year, and Nasdaq Vice Chairman Bob McCooey has said there's a strong pipeline of Chinese companies seeking to list on the exchange in the coming months. At the same time, U.S.-China trade is increasing to levels not seen since before the pandemic. The U.S. imported about $537 billion in Chinese goods in 2022, 6.3% more than in 2021 and just shy of the record set in 2018. U.S. exports to China also climbed in 2022, though at a slower rate. Trade is strengthening while political turmoil between the two nations remains high after former President Donald Trump imposed sweeping tariffs on Chinese goods. President Biden's administration has kept many of those tariffs in place. The Chinese surveillance balloon that the U.S. spotted and destroyed last week has fed further tension.

https://www.investopedia.com/top-cd-rates-today-april-17-2024-a-dozen-offers-pay-5-40-or-better-8635141

Top CD Rates Today, April 17, 2024 - A Dozen Offers Pay 5.40% or Better

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_1-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:76.1%;"> <img alt="Top nationally available rate in every CD term, ranging from 4.70% to 5.55%, current as of April 17, 2024. " class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/v8kI1RghwA66of-hCr8byMJZbGA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-17-5b9ad938e58f4ccc9ced1fe3b4b33a0c.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/v8kI1RghwA66of-hCr8byMJZbGA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-17-5b9ad938e58f4ccc9ced1fe3b4b33a0c.png" data-srcset="https://www.investopedia.com/thmb/x1Bd2RpcOhmFdNiUL8AoGhsJenQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-17-5b9ad938e58f4ccc9ced1fe3b4b33a0c.png 750w" data-tracking-container="true" height="1888" id="mntl-sc-block-image_1-0" width="2480"/> <noscript> <img alt="Top nationally available rate in every CD term, ranging from 4.70% to 5.55%, current as of April 17, 2024. " class="img--noscript universal-image__image" height="1888" sizes="750px" src="https://www.investopedia.com/thmb/v8kI1RghwA66of-hCr8byMJZbGA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-17-5b9ad938e58f4ccc9ced1fe3b4b33a0c.png" srcset="https://www.investopedia.com/thmb/x1Bd2RpcOhmFdNiUL8AoGhsJenQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-17-5b9ad938e58f4ccc9ced1fe3b4b33a0c.png 750w" width="2480"/> </noscript> </div> </div> </figure> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_2-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_3-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>The top CD rate in the country held firm today, with <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Newtek Bank</a> offering 5.55% APY for a 6-month term.</li> <li>If you're interested in locking in one of today's stellar rates for a longer term, you can score up to 5.40% for 1 year to 15 months, or as much as 5.30% APY for 2 years.</li> <li>The highest rates on certificates of 3 to 5 years range from 4.70% to 5.00% APY.</li> <li>The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> have been gradually easing lower for months, in anticipation of future Fed rate cuts—something that's been expected to occur this year.</li> <li>But last week's inflation data suggests it might be a while before the central bank feels comfortable lowering rates.</li> </ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_6-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-lock-in-530-to-555-apy-for-3-to-23-months"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Lock In 5.30% to 5.55% APY for 3 to 23 Months </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The highest CD yields continue to be offered on short-term certificates. Presiding at the top of our rankings is Newtek Bank, which is paying the nation-leading rate of 5.55% for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267">6-month term</a>. The runner-up rate is 5.50%, available from two different institutions, with terms of 5 or 7 months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> In the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">1-year</a> and 18-month terms, you can earn up to 5.40%—thanks to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348">leading 18-month rate</a> bumping up twice in the past few days. In total, 12 CDs are paying 5.40% APY or better, with terms of 3 to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">15 months</a>. For a slightly longer term, though, you might like <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human's</a> offer of 5.30% on a take-your-pick term of 18-23 months.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_13-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/8QzTY/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Ranges of the Top 15 CD rates by term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-longer-terms-will-lock-your-rate-to-2027or-beyond"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Longer Terms Will Lock Your Rate to 2027—Or Beyond </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Choosing a CD term longer than two years is also a smart option, since it's possible U.S. interest rates could enter a declining period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-2-year-cd-rates-4801682">top 3-year CD</a> paying 5.00%, guaranteeing that return until 2027. Or you can opt to guarantee rates in the mid-to-high 4% range for as far as 4 or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473">5 years</a> down the road. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_18-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 141px;"></colgroup> <colgroup span="1" style="width: 140px;"></colgroup> <colgroup span="1" style="width: 135px;"></colgroup> <colgroup span="1" style="width: 127px;"></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Terms</b></td> <td><b>Yesterday's Top National Rate</b></td> <td><b>Today's Top National Rate</b></td> <td><b>Day's Change </b>(percentage points)</td> <td><b>Top Rate Provider</b></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-month-cd-rates-5272288">3 months</a></td> <td>5.42% APY</td> <td>5.42% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.totaldirectbank.com/personal/cds&amp;lender=TotalDirectBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">TotalDirectBank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267">6 months</a></td> <td>5.55% APY</td> <td>5.55% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Newtek Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">1 year</a></td> <td>5.40% APY</td> <td>5.40% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.applefcu.org/rates&amp;lender=Apple%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Apple Federal Credit Union</a>, <a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.expeditioncu.com/rates/index.html&amp;lender=Expedition%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Expedition Credit Union</a>, and <a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nexbankpersonal.com/certificates-of-deposit-cds&amp;lender=NexBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">NexBank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348">18 months</a></td> <td>5.40% APY</td> <td>5.40% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://northernbankdirect.com/cds-all-rates&amp;lender=Northern%20Bank%20Direct&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Northern Bank Direct</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&amp;lender=XCEL%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">2 years</a></td> <td>5.30% APY</td> <td>5.30% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-year-cd-rates-4782938">3 years</a></td> <td>5.00% APY</td> <td>5.00% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&amp;lender=DollarSavingsDirect&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">DollarSavingsDirect</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473">4 years</a></td> <td>4.70% APY</td> <td>4.70% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&amp;lender=Lafayette%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">5 years</a></td> <td>4.70% APY</td> <td>4.70% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human</a></td> </tr> </tbody> </table> <figcaption>To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Today's high CD rates are a perfect antidote to stubborn inflation, with rates available in every CD term that far out-earn the current inflation rate of 3.5%. By putting money into one of these top-paying CDs today, you can stay<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-beat-todays-stubborn-inflation-with-a-top-paying-cd-8610878"> 1 to 2 percentage points ahead of inflation</a>.</p></div></div></div> <span class="heading-toc" id="toc-cd-rates-are-still-near-record-highs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> CD Rates Are Still Near Record Highs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">Certificate of deposit (CD) rates</a> have inched lower since they climbed to a historic high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid at least 5.50% APY was 30. Today that count sits at three. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Also keep in mind that snagging the absolute <em>highest</em> APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_29-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/oGe7o/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Today's CD rates vs. Fall peak vs. Jan 2022"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-jumbo-deposits-can-provide-more-cd-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Jumbo Deposits Can Provide More CD Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The top two jumbo CDs let you earn more than you can with a standard CD. <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://statebnk.com/sbotrates/&amp;lender=State%20Bank%20Credit%20Texas&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">State Bank of Texas</a> is paying 5.50% APY on a 12-month certificate, while <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.myebanc.com/online-products/online-time-deposits/&amp;lender=My%20eBanc&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">My eBanc</a> offers 5.49% APY for 6 months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Beware that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766">the best jumbo CD rates</a> don't <em>always</em> pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the terms below, so it's always wise to shop both certificate types before making a final decision. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_36-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 92px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Term</b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bank-cd-rates-4801462">Today's Top National Bank Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">Today's Top National Credit Union Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766">Today's Top National Jumbo Rate</a></b></td> </tr> <tr> <td>3 months</td> <td>5.42% APY*</td> <td>5.30% APY</td> <td>5.20% APY</td> </tr> <tr> <td>6 months</td> <td>5.55% APY*</td> <td>5.50% APY</td> <td>5.49% APY</td> </tr> <tr> <td>1 year</td> <td>5.40% APY</td> <td>5.40% APY</td> <td>5.50% APY*</td> </tr> <tr> <td>18 months</td> <td>5.40% APY</td> <td>5.30% APY</td> <td>5.41% APY*</td> </tr> <tr> <td>2 years</td> <td>4.90% APY</td> <td>5.30% APY*</td> <td>4.96% APY</td> </tr> <tr> <td>3 years</td> <td>5.00% APY*</td> <td>5.00% APY*</td> <td>4.97% APY</td> </tr> <tr> <td>4 years</td> <td>4.55% APY</td> <td>4.70% APY*</td> <td>4.48% APY</td> </tr> <tr> <td>5 years</td> <td>4.55% APY</td> <td>4.70% APY*</td> <td>4.37% APY</td> </tr> </tbody> </table> <figcaption>*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-where-are-cd-rates-headed-in-2024"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> Where Are CD Rates Headed in 2024? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> To combat decades-high inflation, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve</a> aggressively hiked the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">money market account</a>. Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_43-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/aC3kG/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Top CD Rates Since December 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723">maintain the fed fund rate at its current level</a>, the fifth meeting in a row it's done so.<span class="ql-inline-citation" data-cite="32"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> That's because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke last week about how the first rate cut could still be a ways off. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks.<span class="ql-inline-citation" data-cite="43"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Unfortunately for those anxious for rate cuts, last week's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inflation-heated-up-in-march-8629363">release of new inflation data</a> did not help the outlook. The March Consumer Price Index came in at 3.5%, which is 0.3 percentage points higher than February and 0.4 higher than January.<span class="ql-inline-citation" data-cite="44"></span> In fact, it's the highest inflation reading since September, moving in the wrong direction to trigger Fed rate decreases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year.<span class="ql-inline-citation" data-cite="41"></span> But confidence in that prediction is waning as new data comes to light. According to the CME Group's FedWatch Tool, less than 25% of traders currently predict we'll see three cuts by the end of 2024.<span class="ql-inline-citation" data-cite="39"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1.<span class="ql-inline-citation" data-cite="42"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_62-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Best High-Yield Savings Accounts for May 2024—Up to 5.55%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_64-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-cd-rates-4770214" id="mntl-sc-block-featuredlink__link_2-0" rel="nocaes"><span class="link__wrapper">Best CD Rates for May 2024: Up to 5.51%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_66-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-money-market-accounts-5096917" id="mntl-sc-block-featuredlink__link_3-0" rel="nocaes"><span class="link__wrapper">Best Money Market Account Rates for May 2024—Up to 5.35%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_68-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_69-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher.</p></div></div></div> <span class="heading-toc" id="toc-how-we-find-the-best-cd-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_70-0"> <span class="mntl-sc-block-heading__text"> How We Find the Best CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">FDIC</a> for banks, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua-insured-institution.asp">NCUA</a> for credit unions), and the CD's minimum initial deposit must not exceed $25,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>.<br/> </p></div>

![Top nationally available rate in every CD term, ranging from 4.70% to 5.55%, current as of April 17, 2024. ]() :max_bytes(150000):strip_icc()/4-17-5b9ad938e58f4ccc9ced1fe3b4b33a0c.png) ### Key Takeaways * The top CD rate in the country held firm today, with [Newtek Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) offering 5.55% APY for a 6-month term. * If you're interested in locking in one of today's stellar rates for a longer term, you can score up to 5.40% for 1 year to 15 months, or as much as 5.30% APY for 2 years. * The highest rates on certificates of 3 to 5 years range from 4.70% to 5.00% APY. * The [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) have been gradually easing lower for months, in anticipation of future Fed rate cuts—something that's been expected to occur this year. * But last week's inflation data suggests it might be a while before the central bank feels comfortable lowering rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. ## Lock In 5.30% to 5.55% APY for 3 to 23 Months The highest CD yields continue to be offered on short-term certificates. Presiding at the top of our rankings is Newtek Bank, which is paying the nation-leading rate of 5.55% for a [6-month term](https://www.investopedia.com/best-6-month-cd-rates-4783267). The runner-up rate is 5.50%, available from two different institutions, with terms of 5 or 7 months. In the [1-year](https://www.investopedia.com/best-1-year-cd-rates-4796650) and 18-month terms, you can earn up to 5.40%—thanks to the [leading 18-month rate](https://www.investopedia.com/best-18-month-cd-rates-5272348) bumping up twice in the past few days. In total, 12 CDs are paying 5.40% APY or better, with terms of 3 to [15 months](https://www.investopedia.com/best-1-year-cd-rates-4796650). For a slightly longer term, though, you might like [Credit Human's](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) offer of 5.30% on a take-your-pick term of 18-23 months. ## Longer Terms Will Lock Your Rate to 2027—Or Beyond Choosing a CD term longer than two years is also a smart option, since it's possible U.S. interest rates could enter a declining period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a [top 3-year CD](https://www.investopedia.com/best-2-year-cd-rates-4801682) paying 5.00%, guaranteeing that return until 2027. Or you can opt to guarantee rates in the mid-to-high 4% range for as far as 4 or [5 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) down the road. | **CD Terms** | **Yesterday's Top National Rate** | **Today's Top National Rate** | **Day's Change** (percentage points) | **Top Rate Provider** | | --- | --- | --- | --- | --- | | [3 months](https://www.investopedia.com/best-3-month-cd-rates-5272288) | 5.42% APY | 5.42% APY | No change | [TotalDirectBank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.totaldirectbank.com/personal/cds&lender=TotalDirectBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [6 months](https://www.investopedia.com/best-6-month-cd-rates-4783267) | 5.55% APY | 5.55% APY | No change | [Newtek Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [1 year](https://www.investopedia.com/best-1-year-cd-rates-4796650) | 5.40% APY | 5.40% APY | No change | [Apple Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.applefcu.org/rates&lender=Apple%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ), [Expedition Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.expeditioncu.com/rates/index.html&lender=Expedition%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ), and [NexBank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nexbankpersonal.com/certificates-of-deposit-cds&lender=NexBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [18 months](https://www.investopedia.com/best-18-month-cd-rates-5272348) | 5.40% APY | 5.40% APY | No change | [Northern Bank Direct](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://northernbankdirect.com/cds-all-rates&lender=Northern%20Bank%20Direct&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [2 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 5.30% APY | 5.30% APY | No change | [Credit Human](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [3 years](https://www.investopedia.com/best-3-year-cd-rates-4782938) | 5.00% APY | 5.00% APY | No change | [DollarSavingsDirect](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&lender=DollarSavingsDirect&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [4 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) | 4.70% APY | 4.70% APY | No change | [Credit Human](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [5 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&lender=Lafayette%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.70% APY | 4.70% APY | No change | [Credit Human](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. ### Today's high CD rates are a perfect antidote to stubborn inflation, with rates available in every CD term that far out-earn the current inflation rate of 3.5%. By putting money into one of these top-paying CDs today, you can stay [1 to 2 percentage points ahead of inflation](https://www.investopedia.com/how-to-beat-todays-stubborn-inflation-with-a-top-paying-cd-8610878). ## CD Rates Are Still Near Record Highs [Certificate of deposit (CD) rates](https://www.investopedia.com/terms/c/certificateofdeposit.asp) have inched lower since they climbed to a historic high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid at least 5.50% APY was 30. Today that count sits at three. But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute *highest* APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move. ## Jumbo Deposits Can Provide More CD Options The top two jumbo CDs let you earn more than you can with a standard CD. [State Bank of Texas](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://statebnk.com/sbotrates/&lender=State%20Bank%20Credit%20Texas&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) is paying 5.50% APY on a 12-month certificate, while [My eBanc](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.myebanc.com/online-products/online-time-deposits/&lender=My%20eBanc&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) offers 5.49% APY for 6 months. Beware that [the best jumbo CD rates](https://www.investopedia.com/best-jumbo-cd-rates-4797766) don't *always* pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the terms below, so it's always wise to shop both certificate types before making a final decision. | **CD Term** | **[Today's Top National Bank Rate](https://www.investopedia.com/best-bank-cd-rates-4801462)** | **[Today's Top National Credit Union Rate](https://www.investopedia.com/best-cd-rates-4770214)** | **[Today's Top National Jumbo Rate](https://www.investopedia.com/best-jumbo-cd-rates-4797766)** | | --- | --- | --- | --- | | 3 months | 5.42% APY\* | 5.30% APY | 5.20% APY | | 6 months | 5.55% APY\* | 5.50% APY | 5.49% APY | | 1 year | 5.40% APY | 5.40% APY | 5.50% APY\* | | 18 months | 5.40% APY | 5.30% APY | 5.41% APY\* | | 2 years | 4.90% APY | 5.30% APY\* | 4.96% APY | | 3 years | 5.00% APY\* | 5.00% APY\* | 4.97% APY | | 4 years | 4.55% APY | 4.70% APY\* | 4.48% APY | | 5 years | 4.55% APY | 4.70% APY\* | 4.37% APY | \*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. ## Where Are CD Rates Headed in 2024? To combat decades-high inflation, the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) aggressively hiked the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a [high-yield savings](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) or [money market account](https://www.investopedia.com/best-money-market-accounts-5096917). Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would [maintain the fed fund rate at its current level](https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723), the fifth meeting in a row it's done so. That's because [inflation](https://www.investopedia.com/terms/i/inflation.asp) has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke last week about how the first rate cut could still be a ways off. "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks. Unfortunately for those anxious for rate cuts, last week's [release of new inflation data](https://www.investopedia.com/inflation-heated-up-in-march-8629363) did not help the outlook. The March Consumer Price Index came in at 3.5%, which is 0.3 percentage points higher than February and 0.4 higher than January. In fact, it's the highest inflation reading since September, moving in the wrong direction to trigger Fed rate decreases. At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year. But confidence in that prediction is waning as new data comes to light. According to the CME Group's FedWatch Tool, less than 25% of traders currently predict we'll see three cuts by the end of 2024. Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1. [Best High-Yield Savings Accounts for May 2024—Up to 5.55%](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) [Best CD Rates for May 2024: Up to 5.51%](https://www.investopedia.com/best-cd-rates-4770214) [Best Money Market Account Rates for May 2024—Up to 5.35%](https://www.investopedia.com/best-money-market-accounts-5096917) ### Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. ## How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured ([FDIC](https://www.investopedia.com/terms/f/fdic-insured-account.asp) for banks, [NCUA](https://www.investopedia.com/terms/n/ncua-insured-institution.asp) for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, [read our full methodology](https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816).

Key Takeaways The top CD rate in the country held firm today, with Newtek Bank offering 5.55% APY for a 6-month term. If you're interested in locking in one of today's stellar rates for a longer term, you can score up to 5.40% for 1 year to 15 months, or as much as 5.30% APY for 2 years. The highest rates on certificates of 3 to 5 years range from 4.70% to 5.00% APY. The best CD rates have been gradually easing lower for months, in anticipation of future Fed rate cuts—something that's been expected to occur this year. But last week's inflation data suggests it might be a while before the central bank feels comfortable lowering rates. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. Lock In 5.30% to 5.55% APY for 3 to 23 Months The highest CD yields continue to be offered on short-term certificates. Presiding at the top of our rankings is Newtek Bank, which is paying the nation-leading rate of 5.55% for a 6-month term. The runner-up rate is 5.50%, available from two different institutions, with terms of 5 or 7 months. In the 1-year and 18-month terms, you can earn up to 5.40%—thanks to the leading 18-month rate bumping up twice in the past few days. In total, 12 CDs are paying 5.40% APY or better, with terms of 3 to 15 months. For a slightly longer term, though, you might like Credit Human's offer of 5.30% on a take-your-pick term of 18-23 months. Longer Terms Will Lock Your Rate to 2027—Or Beyond Choosing a CD term longer than two years is also a smart option, since it's possible U.S. interest rates could enter a declining period for the next 2-3 years. To lock in a rate that will last far into the future, you can choose a top 3-year CD paying 5.00%, guaranteeing that return until 2027. Or you can opt to guarantee rates in the mid-to-high 4% range for as far as 4 or 5 years down the road. CD Terms Yesterday's Top National Rate Today's Top National Rate Day's Change (percentage points) Top Rate Provider 3 months 5.42% APY 5.42% APY No change TotalDirectBank 6 months 5.55% APY 5.55% APY No change Newtek Bank 1 year 5.40% APY 5.40% APY No change Apple Federal Credit Union, Expedition Credit Union, and NexBank 18 months 5.40% APY 5.40% APY No change Northern Bank Direct 2 years 5.30% APY 5.30% APY No change Credit Human 3 years 5.00% APY 5.00% APY No change DollarSavingsDirect 4 years 4.70% APY 4.70% APY No change Credit Human 5 years 4.70% APY 4.70% APY No change Credit Human To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. Today's high CD rates are a perfect antidote to stubborn inflation, with rates available in every CD term that far out-earn the current inflation rate of 3.5%. By putting money into one of these top-paying CDs today, you can stay 1 to 2 percentage points ahead of inflation. CD Rates Are Still Near Record Highs Certificate of deposit (CD) rates have inched lower since they climbed to a historic high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid at least 5.50% APY was 30. Today that count sits at three. But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute highest APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now—before rates move lower—can be a smart move. Jumbo Deposits Can Provide More CD Options The top two jumbo CDs let you earn more than you can with a standard CD. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while My eBanc offers 5.49% APY for 6 months. Beware that the best jumbo CD rates don't always pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the terms below, so it's always wise to shop both certificate types before making a final decision. CD Term Today's Top National Bank Rate Today's Top National Credit Union Rate Today's Top National Jumbo Rate 3 months 5.42% APY* 5.30% APY 5.20% APY 6 months 5.55% APY* 5.50% APY 5.49% APY 1 year 5.40% APY 5.40% APY 5.50% APY* 18 months 5.40% APY 5.30% APY 5.41% APY* 2 years 4.90% APY 5.30% APY* 4.96% APY 3 years 5.00% APY* 5.00% APY* 4.97% APY 4 years 4.55% APY 4.70% APY* 4.48% APY 5 years 4.55% APY 4.70% APY* 4.37% APY *Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. Where Are CD Rates Headed in 2024? To combat decades-high inflation, the Federal Reserve aggressively hiked the federal funds rate between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a high-yield savings or money market account. Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would maintain the fed fund rate at its current level, the fifth meeting in a row it's done so. That's because inflation has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke last week about how the first rate cut could still be a ways off. "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks. Unfortunately for those anxious for rate cuts, last week's release of new inflation data did not help the outlook. The March Consumer Price Index came in at 3.5%, which is 0.3 percentage points higher than February and 0.4 higher than January. In fact, it's the highest inflation reading since September, moving in the wrong direction to trigger Fed rate decreases. At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year. But confidence in that prediction is waning as new data comes to light. According to the CME Group's FedWatch Tool, less than 25% of traders currently predict we'll see three cuts by the end of 2024. Still, it's a reasonable prediction that the Fed will find it appropriate to lower its benchmark rate sometime this year, if not three times. But Fed moves several months into the future are unpredictable, and until more data comes in, it's impossible to say if any 2024 rate cuts will come to fruition. As a result, CD rates could continue their current plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears that could be months away. The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

https://www.investopedia.com/investing/steps-successful-investment-journey/

7 Steps to a Successful Investment Journey

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The most successful investors were not made in a day. Learning the ins and outs of the financial world and your personality as an investor takes time and patience, not to mention trial and error. In this article, we'll lead you through the first seven steps of your expedition into investing and show you what to look out for along the way. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Your investing journey starts with a plan and a time frame; when you know how long you're investing for and what you hope to gain, you can put the structure in place to achieve it.</li><li>Next, learn about how the market works, figure out what investment strategy is best for you, and determine what kind of investor you are.</li><li>Be careful who you're taking advice from and be mindful of your own prejudices and assumptions, as you find the right path for you.</li><li>Make sure you understand this is a long-term journey so that you won't get tripped up by short-term setbacks; always stay open and learn from your mistakes.</li></ul></div></div></div> <span class="heading-toc" id="toc-1-getting-started-in-investing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> 1. Getting Started in Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Successful investing is a journey, not a one-time event, and you'll need to prepare yourself as if you were going on a long trip. Begin by defining your destination, then plan your investment journey accordingly. For example, are you looking to retire in 20 years at age 55? How much money will you need to do this? You must first ask these questions. The plan that you come up with will depend on your investment goals. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-2-know-what-works-in-the-market"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> 2. Know What Works in the Market </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Read books or take an investment course that deals with modern financial ideas. The people who came up with theories such as portfolio optimization, diversification, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketefficiency.asp">market efficiency</a> received their Nobel prizes for good reason. Investing is a combination of science (financial fundamentals) and art (qualitative factors). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The scientific aspect of finance is a solid place to start and should not be ignored. If science is not your strong suit, don't fret. There are many texts, such as <em>Stocks for the long run</em> by Jeremy Siegel, that explain high-level finance ideas in a way that is easy to understand.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Once you know what works in the market, you can come up with simple rules that work for you. For example, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/071801.asp">Warren Buffett</a> is one of the most successful investors ever. His simple investment style is summed up in this well-known quote: "Never invest in a business you cannot understand." It has served him well. While he missed the tech upturn, he avoided the subsequent devastating downturn of the high-tech <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bubble.asp">bubble</a> of 2000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-3-know-your-investment-strategy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> 3. Know Your Investment Strategy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Nobody knows you and your situation better than you do. Therefore, you may be the most qualified person to do your own <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investing.asp" rel="noopener noreferrer">investing</a>—all you need is a bit of help. Identify the personality traits that will assist you or prevent you from investing successfully, and manage them accordingly. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> A very useful behavioral model that helps investors to understand themselves was developed by fund managers Tom Bailard, Larry Biehl, and Ron Kaiser. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_20-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Investment Strategy" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/6EaL3QQL_4vLJsmvxXC45urFrok=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/KnowYourInvestmentStrategy22-97bb8515c00146d992e3fd4a529d0069.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/6EaL3QQL_4vLJsmvxXC45urFrok=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/KnowYourInvestmentStrategy22-97bb8515c00146d992e3fd4a529d0069.png" data-srcset="https://www.investopedia.com/thmb/Mh20qTIGFBb7MmIzSlfn1x89uVM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/KnowYourInvestmentStrategy22-97bb8515c00146d992e3fd4a529d0069.png 750w" data-tracking-container="true" height="4167" id="mntl-sc-block-image_1-0" width="6250"/> <noscript> <img alt="Investment Strategy" class="img--noscript universal-image__image" height="4167" sizes="750px" src="https://www.investopedia.com/thmb/6EaL3QQL_4vLJsmvxXC45urFrok=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/KnowYourInvestmentStrategy22-97bb8515c00146d992e3fd4a529d0069.png" srcset="https://www.investopedia.com/thmb/Mh20qTIGFBb7MmIzSlfn1x89uVM=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/KnowYourInvestmentStrategy22-97bb8515c00146d992e3fd4a529d0069.png 750w" width="6250"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner">Image by Julie Bang © Investopedia 2019</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The model classifies investors according to two personality characteristics: method of action (careful or impetuous) and level of confidence (confident or anxious).<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Based on these personality traits, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/052413/what-type-trader-are-you.asp">BB&amp;K model</a> divides investors into five groups: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <li>Individualist – careful and confident, often takes a do-it-yourself approach</li> <li>Adventurer – volatile, entrepreneurial, and strong-willed</li> <li>Celebrity – a follower of the latest investment fads</li> <li>Guardian – highly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskaverse.asp">risk-averse</a>, wealth preserver</li> <li>Straight Arrow – shares the characteristics of all of the above equally</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Not surprisingly, the best investment results tend to be realized by an individualist, or someone who exhibits analytical behavior and confidence and has a good eye for value. However, if you determine that your personality traits resemble those of an adventurer, you can still achieve investment success if you adjust your strategy accordingly. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> In other words, regardless of which group you fit into, you should manage your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/core-assets.asp">core assets</a> in a systematic and disciplined way. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-4-know-your-friends-and-enemies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> 4. Know Your Friends and Enemies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Beware of false friends who only pretend to be on your side, such as certain unscrupulous investment professionals whose interests may conflict with yours. You must also remember that, as an investor, you are competing with large financial institutions that have more resources, including greater and faster access to information. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Bear in mind you are potentially your own worst enemy. Depending on your personality, strategy, and particular circumstances, you may be sabotaging your own success. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/guardian.asp">guardian</a> would be going against their personality type if they were to follow the latest market craze and seek <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortterm.asp">short-term</a> profits. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Because you are risk-averse and a wealth preserver, you would be affected far more by large losses that can result from high-risk, high-return investments. Be honest with yourself, and identify and modify the factors preventing you from investing successfully or moving you away from your comfort zone. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-5-find-the-right-investing-path"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> 5. Find the Right Investing Path </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Your level of knowledge, personality, and resources should determine the path you choose. Generally, investors adopt one of the following strategies: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <li>Don't put all of your eggs in one basket. In other words, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversify</a>.</li> <li>Put all of your eggs in one basket, but watch your basket carefully.</li> <li>Combine both of these strategies by making tactical bets on a core passive portfolio.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/063015/5-great-investors-who-arent-warren-buffett.asp">successful investors</a> start with low-risk diversified portfolios and gradually learn by doing. As investors gain greater knowledge over time, they become better suited to taking a more active stance in their portfolios. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_45-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_46-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Online brokers have an abundance of tools that can help investors of all levels; we've done an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/broker-awards-4587871">extensive review and ranking</a> of more than 70 online brokers to find the best one for you.</p></div></div></div> <span class="heading-toc" id="toc-6-be-in-it-for-the-long-term"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> 6. Be in It for the Long Term </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Sticking with the optimal long-term strategy may not be the most exciting investing choice. However, your chances of success should increase if you stay the course without letting your emotions, or "false friends," get the upper hand. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <span class="heading-toc" id="toc-7-be-willing-to-learn"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-heading__text"> 7. Be Willing to Learn </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> The market is hard to predict, but one thing is certain: it will be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatile</a>. Learning to be a successful investor is a gradual process and the investment journey is typically a long one. At times, the market will prove you wrong. Acknowledge that and learn from your mistakes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Whether you are just getting started or want to improve your skills, check out the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://academy.investopedia.com/?aca_ref=header_home_link_1">Investopedia Academy</a> where we have dozens of online courses for every kind of investor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-how-should-a-beginner-start-to-invest"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Should a Beginner Start to Invest?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The first step a new investor should take is to determine their investment goals "Why are you investing?" Are you planning for retirement? Saving up to buy a house? Knowing your goals will guide your investment decisions. From there, determine your investment vehicles, such as purchasing stocks, investing in ETFs or mutual funds, setting up a retirement account, and so on. You should also consider how much you want to invest as well as your time horizon.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-what-are-good-beginner-investments"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Good Beginner Investments?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One of the best ways to start investing is by contributing to your retirement account at work if you have one. If your company has a 401(k) for example, you can start contributing there. If it does not, you can start retirement planning on your own with an IRA. From there, a simple way to invest is by putting money in an index fund; funds that track an index such as the S&amp;P 500. These funds, particularly exchange-traded funds (ETFs), are easy to buy and sell, come with low fees, and provide a wide breadth of exposure to the markets.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_59-0"><span class="heading-toc" id="toc-how-much-money-do-i-need-to-start-investing"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Money Do I Need to Start Investing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can start investing with any amount of money. If you have a retirement plan at work, you can allocate part of your salary to contribute to the plan. If there is a stock you want to buy, you only need enough to buy one share to get started.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Starting to invest can be an exciting time but also challenging for newcomers. There are lots of financial products and plenty of different investment advice out there. As you start, first educate yourself on investing, lay out your financial goals, and don't rush to make a fortune. Taking the time to learn about investing and carefully making the right choices for you should allow you to generate a tidy return. </p></div>

The most successful investors were not made in a day. Learning the ins and outs of the financial world and your personality as an investor takes time and patience, not to mention trial and error. In this article, we'll lead you through the first seven steps of your expedition into investing and show you what to look out for along the way. ### Key Takeaways * Your investing journey starts with a plan and a time frame; when you know how long you're investing for and what you hope to gain, you can put the structure in place to achieve it. * Next, learn about how the market works, figure out what investment strategy is best for you, and determine what kind of investor you are. * Be careful who you're taking advice from and be mindful of your own prejudices and assumptions, as you find the right path for you. * Make sure you understand this is a long-term journey so that you won't get tripped up by short-term setbacks; always stay open and learn from your mistakes. ## 1. Getting Started in Investing Successful investing is a journey, not a one-time event, and you'll need to prepare yourself as if you were going on a long trip. Begin by defining your destination, then plan your investment journey accordingly. For example, are you looking to retire in 20 years at age 55? How much money will you need to do this? You must first ask these questions. The plan that you come up with will depend on your investment goals. ## 2. Know What Works in the Market Read books or take an investment course that deals with modern financial ideas. The people who came up with theories such as portfolio optimization, diversification, and [market efficiency](https://www.investopedia.com/terms/m/marketefficiency.asp) received their Nobel prizes for good reason. Investing is a combination of science (financial fundamentals) and art (qualitative factors). The scientific aspect of finance is a solid place to start and should not be ignored. If science is not your strong suit, don't fret. There are many texts, such as *Stocks for the long run* by Jeremy Siegel, that explain high-level finance ideas in a way that is easy to understand. Once you know what works in the market, you can come up with simple rules that work for you. For example, [Warren Buffett](https://www.investopedia.com/articles/01/071801.asp) is one of the most successful investors ever. His simple investment style is summed up in this well-known quote: "Never invest in a business you cannot understand." It has served him well. While he missed the tech upturn, he avoided the subsequent devastating downturn of the high-tech [bubble](https://www.investopedia.com/terms/b/bubble.asp) of 2000. ## 3. Know Your Investment Strategy Nobody knows you and your situation better than you do. Therefore, you may be the most qualified person to do your own [investing](https://www.investopedia.com/terms/i/investing.asp)—all you need is a bit of help. Identify the personality traits that will assist you or prevent you from investing successfully, and manage them accordingly. A very useful behavioral model that helps investors to understand themselves was developed by fund managers Tom Bailard, Larry Biehl, and Ron Kaiser. ![Investment Strategy]() :max_bytes(150000):strip_icc()/KnowYourInvestmentStrategy22-97bb8515c00146d992e3fd4a529d0069.png) Image by Julie Bang © Investopedia 2019 The model classifies investors according to two personality characteristics: method of action (careful or impetuous) and level of confidence (confident or anxious). Based on these personality traits, the [BB&K model](https://www.investopedia.com/articles/investing/052413/what-type-trader-are-you.asp) divides investors into five groups: * Individualist – careful and confident, often takes a do-it-yourself approach * Adventurer – volatile, entrepreneurial, and strong-willed * Celebrity – a follower of the latest investment fads * Guardian – highly [risk-averse](https://www.investopedia.com/terms/r/riskaverse.asp), wealth preserver * Straight Arrow – shares the characteristics of all of the above equally Not surprisingly, the best investment results tend to be realized by an individualist, or someone who exhibits analytical behavior and confidence and has a good eye for value. However, if you determine that your personality traits resemble those of an adventurer, you can still achieve investment success if you adjust your strategy accordingly. In other words, regardless of which group you fit into, you should manage your [core assets](https://www.investopedia.com/terms/c/core-assets.asp) in a systematic and disciplined way. ## 4. Know Your Friends and Enemies Beware of false friends who only pretend to be on your side, such as certain unscrupulous investment professionals whose interests may conflict with yours. You must also remember that, as an investor, you are competing with large financial institutions that have more resources, including greater and faster access to information. Bear in mind you are potentially your own worst enemy. Depending on your personality, strategy, and particular circumstances, you may be sabotaging your own success. A [guardian](https://www.investopedia.com/terms/g/guardian.asp) would be going against their personality type if they were to follow the latest market craze and seek [short-term](https://www.investopedia.com/terms/s/shortterm.asp) profits. Because you are risk-averse and a wealth preserver, you would be affected far more by large losses that can result from high-risk, high-return investments. Be honest with yourself, and identify and modify the factors preventing you from investing successfully or moving you away from your comfort zone. ## 5. Find the Right Investing Path Your level of knowledge, personality, and resources should determine the path you choose. Generally, investors adopt one of the following strategies: * Don't put all of your eggs in one basket. In other words, [diversify](https://www.investopedia.com/terms/d/diversification.asp). * Put all of your eggs in one basket, but watch your basket carefully. * Combine both of these strategies by making tactical bets on a core passive portfolio. Most [successful investors](https://www.investopedia.com/articles/investing/063015/5-great-investors-who-arent-warren-buffett.asp) start with low-risk diversified portfolios and gradually learn by doing. As investors gain greater knowledge over time, they become better suited to taking a more active stance in their portfolios. ### Online brokers have an abundance of tools that can help investors of all levels; we've done an [extensive review and ranking](https://www.investopedia.com/broker-awards-4587871) of more than 70 online brokers to find the best one for you. ## 6. Be in It for the Long Term Sticking with the optimal long-term strategy may not be the most exciting investing choice. However, your chances of success should increase if you stay the course without letting your emotions, or "false friends," get the upper hand. ## 7. Be Willing to Learn The market is hard to predict, but one thing is certain: it will be [volatile](https://www.investopedia.com/terms/v/volatility.asp). Learning to be a successful investor is a gradual process and the investment journey is typically a long one. At times, the market will prove you wrong. Acknowledge that and learn from your mistakes. Whether you are just getting started or want to improve your skills, check out the [Investopedia Academy](https://academy.investopedia.com/?aca_ref=header_home_link_1) where we have dozens of online courses for every kind of investor. ## How Should a Beginner Start to Invest? The first step a new investor should take is to determine their investment goals "Why are you investing?" Are you planning for retirement? Saving up to buy a house? Knowing your goals will guide your investment decisions. From there, determine your investment vehicles, such as purchasing stocks, investing in ETFs or mutual funds, setting up a retirement account, and so on. You should also consider how much you want to invest as well as your time horizon. ## What Are Good Beginner Investments? One of the best ways to start investing is by contributing to your retirement account at work if you have one. If your company has a 401(k) for example, you can start contributing there. If it does not, you can start retirement planning on your own with an IRA. From there, a simple way to invest is by putting money in an index fund; funds that track an index such as the S&P 500. These funds, particularly exchange-traded funds (ETFs), are easy to buy and sell, come with low fees, and provide a wide breadth of exposure to the markets. ## How Much Money Do I Need to Start Investing? You can start investing with any amount of money. If you have a retirement plan at work, you can allocate part of your salary to contribute to the plan. If there is a stock you want to buy, you only need enough to buy one share to get started. ## The Bottom Line Starting to invest can be an exciting time but also challenging for newcomers. There are lots of financial products and plenty of different investment advice out there. As you start, first educate yourself on investing, lay out your financial goals, and don't rush to make a fortune. Taking the time to learn about investing and carefully making the right choices for you should allow you to generate a tidy return.

The most successful investors were not made in a day. Learning the ins and outs of the financial world and your personality as an investor takes time and patience, not to mention trial and error. In this article, we'll lead you through the first seven steps of your expedition into investing and show you what to look out for along the way. Key Takeaways Your investing journey starts with a plan and a time frame; when you know how long you're investing for and what you hope to gain, you can put the structure in place to achieve it.Next, learn about how the market works, figure out what investment strategy is best for you, and determine what kind of investor you are.Be careful who you're taking advice from and be mindful of your own prejudices and assumptions, as you find the right path for you.Make sure you understand this is a long-term journey so that you won't get tripped up by short-term setbacks; always stay open and learn from your mistakes. 1. Getting Started in Investing Successful investing is a journey, not a one-time event, and you'll need to prepare yourself as if you were going on a long trip. Begin by defining your destination, then plan your investment journey accordingly. For example, are you looking to retire in 20 years at age 55? How much money will you need to do this? You must first ask these questions. The plan that you come up with will depend on your investment goals. 2. Know What Works in the Market Read books or take an investment course that deals with modern financial ideas. The people who came up with theories such as portfolio optimization, diversification, and market efficiency received their Nobel prizes for good reason. Investing is a combination of science (financial fundamentals) and art (qualitative factors). The scientific aspect of finance is a solid place to start and should not be ignored. If science is not your strong suit, don't fret. There are many texts, such as Stocks for the long run by Jeremy Siegel, that explain high-level finance ideas in a way that is easy to understand. Once you know what works in the market, you can come up with simple rules that work for you. For example, Warren Buffett is one of the most successful investors ever. His simple investment style is summed up in this well-known quote: "Never invest in a business you cannot understand." It has served him well. While he missed the tech upturn, he avoided the subsequent devastating downturn of the high-tech bubble of 2000. 3. Know Your Investment Strategy Nobody knows you and your situation better than you do. Therefore, you may be the most qualified person to do your own investing—all you need is a bit of help. Identify the personality traits that will assist you or prevent you from investing successfully, and manage them accordingly. A very useful behavioral model that helps investors to understand themselves was developed by fund managers Tom Bailard, Larry Biehl, and Ron Kaiser. Image by Julie Bang © Investopedia 2019 The model classifies investors according to two personality characteristics: method of action (careful or impetuous) and level of confidence (confident or anxious). Based on these personality traits, the BB&K model divides investors into five groups: Individualist – careful and confident, often takes a do-it-yourself approach Adventurer – volatile, entrepreneurial, and strong-willed Celebrity – a follower of the latest investment fads Guardian – highly risk-averse, wealth preserver Straight Arrow – shares the characteristics of all of the above equally Not surprisingly, the best investment results tend to be realized by an individualist, or someone who exhibits analytical behavior and confidence and has a good eye for value. However, if you determine that your personality traits resemble those of an adventurer, you can still achieve investment success if you adjust your strategy accordingly. In other words, regardless of which group you fit into, you should manage your core assets in a systematic and disciplined way. 4. Know Your Friends and Enemies Beware of false friends who only pretend to be on your side, such as certain unscrupulous investment professionals whose interests may conflict with yours. You must also remember that, as an investor, you are competing with large financial institutions that have more resources, including greater and faster access to information. Bear in mind you are potentially your own worst enemy. Depending on your personality, strategy, and particular circumstances, you may be sabotaging your own success. A guardian would be going against their personality type if they were to follow the latest market craze and seek short-term profits. Because you are risk-averse and a wealth preserver, you would be affected far more by large losses that can result from high-risk, high-return investments. Be honest with yourself, and identify and modify the factors preventing you from investing successfully or moving you away from your comfort zone. 5. Find the Right Investing Path Your level of knowledge, personality, and resources should determine the path you choose. Generally, investors adopt one of the following strategies: Don't put all of your eggs in one basket. In other words, diversify. Put all of your eggs in one basket, but watch your basket carefully. Combine both of these strategies by making tactical bets on a core passive portfolio. Most successful investors start with low-risk diversified portfolios and gradually learn by doing. As investors gain greater knowledge over time, they become better suited to taking a more active stance in their portfolios. Online brokers have an abundance of tools that can help investors of all levels; we've done an extensive review and ranking of more than 70 online brokers to find the best one for you. 6. Be in It for the Long Term Sticking with the optimal long-term strategy may not be the most exciting investing choice. However, your chances of success should increase if you stay the course without letting your emotions, or "false friends," get the upper hand. 7. Be Willing to Learn The market is hard to predict, but one thing is certain: it will be volatile. Learning to be a successful investor is a gradual process and the investment journey is typically a long one. At times, the market will prove you wrong. Acknowledge that and learn from your mistakes. Whether you are just getting started or want to improve your skills, check out the Investopedia Academy where we have dozens of online courses for every kind of investor. How Should a Beginner Start to Invest? The first step a new investor should take is to determine their investment goals "Why are you investing?" Are you planning for retirement? Saving up to buy a house? Knowing your goals will guide your investment decisions. From there, determine your investment vehicles, such as purchasing stocks, investing in ETFs or mutual funds, setting up a retirement account, and so on. You should also consider how much you want to invest as well as your time horizon. What Are Good Beginner Investments? One of the best ways to start investing is by contributing to your retirement account at work if you have one. If your company has a 401(k) for example, you can start contributing there. If it does not, you can start retirement planning on your own with an IRA. From there, a simple way to invest is by putting money in an index fund; funds that track an index such as the S&P 500. These funds, particularly exchange-traded funds (ETFs), are easy to buy and sell, come with low fees, and provide a wide breadth of exposure to the markets. How Much Money Do I Need to Start Investing? You can start investing with any amount of money. If you have a retirement plan at work, you can allocate part of your salary to contribute to the plan. If there is a stock you want to buy, you only need enough to buy one share to get started. The Bottom Line Starting to invest can be an exciting time but also challenging for newcomers. There are lots of financial products and plenty of different investment advice out there. As you start, first educate yourself on investing, lay out your financial goals, and don't rush to make a fortune. Taking the time to learn about investing and carefully making the right choices for you should allow you to generate a tidy return.

https://www.investopedia.com/terms/o/octobereffect.asp

October Effect: Definition, Examples, and Statistical Evidence

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-october-effect"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is the October Effect? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The October effect refers to the belief that stocks tend to decline during the month of October. It is considered to be more of a psychological expectation than an actual phenomenon, as most statistics contradict the theory. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Some investors may be nervous during October because some large, historical market crashes occurred during this month.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Along with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/september-effect.asp">September effect</a> (which also predicts weaker markets during October), actual evidence for the existence of the perceived <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/anomaly.asp">market anomaly</a> October effect is not very solid. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Indeed, October’s 100-year stock market history has, in fact, been net positive. That's in spite of being the month of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-panic-of-1907.asp">1907 panic</a>, Black Tuesday, Thursday, and Monday in 1929, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blackmonday.asp">Black Monday in 1987</a>, when the Dow plummeted 22.6% in a single day, (and remains arguably the worst single-day decline in market history on a percentage basis).<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The October effect is the perception that stock markets decline during the month of October, and it is classified as a market anomaly.</li><li>It is one of several calendar anomalies, along with the supposed September effect and Santa Claus rally.</li><li>The October effect is considered to be more of a psychological expectation than an actual phenomenon, as most statistics counter the theory.</li><li>The October effect, as well as other calendar anomalies, largely have seemed to disappear over the past decades.</li><li>In fact, October has tended to be a net positive month, on average, over the past century or more.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-october-effect"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Understanding the October Effect </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Proponents of the October effect, one of the most popular of the so-called calendar effects, argue that October is when some of the greatest crashes in stock market history occurred. These include 1929's Black Tuesday and Black Thursday and the 1987 stock market crash.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> While statistical evidence doesn’t support the phenomenon that stocks trade lower in October, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trading-psychology.asp">psychological expectations</a> for the October effect still exist. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/09/october-effect.asp">October effect</a>, however, tends to be overrated. Despite the moniker, this seeming concentration of dark market days is not statistically significant. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> In fact, September historically is more often down than October.<span class="ql-inline-citation" data-cite="5"></span> And from a historical perspective, October has marked the end of more bear markets than the beginning. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> This makes October an interesting prospect for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/08/contrarian-investing.asp">contrarian buying</a>. Investors who tend to see a month negatively can create opportunities for others to buy during that month. However, the end of the October effect, if it ever was a market force, may be at hand, as the month's stock market results have tended to be net positive, on average, over the past century or more. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <span class="heading-toc" id="toc-october-crashes"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> October Crashes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> What is true about October is that it traditionally has been the most volatile month for stocks. According to research from LPL Financial, there are more 1% or larger swings in October in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500</a> than in any other month in history, dating back to 1950. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Some of that can be attributed to the fact that October precedes elections in early November in the U.S. every other year.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> September, not October, has more historical down markets. However, October also has had its fair share of record stock market crashes. Some of the events over the decades that have given October the reputation for stock losses include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> <li>The Panic of 1907</li><li>Black Tuesday (1929)</li><li>Black Thursday (1929)</li><li>Black Monday (1929)</li><li>Black Monday (1987)</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Interestingly, the catalysts that set off both the 1929 crash and the 1907 panic happened in September or earlier, and the market reaction to them was simply delayed. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> In 1907, the panic nearly occurred in March. Throughout the year, the public’s confidence in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trustcompany.asp">trust companies</a> persistently diminished. They were considered risky because of their lack of regulation. Eventually, public skepticism came to a head in October and sparked a run on the trusts.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The 1929 Crash arguably began in February, when the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/frb.asp">Federal Reserve</a> banned margin-trading loans and cranked up interest rates.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_38-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_39-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>In contrast to October effect predictions, October 2022 was one of the most positive months in U.S. stock market history, with the Dow Jones up around 12% and the S&amp;P 500 up close to 6%.<span class="ql-inline-citation" data-cite="4"></span></p></div></div></div> <span class="heading-toc" id="toc-the-disappearance-of-the-october-effect"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> The Disappearance of the October Effect </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The numbers don’t support the October effect. If we look at all October monthly returns going back more than a century, there simply is no data on average to support the claim that October is a losing month. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Not surprisingly, some historical events have occurred in the month of October, but they most likely have remained in the collective memory because the name Black Monday sounds ominous. Markets have also crashed in months other than October. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Many investors today have a better memory of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dotcom.asp">dotcom</a> crash and the 2008–2009 financial crisis, yet none of those days were given the "black" moniker to bear for their particular month. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lehman-brothers.asp">Lehman Brothers’ collapse</a> happened on a Monday in September and marked a major escalation in the global stakes of the financial crisis, but it didn’t get reported as a new Black Monday. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> For whatever reason, the news media no longer leads with black days—and Wall Street doesn’t seem eager to revive the practice, either. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Moreover, an increasingly global pool of investors doesn’t have the same historical perspective when it comes to the calendar. The end of the October effect is perhaps inevitable as, in reality, a gut feeling mixed with a few random occurrences and a media label created the myth. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> In a way, this is unfortunate, as it would be ideal for investors if financial disasters, panics, and crashes occurred in just one month of the year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-is-the-october-effect-real"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the October Effect Real?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The data suggest that it isn't. But some people seem to believe in it, perhaps because many of the events that happened long ago (such as the 1987 Black Monday crash) were significant at the time. Because there is a psychological bias toward predicting a negative outcome for this month, there is potential for some investors to be fearful of an October downturn.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-are-stocks-usually-down-in-october"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Stocks Usually Down in October?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. Since 1928, stocks have, on average, risen in the month of October by more than 0.6%.<span class="ql-inline-citation" data-cite="6"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_59-0"><span class="heading-toc" id="toc-which-has-been-the-worst-month-for-stocks-historically"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Has Been the Worst Month for Stocks Historically?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>That depends on the time period you look at. Over the past century, September has been the worst-performing month for stocks, losing around 1% on average.<span class="ql-inline-citation" data-cite="5"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> The October effect is the belief that stocks fall, on average, during the month of October. This supposed market anomaly has been cited in reflection of large market crashes that have occurred during this month, such as 1987's Black Monday. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> However, actual evidence for the October effect is scant—and, in fact, October has been a net positive month, on average, going back a century. For example, October of 2022 was one of the best-performing months in recent stock market history. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> As with other supposed market anomalies, the reality is that they probably don't exist, as markets do tend to be efficient (especially once anomalies are identified and publicly known). As such, one probably should not use the notion of the October effect to make trading decisions. </p></div>

## What Is the October Effect? The October effect refers to the belief that stocks tend to decline during the month of October. It is considered to be more of a psychological expectation than an actual phenomenon, as most statistics contradict the theory. Some investors may be nervous during October because some large, historical market crashes occurred during this month. Along with the [September effect](https://www.investopedia.com/terms/s/september-effect.asp) (which also predicts weaker markets during October), actual evidence for the existence of the perceived [market anomaly](https://www.investopedia.com/terms/a/anomaly.asp) October effect is not very solid. Indeed, October’s 100-year stock market history has, in fact, been net positive. That's in spite of being the month of the [1907 panic](https://www.investopedia.com/terms/b/bank-panic-of-1907.asp), Black Tuesday, Thursday, and Monday in 1929, and [Black Monday in 1987](https://www.investopedia.com/terms/b/blackmonday.asp), when the Dow plummeted 22.6% in a single day, (and remains arguably the worst single-day decline in market history on a percentage basis). ### Key Takeaways * The October effect is the perception that stock markets decline during the month of October, and it is classified as a market anomaly. * It is one of several calendar anomalies, along with the supposed September effect and Santa Claus rally. * The October effect is considered to be more of a psychological expectation than an actual phenomenon, as most statistics counter the theory. * The October effect, as well as other calendar anomalies, largely have seemed to disappear over the past decades. * In fact, October has tended to be a net positive month, on average, over the past century or more. ## Understanding the October Effect Proponents of the October effect, one of the most popular of the so-called calendar effects, argue that October is when some of the greatest crashes in stock market history occurred. These include 1929's Black Tuesday and Black Thursday and the 1987 stock market crash. While statistical evidence doesn’t support the phenomenon that stocks trade lower in October, the [psychological expectations](https://www.investopedia.com/terms/t/trading-psychology.asp) for the October effect still exist. The [October effect](https://www.investopedia.com/articles/financial-theory/09/october-effect.asp), however, tends to be overrated. Despite the moniker, this seeming concentration of dark market days is not statistically significant. In fact, September historically is more often down than October. And from a historical perspective, October has marked the end of more bear markets than the beginning. This makes October an interesting prospect for [contrarian buying](https://www.investopedia.com/articles/financial-theory/08/contrarian-investing.asp). Investors who tend to see a month negatively can create opportunities for others to buy during that month. However, the end of the October effect, if it ever was a market force, may be at hand, as the month's stock market results have tended to be net positive, on average, over the past century or more. ## October Crashes What is true about October is that it traditionally has been the most volatile month for stocks. According to research from LPL Financial, there are more 1% or larger swings in October in the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) than in any other month in history, dating back to 1950. Some of that can be attributed to the fact that October precedes elections in early November in the U.S. every other year. September, not October, has more historical down markets. However, October also has had its fair share of record stock market crashes. Some of the events over the decades that have given October the reputation for stock losses include: * The Panic of 1907 * Black Tuesday (1929) * Black Thursday (1929) * Black Monday (1929) * Black Monday (1987) Interestingly, the catalysts that set off both the 1929 crash and the 1907 panic happened in September or earlier, and the market reaction to them was simply delayed. In 1907, the panic nearly occurred in March. Throughout the year, the public’s confidence in [trust companies](https://www.investopedia.com/terms/t/trustcompany.asp) persistently diminished. They were considered risky because of their lack of regulation. Eventually, public skepticism came to a head in October and sparked a run on the trusts. The 1929 Crash arguably began in February, when the [Federal Reserve](https://www.investopedia.com/terms/f/frb.asp) banned margin-trading loans and cranked up interest rates. ### In contrast to October effect predictions, October 2022 was one of the most positive months in U.S. stock market history, with the Dow Jones up around 12% and the S&P 500 up close to 6%. ## The Disappearance of the October Effect The numbers don’t support the October effect. If we look at all October monthly returns going back more than a century, there simply is no data on average to support the claim that October is a losing month. Not surprisingly, some historical events have occurred in the month of October, but they most likely have remained in the collective memory because the name Black Monday sounds ominous. Markets have also crashed in months other than October. Many investors today have a better memory of the [dotcom](https://www.investopedia.com/terms/d/dotcom.asp) crash and the 2008–2009 financial crisis, yet none of those days were given the "black" moniker to bear for their particular month. [Lehman Brothers’ collapse](https://www.investopedia.com/terms/l/lehman-brothers.asp) happened on a Monday in September and marked a major escalation in the global stakes of the financial crisis, but it didn’t get reported as a new Black Monday. For whatever reason, the news media no longer leads with black days—and Wall Street doesn’t seem eager to revive the practice, either. Moreover, an increasingly global pool of investors doesn’t have the same historical perspective when it comes to the calendar. The end of the October effect is perhaps inevitable as, in reality, a gut feeling mixed with a few random occurrences and a media label created the myth. In a way, this is unfortunate, as it would be ideal for investors if financial disasters, panics, and crashes occurred in just one month of the year. ## Is the October Effect Real? The data suggest that it isn't. But some people seem to believe in it, perhaps because many of the events that happened long ago (such as the 1987 Black Monday crash) were significant at the time. Because there is a psychological bias toward predicting a negative outcome for this month, there is potential for some investors to be fearful of an October downturn. ## Are Stocks Usually Down in October? No. Since 1928, stocks have, on average, risen in the month of October by more than 0.6%. ## Which Has Been the Worst Month for Stocks Historically? That depends on the time period you look at. Over the past century, September has been the worst-performing month for stocks, losing around 1% on average. ## The Bottom Line The October effect is the belief that stocks fall, on average, during the month of October. This supposed market anomaly has been cited in reflection of large market crashes that have occurred during this month, such as 1987's Black Monday. However, actual evidence for the October effect is scant—and, in fact, October has been a net positive month, on average, going back a century. For example, October of 2022 was one of the best-performing months in recent stock market history. As with other supposed market anomalies, the reality is that they probably don't exist, as markets do tend to be efficient (especially once anomalies are identified and publicly known). As such, one probably should not use the notion of the October effect to make trading decisions.

What Is the October Effect? The October effect refers to the belief that stocks tend to decline during the month of October. It is considered to be more of a psychological expectation than an actual phenomenon, as most statistics contradict the theory. Some investors may be nervous during October because some large, historical market crashes occurred during this month. Along with the September effect (which also predicts weaker markets during October), actual evidence for the existence of the perceived market anomaly October effect is not very solid. Indeed, October’s 100-year stock market history has, in fact, been net positive. That's in spite of being the month of the 1907 panic, Black Tuesday, Thursday, and Monday in 1929, and Black Monday in 1987, when the Dow plummeted 22.6% in a single day, (and remains arguably the worst single-day decline in market history on a percentage basis). Key Takeaways The October effect is the perception that stock markets decline during the month of October, and it is classified as a market anomaly.It is one of several calendar anomalies, along with the supposed September effect and Santa Claus rally.The October effect is considered to be more of a psychological expectation than an actual phenomenon, as most statistics counter the theory.The October effect, as well as other calendar anomalies, largely have seemed to disappear over the past decades.In fact, October has tended to be a net positive month, on average, over the past century or more. Understanding the October Effect Proponents of the October effect, one of the most popular of the so-called calendar effects, argue that October is when some of the greatest crashes in stock market history occurred. These include 1929's Black Tuesday and Black Thursday and the 1987 stock market crash. While statistical evidence doesn’t support the phenomenon that stocks trade lower in October, the psychological expectations for the October effect still exist. The October effect, however, tends to be overrated. Despite the moniker, this seeming concentration of dark market days is not statistically significant. In fact, September historically is more often down than October. And from a historical perspective, October has marked the end of more bear markets than the beginning. This makes October an interesting prospect for contrarian buying. Investors who tend to see a month negatively can create opportunities for others to buy during that month. However, the end of the October effect, if it ever was a market force, may be at hand, as the month's stock market results have tended to be net positive, on average, over the past century or more. October Crashes What is true about October is that it traditionally has been the most volatile month for stocks. According to research from LPL Financial, there are more 1% or larger swings in October in the S&P 500 than in any other month in history, dating back to 1950. Some of that can be attributed to the fact that October precedes elections in early November in the U.S. every other year. September, not October, has more historical down markets. However, October also has had its fair share of record stock market crashes. Some of the events over the decades that have given October the reputation for stock losses include: The Panic of 1907Black Tuesday (1929)Black Thursday (1929)Black Monday (1929)Black Monday (1987) Interestingly, the catalysts that set off both the 1929 crash and the 1907 panic happened in September or earlier, and the market reaction to them was simply delayed. In 1907, the panic nearly occurred in March. Throughout the year, the public’s confidence in trust companies persistently diminished. They were considered risky because of their lack of regulation. Eventually, public skepticism came to a head in October and sparked a run on the trusts. The 1929 Crash arguably began in February, when the Federal Reserve banned margin-trading loans and cranked up interest rates. In contrast to October effect predictions, October 2022 was one of the most positive months in U.S. stock market history, with the Dow Jones up around 12% and the S&P 500 up close to 6%. The Disappearance of the October Effect The numbers don’t support the October effect. If we look at all October monthly returns going back more than a century, there simply is no data on average to support the claim that October is a losing month. Not surprisingly, some historical events have occurred in the month of October, but they most likely have remained in the collective memory because the name Black Monday sounds ominous. Markets have also crashed in months other than October. Many investors today have a better memory of the dotcom crash and the 2008–2009 financial crisis, yet none of those days were given the "black" moniker to bear for their particular month. Lehman Brothers’ collapse happened on a Monday in September and marked a major escalation in the global stakes of the financial crisis, but it didn’t get reported as a new Black Monday. For whatever reason, the news media no longer leads with black days—and Wall Street doesn’t seem eager to revive the practice, either. Moreover, an increasingly global pool of investors doesn’t have the same historical perspective when it comes to the calendar. The end of the October effect is perhaps inevitable as, in reality, a gut feeling mixed with a few random occurrences and a media label created the myth. In a way, this is unfortunate, as it would be ideal for investors if financial disasters, panics, and crashes occurred in just one month of the year. Is the October Effect Real? The data suggest that it isn't. But some people seem to believe in it, perhaps because many of the events that happened long ago (such as the 1987 Black Monday crash) were significant at the time. Because there is a psychological bias toward predicting a negative outcome for this month, there is potential for some investors to be fearful of an October downturn. Are Stocks Usually Down in October? No. Since 1928, stocks have, on average, risen in the month of October by more than 0.6%. Which Has Been the Worst Month for Stocks Historically? That depends on the time period you look at. Over the past century, September has been the worst-performing month for stocks, losing around 1% on average. The Bottom Line The October effect is the belief that stocks fall, on average, during the month of October. This supposed market anomaly has been cited in reflection of large market crashes that have occurred during this month, such as 1987's Black Monday. However, actual evidence for the October effect is scant—and, in fact, October has been a net positive month, on average, going back a century. For example, October of 2022 was one of the best-performing months in recent stock market history. As with other supposed market anomalies, the reality is that they probably don't exist, as markets do tend to be efficient (especially once anomalies are identified and publicly known). As such, one probably should not use the notion of the October effect to make trading decisions.

https://www.investopedia.com/terms/e/equity-linked-security.asp

Equity-Linked Security (ELKS): Meaning, Types, Examples

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> An equity-linked security is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtinstrument.asp">debt instrument</a> with variable payments linked to an equity market benchmark. These securities are an alternative type of fixed-income investment—structured products most often created as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp">bonds</a>. Equity-linked securities are usually used in private market corporate capital financings and are offered to investors to raise <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporate-capital.asp">corporate capital</a>. As such, they are not traded on financial market exchanges. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>An equity-linked security is a debt instrument with variable payments linked to an equity market benchmark.</li><li>They are offered to investors so the issuer can raise capital.</li><li>These securities are an alternative type of fixed-income investment—structured products most often created as bonds.</li><li>ELKS normally mature within a one-year period and normally pay higher yields than that of the underlying security.</li><li>Some kinds of ELKS include corporate, bank-offered, and market-linked.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-an-equity-linked-security-elks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> What Is an Equity-Linked Security (ELKS)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Equity-linked securities resemble both stocks and bonds. So although they may be debt securities, equity-linked securities provide returns that are tied to some form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underlying.asp">underlying</a> equity—hence the name. This equity is normally a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commonstock.asp">common stock</a>. This means the returns are linked to the upward and downward movements of the underlying stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> ELKS normally mature within a one-year period. The yield they pay is normally higher than that of the underlying security. They also make two payouts or distributions to investors before they mature, which is why investors prefer these kinds of investments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Equity-linked securities normally mature within one year.</p></div></div></div> <span class="heading-toc" id="toc-understanding-equity-linked-security-elks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Understanding Equity-Linked Security (ELKS) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> An equity-linked security offering provides corporations with an alternative way to structure <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> payments to investors. An issuer can base security interest payments on a range of equity market products including a stock, a group of stocks, or an equity index. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> They may also cap or pay a specified portion of the benchmark’s return. A standard equity-linked security structured as a bond would offer variable interest payments tied to an equity <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a> and the return of principal at maturity. ELKS offer a controlled <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rate</a> product for the issuer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-types-of-equity-linked-securities"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Types of Equity-Linked Securities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Investors may be offered the opportunity to invest in ELKS from a few different issuers. They may also find ELKS advertised as market-linked. The following are a few kinds of ELKS that are available on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market.asp">market</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-subheading__text"> Corporate ELKS </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Corporations typically work with investment banks for support to structure equity-linked security offerings for capital financing. The Royal Bank of Canada (RBC) is a leading source of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/structuredfinance.asp">structured finance</a> equity-linked securities. RBC works with companies to structure equity-linked security offerings with various types of provisions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Retail investors may see equity-linked security offerings from a bank alongside certificates of deposit. An equity-linked security can be any type of investment with interest payments tied to an equity benchmark. US Bank advertises equity-linked CDs as one component of their market-linked CD offering. The interest on the CDs is linked to an equity index. The minimum investment is $4,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-subheading__text"> Market-Linked Securities </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Securities with payments linked to a market benchmark are offered across the investment industry. A market-linked security can have payments linked to any type of market benchmark. An issuer could structure a market-linked security to make payments based on an equity benchmark. They can also use any other market benchmark such as gold or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency.asp">currency</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> For the security issuer, market-linked products offer the opportunity to control the payment to the investor by choosing a specified benchmark. For investors, they can offer an easy alternative to investing in the benchmark itself. An investor in a gold-linked CD would generally seek to earn the same rate of return as gold. Issuers can structure market-linked products in numerous ways. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/092316/6-reasons-beware-marketlinked-cds.asp">Market-linked products</a> are also known to be <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/illiquid.asp">illiquid</a> and not tradable or redeemable without penalty during the duration of the investment.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_30-0"><span class="heading-toc" id="toc-what-are-examples-of-equity-linked-securities"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Examples of Equity-Linked Securities?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some examples of ELKS are corporate ELKS, bank-offered ELKS, and market-linked securities offered through certificates of deposit or other instruments that represent a basket of securities.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_32-0"><span class="heading-toc" id="toc-how-does-an-equity-linked-note-eln-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does an Equity-Linked Note (ELN) Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>ELNs are purchased at a strike price, which is a discount to the spot price. The ELN issuer delivers the stock to the investor when or if the strike price is reached.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_34-0"><span class="heading-toc" id="toc-are-equity-linked-notes-equity-securities"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Equity-Linked Notes Equity Securities?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Equity-linked notes pay returns linked to the performance of the underlying security, while equity-linked securities pay a fixed interest rate.</p></div> </div></div>

An equity-linked security is a [debt instrument](https://www.investopedia.com/terms/d/debtinstrument.asp) with variable payments linked to an equity market benchmark. These securities are an alternative type of fixed-income investment—structured products most often created as [bonds](https://www.investopedia.com/terms/b/bond.asp). Equity-linked securities are usually used in private market corporate capital financings and are offered to investors to raise [corporate capital](https://www.investopedia.com/terms/c/corporate-capital.asp). As such, they are not traded on financial market exchanges. ### Key Takeaways * An equity-linked security is a debt instrument with variable payments linked to an equity market benchmark. * They are offered to investors so the issuer can raise capital. * These securities are an alternative type of fixed-income investment—structured products most often created as bonds. * ELKS normally mature within a one-year period and normally pay higher yields than that of the underlying security. * Some kinds of ELKS include corporate, bank-offered, and market-linked. ## What Is an Equity-Linked Security (ELKS)? Equity-linked securities resemble both stocks and bonds. So although they may be debt securities, equity-linked securities provide returns that are tied to some form of [underlying](https://www.investopedia.com/terms/u/underlying.asp) equity—hence the name. This equity is normally a [common stock](https://www.investopedia.com/terms/c/commonstock.asp). This means the returns are linked to the upward and downward movements of the underlying stock. ELKS normally mature within a one-year period. The yield they pay is normally higher than that of the underlying security. They also make two payouts or distributions to investors before they mature, which is why investors prefer these kinds of investments. ### Equity-linked securities normally mature within one year. ## Understanding Equity-Linked Security (ELKS) An equity-linked security offering provides corporations with an alternative way to structure [interest](https://www.investopedia.com/terms/i/interest.asp) payments to investors. An issuer can base security interest payments on a range of equity market products including a stock, a group of stocks, or an equity index. They may also cap or pay a specified portion of the benchmark’s return. A standard equity-linked security structured as a bond would offer variable interest payments tied to an equity [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) and the return of principal at maturity. ELKS offer a controlled [interest rate](https://www.investopedia.com/terms/i/interestrate.asp) product for the issuer. ## Types of Equity-Linked Securities Investors may be offered the opportunity to invest in ELKS from a few different issuers. They may also find ELKS advertised as market-linked. The following are a few kinds of ELKS that are available on the [market](https://www.investopedia.com/terms/m/market.asp). ### Corporate ELKS Corporations typically work with investment banks for support to structure equity-linked security offerings for capital financing. The Royal Bank of Canada (RBC) is a leading source of [structured finance](https://www.investopedia.com/terms/s/structuredfinance.asp) equity-linked securities. RBC works with companies to structure equity-linked security offerings with various types of provisions. Retail investors may see equity-linked security offerings from a bank alongside certificates of deposit. An equity-linked security can be any type of investment with interest payments tied to an equity benchmark. US Bank advertises equity-linked CDs as one component of their market-linked CD offering. The interest on the CDs is linked to an equity index. The minimum investment is $4,000. ### Market-Linked Securities Securities with payments linked to a market benchmark are offered across the investment industry. A market-linked security can have payments linked to any type of market benchmark. An issuer could structure a market-linked security to make payments based on an equity benchmark. They can also use any other market benchmark such as gold or [currency](https://www.investopedia.com/terms/c/currency.asp). For the security issuer, market-linked products offer the opportunity to control the payment to the investor by choosing a specified benchmark. For investors, they can offer an easy alternative to investing in the benchmark itself. An investor in a gold-linked CD would generally seek to earn the same rate of return as gold. Issuers can structure market-linked products in numerous ways. [Market-linked products](https://www.investopedia.com/articles/investing/092316/6-reasons-beware-marketlinked-cds.asp) are also known to be [illiquid](https://www.investopedia.com/terms/i/illiquid.asp) and not tradable or redeemable without penalty during the duration of the investment. ## What Are Examples of Equity-Linked Securities? Some examples of ELKS are corporate ELKS, bank-offered ELKS, and market-linked securities offered through certificates of deposit or other instruments that represent a basket of securities. ## How Does an Equity-Linked Note (ELN) Work? ELNs are purchased at a strike price, which is a discount to the spot price. The ELN issuer delivers the stock to the investor when or if the strike price is reached. ## Are Equity-Linked Notes Equity Securities? Equity-linked notes pay returns linked to the performance of the underlying security, while equity-linked securities pay a fixed interest rate.

An equity-linked security is a debt instrument with variable payments linked to an equity market benchmark. These securities are an alternative type of fixed-income investment—structured products most often created as bonds. Equity-linked securities are usually used in private market corporate capital financings and are offered to investors to raise corporate capital. As such, they are not traded on financial market exchanges. Key Takeaways An equity-linked security is a debt instrument with variable payments linked to an equity market benchmark.They are offered to investors so the issuer can raise capital.These securities are an alternative type of fixed-income investment—structured products most often created as bonds.ELKS normally mature within a one-year period and normally pay higher yields than that of the underlying security.Some kinds of ELKS include corporate, bank-offered, and market-linked. What Is an Equity-Linked Security (ELKS)? Equity-linked securities resemble both stocks and bonds. So although they may be debt securities, equity-linked securities provide returns that are tied to some form of underlying equity—hence the name. This equity is normally a common stock. This means the returns are linked to the upward and downward movements of the underlying stock. ELKS normally mature within a one-year period. The yield they pay is normally higher than that of the underlying security. They also make two payouts or distributions to investors before they mature, which is why investors prefer these kinds of investments. Equity-linked securities normally mature within one year. Understanding Equity-Linked Security (ELKS) An equity-linked security offering provides corporations with an alternative way to structure interest payments to investors. An issuer can base security interest payments on a range of equity market products including a stock, a group of stocks, or an equity index. They may also cap or pay a specified portion of the benchmark’s return. A standard equity-linked security structured as a bond would offer variable interest payments tied to an equity benchmark and the return of principal at maturity. ELKS offer a controlled interest rate product for the issuer. Types of Equity-Linked Securities Investors may be offered the opportunity to invest in ELKS from a few different issuers. They may also find ELKS advertised as market-linked. The following are a few kinds of ELKS that are available on the market. Corporate ELKS Corporations typically work with investment banks for support to structure equity-linked security offerings for capital financing. The Royal Bank of Canada (RBC) is a leading source of structured finance equity-linked securities. RBC works with companies to structure equity-linked security offerings with various types of provisions. Retail investors may see equity-linked security offerings from a bank alongside certificates of deposit. An equity-linked security can be any type of investment with interest payments tied to an equity benchmark. US Bank advertises equity-linked CDs as one component of their market-linked CD offering. The interest on the CDs is linked to an equity index. The minimum investment is $4,000. Market-Linked Securities Securities with payments linked to a market benchmark are offered across the investment industry. A market-linked security can have payments linked to any type of market benchmark. An issuer could structure a market-linked security to make payments based on an equity benchmark. They can also use any other market benchmark such as gold or currency. For the security issuer, market-linked products offer the opportunity to control the payment to the investor by choosing a specified benchmark. For investors, they can offer an easy alternative to investing in the benchmark itself. An investor in a gold-linked CD would generally seek to earn the same rate of return as gold. Issuers can structure market-linked products in numerous ways. Market-linked products are also known to be illiquid and not tradable or redeemable without penalty during the duration of the investment. What Are Examples of Equity-Linked Securities? Some examples of ELKS are corporate ELKS, bank-offered ELKS, and market-linked securities offered through certificates of deposit or other instruments that represent a basket of securities. How Does an Equity-Linked Note (ELN) Work? ELNs are purchased at a strike price, which is a discount to the spot price. The ELN issuer delivers the stock to the investor when or if the strike price is reached. Are Equity-Linked Notes Equity Securities? Equity-linked notes pay returns linked to the performance of the underlying security, while equity-linked securities pay a fixed interest rate.

https://www.investopedia.com/articles/active-trading/011415/strategies-applications-behind-50day-ema.asp

Strategies & Applications Behind The 50-Day EMA (INTC, AAPL)

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The 50-day moving average marks a line in the sand for traders holding positions through inevitable <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/drawdown.asp" rel="noopener noreferrer">drawdowns</a>. The strategy we employ when price nears this inflection point often decides whether we walk away with a well-earned profit or a frustrating loss. Considering the consequences, it makes sense to improve our understanding about this price level, as well as finding new ways to manage risk when it comes into play. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> The most common formula takes the last 50 price bars and divides by the total. This yields the 50-day <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sma.asp" rel="noopener noreferrer">simple moving average</a> (SMA) used by technicians for many decades. The calculation has been tweaked in many ways over the years as market players try to build a better mousetrap. The 50-day <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ema.asp" rel="noopener noreferrer">exponential moving average</a> (EMA) offers the most popular variation, responding to price movement more quickly than its simple minded cousin. This extra speed in signal production defines a clear advantage over the slower version, making it a superior choice. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The 50-day EMA gives technicians a seat at the 50-yard line, the perfect location to watch the entire playing field for mid-term opportunities and natural counterswings after active trends, higher or lower. It’s also neutral ground when price action is often misinterpreted by the majority. And as our contrary market proves over and over again, the most reliable signals tend to erupt when the majority is sitting on the wrong side of the action. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> There are dozens of ways to use the 50-day EMA in market strategies. It works as a reality check when a position hits the magic line after a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rally.asp" rel="noopener noreferrer">rally</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sell-off.asp" rel="noopener noreferrer">selloff</a>. It has equal benefit in lower and higher time frames, applying the indicator to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intraday.asp" rel="noopener noreferrer">intraday</a> charts or tracking long term trends with the 50-week or 50-month version. Or play a game of pinball, trading oscillations between the 50-day EMA and longer term 200-day EMA. It even works in the arcane world of market voodoo, with 50/200 day crossovers signaling bullish <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/goldencross.asp" rel="noopener noreferrer">golden crosses</a> or bearish <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deathcross.asp" rel="noopener noreferrer">death crosses</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <span class="heading-toc" id="toc-pullbacks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> Pullbacks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The 50-day EMA most often comes into play when you’re positioned in a trend that turns against you in a natural counterswing, or in reaction to an impulse that’s dragging thousands of financial instruments along for the ride. It makes sense to place a stop just across the moving average because it represents intermediate support (resistance in a downtrend) that should hold under normal tape conditions. The problem with this reasoning is it doesn’t work as intended in our volatile modern markets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The 50 and 200-day EMAs have morphed from narrow lines into broad zones in the last two decades due to aggressive <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stophunting.asp" rel="noopener noreferrer">stop hunting</a>. You need to consider how deep these violations will go before placing a stop or timing an entry at or near the moving average. Patience is key in these circumstances because testing at the 50-day EMA usually resolves within three to four price bars. The trick is to stay out of the way until a) the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reversal.asp" rel="noopener noreferrer">reversal</a> kicks in or b) the level <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/breakout.asp" rel="noopener noreferrer">breaks</a>, yielding a price thrust against your position. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_14-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:76.9%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/4lBtTjBzkZzOq09ma5wFVuT_eeo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-01-0c5fd4e9cb8b49ec9f48cb37d116adfd.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/4lBtTjBzkZzOq09ma5wFVuT_eeo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-01-0c5fd4e9cb8b49ec9f48cb37d116adfd.jpg" data-srcset="https://www.investopedia.com/thmb/UZYGpS9VC1-maAnau7_44eiV8KA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-01-0c5fd4e9cb8b49ec9f48cb37d116adfd.jpg 750w" data-tracking-container="true" height="3751" id="mntl-sc-block-image_1-0" width="4876"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3751" sizes="750px" src="https://www.investopedia.com/thmb/4lBtTjBzkZzOq09ma5wFVuT_eeo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-01-0c5fd4e9cb8b49ec9f48cb37d116adfd.jpg" srcset="https://www.investopedia.com/thmb/UZYGpS9VC1-maAnau7_44eiV8KA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-01-0c5fd4e9cb8b49ec9f48cb37d116adfd.jpg 750w" width="4876"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner">Image by Sabrina Jiang © Investopedia 2020</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The risk of getting it wrong will hurt your wallet, so how long should you stick around when price tests the 50-day EMA? While there’s no perfect way to avoid <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/whipsaw.asp" rel="noopener noreferrer">whipsaws</a>, examining other technicals often pinpoints the exact extension of a reversal. For example, Intel (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=intc" rel="noopener noreferrer">INTC</a>) returned to the January high in April and sold off to the 50-day EMA. It broke support, dropped to the .386 Fibonacci rally <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fibonacciretracement.asp" rel="noopener noreferrer">retracement</a> and bounced back to the moving average in the next session. The stock regained support on the third day and entered a recovery, completing a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cupandhandle.asp" rel="noopener noreferrer">cup and handle</a> breakout pattern. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-50-day-fractals"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> 50-Day Fractals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The moving average works just as well in lower and higher time frames. As a result, day traders will find benefit in placing 50-bar EMAs on 15 and 60 minute charts because they define natural end points for intraday oscillations. Just keep in mind that noise increases as time frame decreases, lowering its value on 5 and 1 minute charts. On the flip side, the indicator shows excellent reliability on weekly and monthly charts, often pinpointing exact turning points in corrections and long term trends. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> This makes sense when considering that the 50-week EMA defines <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/meanreversion.asp" rel="noopener noreferrer">mean reversion</a> over an entire year while the 50-month EMA tracks more than four years of market activity, approaching the average length of a typical business cycle. Market timers can use these long-term moving averages to establish profitable positions lasting for months or years while violations offer perfect levels to take profits and reallocate capital into other long term instruments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-square figure-high-res" id="mntl-sc-block_22-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:84.4%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/nJM9grynUuVY4UUBdiMk4VFpnTQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-02-c61641186a2545feadf5d2d215e54cc1.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/nJM9grynUuVY4UUBdiMk4VFpnTQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-02-c61641186a2545feadf5d2d215e54cc1.jpg" data-srcset="https://www.investopedia.com/thmb/7m0qBnoVjIirFpHzZM9W9dV7AHc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-02-c61641186a2545feadf5d2d215e54cc1.jpg 750w" data-tracking-container="true" height="3835" id="mntl-sc-block-image_2-0" width="4542"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3835" sizes="750px" src="https://www.investopedia.com/thmb/nJM9grynUuVY4UUBdiMk4VFpnTQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-02-c61641186a2545feadf5d2d215e54cc1.jpg" srcset="https://www.investopedia.com/thmb/7m0qBnoVjIirFpHzZM9W9dV7AHc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-02-c61641186a2545feadf5d2d215e54cc1.jpg 750w" width="4542"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_2-0"> <span class="figure-article-caption-owner">Image by Sabrina Jiang © Investopedia 2020</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Apple (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl" rel="noopener noreferrer">AAPL</a>) set up excellent buying opportunities at the 50-month EMA in 2009 and 2013. It broke moving average support in September 2008 and spent 5 months grinding sideways before remounting that level in April 2009, issuing a “failure of a failure<em>”</em> buy signal that yielded more than 80 points over three years. It tested the moving average a second time in 2013, spending four months building a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/doublebottom.asp" rel="noopener noreferrer">double bottom</a> that triggered a 100 percent rally into 2014. Note how the lows matched support perfectly, offering an incredible low risk entry for patient market players. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-50-200-day-pinball"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> 50-200 Day Pinball </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Fast trends in both directions tend to increase the separation between the 50 and 200-day EMAs. Once a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/countertrend.asp" rel="noopener noreferrer">countertrend</a> breaks one of these averages, it often carries into the other average, setting up a few rounds of the 50-200 “pinball” strategy. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/swingtrading.asp" rel="noopener noreferrer">Swing traders</a> are natural beneficiaries of this two-sided technique, going long and then short until one side of the box gives way to a more active trend impulse. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-square figure-high-res" id="mntl-sc-block_28-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:88.8%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/bsXpA2_pNuO8jRfXyZPLrWY2ph4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-03-4913804fedb2488aa6a3e60de37baf4d.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/bsXpA2_pNuO8jRfXyZPLrWY2ph4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-03-4913804fedb2488aa6a3e60de37baf4d.jpg" data-srcset="https://www.investopedia.com/thmb/n5O8rU5oSjPsCp3BMQFoKGIBX-E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-03-4913804fedb2488aa6a3e60de37baf4d.jpg 750w" data-tracking-container="true" height="3960" id="mntl-sc-block-image_3-0" width="4459"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3960" sizes="750px" src="https://www.investopedia.com/thmb/bsXpA2_pNuO8jRfXyZPLrWY2ph4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-03-4913804fedb2488aa6a3e60de37baf4d.jpg" srcset="https://www.investopedia.com/thmb/n5O8rU5oSjPsCp3BMQFoKGIBX-E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-03-4913804fedb2488aa6a3e60de37baf4d.jpg 750w" width="4459"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_3-0"> <span class="figure-article-caption-owner">Image by Sabrina Jiang © Investopedia 2020 </span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Biogen (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=biib" rel="noopener noreferrer">BIIB</a>) hit a new high in March after a long <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/uptrend.asp" rel="noopener noreferrer">uptrend</a> and entered a steep correction that broke the 50-day EMA a few days later. Price action then entered a two month game of 50-200 pinball, traversing more than 75 points between new resistance at the 50-day EMA and long term support at the 200-day EMA. Swing reversals took place close to target numbers, allowing easy entry and relatively tight stops for a triple digit stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-bullish-and-bearish-crossovers"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Bullish and Bearish Crossovers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The downward crossover of the 50-day EMA through the 200-day EMA signals a death cross that many technicians believe marks the end of an uptrend. An upward crossover or golden cross is alleged to possess similar magic properties in establishing a new uptrend. In reality, numerous crisscrosses can print in the life cycle of an uptrend or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/downtrend.asp" rel="noopener noreferrer">downtrend</a> and these classic signals show little reliability.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_34-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:79.8%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/_3mdPQj8v-x9SPH_d7Kk4X1rWyo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-04-9df0df3196cb4cbb8e77130f84a1329e.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/_3mdPQj8v-x9SPH_d7Kk4X1rWyo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-04-9df0df3196cb4cbb8e77130f84a1329e.jpg" data-srcset="https://www.investopedia.com/thmb/nKhiMUnCLVP6FeUV372jQu0vp9c=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-04-9df0df3196cb4cbb8e77130f84a1329e.jpg 750w" data-tracking-container="true" height="3959" id="mntl-sc-block-image_4-0" width="4959"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3959" sizes="750px" src="https://www.investopedia.com/thmb/_3mdPQj8v-x9SPH_d7Kk4X1rWyo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-04-9df0df3196cb4cbb8e77130f84a1329e.jpg" srcset="https://www.investopedia.com/thmb/nKhiMUnCLVP6FeUV372jQu0vp9c=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-04-9df0df3196cb4cbb8e77130f84a1329e.jpg 750w" width="4959"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_4-0"> <span class="figure-article-caption-owner">Image by Sabrina Jiang © Investopedia 2020</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> It’s a different story with the 50 and 200-week EMAs. SPDR S&amp;P Trust (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=spy" rel="noopener noreferrer">SPY</a>) shows four valid cross signals going back 15 years, two in each direction. More importantly, there were no<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/false-signal.asp" rel="noopener noreferrer"> false signals</a> during this time, which included three bull markets and two bear markets. Looking at historic Dow Industrial data, the last invalid cross occurred more than 30 years ago, in 1982. This tells us that golden and death crosses deserve a respected place in market analysis. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The 50-day EMA identifies a natural mean reversion level for the intermediate time frame. It has numerous applications in price prediction, position choice and strategy building. Traders, market timers and investors all benefit from 50-day EMA study, making it an indispensable ingredient in your technical market analysis. </p></div>

The 50-day moving average marks a line in the sand for traders holding positions through inevitable [drawdowns](https://www.investopedia.com/terms/d/drawdown.asp). The strategy we employ when price nears this inflection point often decides whether we walk away with a well-earned profit or a frustrating loss. Considering the consequences, it makes sense to improve our understanding about this price level, as well as finding new ways to manage risk when it comes into play. The most common formula takes the last 50 price bars and divides by the total. This yields the 50-day [simple moving average](https://www.investopedia.com/terms/s/sma.asp) (SMA) used by technicians for many decades. The calculation has been tweaked in many ways over the years as market players try to build a better mousetrap. The 50-day [exponential moving average](https://www.investopedia.com/terms/e/ema.asp) (EMA) offers the most popular variation, responding to price movement more quickly than its simple minded cousin. This extra speed in signal production defines a clear advantage over the slower version, making it a superior choice. The 50-day EMA gives technicians a seat at the 50-yard line, the perfect location to watch the entire playing field for mid-term opportunities and natural counterswings after active trends, higher or lower. It’s also neutral ground when price action is often misinterpreted by the majority. And as our contrary market proves over and over again, the most reliable signals tend to erupt when the majority is sitting on the wrong side of the action. There are dozens of ways to use the 50-day EMA in market strategies. It works as a reality check when a position hits the magic line after a [rally](https://www.investopedia.com/terms/r/rally.asp) or [selloff](https://www.investopedia.com/terms/s/sell-off.asp). It has equal benefit in lower and higher time frames, applying the indicator to [intraday](https://www.investopedia.com/terms/i/intraday.asp) charts or tracking long term trends with the 50-week or 50-month version. Or play a game of pinball, trading oscillations between the 50-day EMA and longer term 200-day EMA. It even works in the arcane world of market voodoo, with 50/200 day crossovers signaling bullish [golden crosses](https://www.investopedia.com/terms/g/goldencross.asp) or bearish [death crosses](https://www.investopedia.com/terms/d/deathcross.asp). ## Pullbacks The 50-day EMA most often comes into play when you’re positioned in a trend that turns against you in a natural counterswing, or in reaction to an impulse that’s dragging thousands of financial instruments along for the ride. It makes sense to place a stop just across the moving average because it represents intermediate support (resistance in a downtrend) that should hold under normal tape conditions. The problem with this reasoning is it doesn’t work as intended in our volatile modern markets. The 50 and 200-day EMAs have morphed from narrow lines into broad zones in the last two decades due to aggressive [stop hunting](https://www.investopedia.com/terms/s/stophunting.asp). You need to consider how deep these violations will go before placing a stop or timing an entry at or near the moving average. Patience is key in these circumstances because testing at the 50-day EMA usually resolves within three to four price bars. The trick is to stay out of the way until a) the [reversal](https://www.investopedia.com/terms/r/reversal.asp) kicks in or b) the level [breaks](https://www.investopedia.com/terms/b/breakout.asp), yielding a price thrust against your position. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-01-0c5fd4e9cb8b49ec9f48cb37d116adfd.jpg) Image by Sabrina Jiang © Investopedia 2020 The risk of getting it wrong will hurt your wallet, so how long should you stick around when price tests the 50-day EMA? While there’s no perfect way to avoid [whipsaws](https://www.investopedia.com/terms/w/whipsaw.asp), examining other technicals often pinpoints the exact extension of a reversal. For example, Intel ([INTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=intc)) returned to the January high in April and sold off to the 50-day EMA. It broke support, dropped to the .386 Fibonacci rally [retracement](https://www.investopedia.com/terms/f/fibonacciretracement.asp) and bounced back to the moving average in the next session. The stock regained support on the third day and entered a recovery, completing a [cup and handle](https://www.investopedia.com/terms/c/cupandhandle.asp) breakout pattern. ## 50-Day Fractals The moving average works just as well in lower and higher time frames. As a result, day traders will find benefit in placing 50-bar EMAs on 15 and 60 minute charts because they define natural end points for intraday oscillations. Just keep in mind that noise increases as time frame decreases, lowering its value on 5 and 1 minute charts. On the flip side, the indicator shows excellent reliability on weekly and monthly charts, often pinpointing exact turning points in corrections and long term trends. This makes sense when considering that the 50-week EMA defines [mean reversion](https://www.investopedia.com/terms/m/meanreversion.asp) over an entire year while the 50-month EMA tracks more than four years of market activity, approaching the average length of a typical business cycle. Market timers can use these long-term moving averages to establish profitable positions lasting for months or years while violations offer perfect levels to take profits and reallocate capital into other long term instruments. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-02-c61641186a2545feadf5d2d215e54cc1.jpg) Image by Sabrina Jiang © Investopedia 2020 Apple ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=aapl)) set up excellent buying opportunities at the 50-month EMA in 2009 and 2013. It broke moving average support in September 2008 and spent 5 months grinding sideways before remounting that level in April 2009, issuing a “failure of a failure*”* buy signal that yielded more than 80 points over three years. It tested the moving average a second time in 2013, spending four months building a [double bottom](https://www.investopedia.com/terms/d/doublebottom.asp) that triggered a 100 percent rally into 2014. Note how the lows matched support perfectly, offering an incredible low risk entry for patient market players. ## 50-200 Day Pinball Fast trends in both directions tend to increase the separation between the 50 and 200-day EMAs. Once a [countertrend](https://www.investopedia.com/terms/c/countertrend.asp) breaks one of these averages, it often carries into the other average, setting up a few rounds of the 50-200 “pinball” strategy. [Swing traders](https://www.investopedia.com/terms/s/swingtrading.asp) are natural beneficiaries of this two-sided technique, going long and then short until one side of the box gives way to a more active trend impulse. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-03-4913804fedb2488aa6a3e60de37baf4d.jpg) Image by Sabrina Jiang © Investopedia 2020  Biogen ([BIIB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=biib)) hit a new high in March after a long [uptrend](https://www.investopedia.com/terms/u/uptrend.asp) and entered a steep correction that broke the 50-day EMA a few days later. Price action then entered a two month game of 50-200 pinball, traversing more than 75 points between new resistance at the 50-day EMA and long term support at the 200-day EMA. Swing reversals took place close to target numbers, allowing easy entry and relatively tight stops for a triple digit stock. ## Bullish and Bearish Crossovers The downward crossover of the 50-day EMA through the 200-day EMA signals a death cross that many technicians believe marks the end of an uptrend. An upward crossover or golden cross is alleged to possess similar magic properties in establishing a new uptrend. In reality, numerous crisscrosses can print in the life cycle of an uptrend or [downtrend](https://www.investopedia.com/terms/d/downtrend.asp) and these classic signals show little reliability.  ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Strategies_Applications_Behind_The_50_Day_EMA_INTC_AAPL_Jul_2020-04-9df0df3196cb4cbb8e77130f84a1329e.jpg) Image by Sabrina Jiang © Investopedia 2020 It’s a different story with the 50 and 200-week EMAs. SPDR S&P Trust ([SPY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=spy)) shows four valid cross signals going back 15 years, two in each direction. More importantly, there were no [false signals](https://www.investopedia.com/terms/f/false-signal.asp) during this time, which included three bull markets and two bear markets. Looking at historic Dow Industrial data, the last invalid cross occurred more than 30 years ago, in 1982. This tells us that golden and death crosses deserve a respected place in market analysis. ## The Bottom Line The 50-day EMA identifies a natural mean reversion level for the intermediate time frame. It has numerous applications in price prediction, position choice and strategy building. Traders, market timers and investors all benefit from 50-day EMA study, making it an indispensable ingredient in your technical market analysis.

The 50-day moving average marks a line in the sand for traders holding positions through inevitable drawdowns. The strategy we employ when price nears this inflection point often decides whether we walk away with a well-earned profit or a frustrating loss. Considering the consequences, it makes sense to improve our understanding about this price level, as well as finding new ways to manage risk when it comes into play. The most common formula takes the last 50 price bars and divides by the total. This yields the 50-day simple moving average (SMA) used by technicians for many decades. The calculation has been tweaked in many ways over the years as market players try to build a better mousetrap. The 50-day exponential moving average (EMA) offers the most popular variation, responding to price movement more quickly than its simple minded cousin. This extra speed in signal production defines a clear advantage over the slower version, making it a superior choice. The 50-day EMA gives technicians a seat at the 50-yard line, the perfect location to watch the entire playing field for mid-term opportunities and natural counterswings after active trends, higher or lower. It’s also neutral ground when price action is often misinterpreted by the majority. And as our contrary market proves over and over again, the most reliable signals tend to erupt when the majority is sitting on the wrong side of the action. There are dozens of ways to use the 50-day EMA in market strategies. It works as a reality check when a position hits the magic line after a rally or selloff. It has equal benefit in lower and higher time frames, applying the indicator to intraday charts or tracking long term trends with the 50-week or 50-month version. Or play a game of pinball, trading oscillations between the 50-day EMA and longer term 200-day EMA. It even works in the arcane world of market voodoo, with 50/200 day crossovers signaling bullish golden crosses or bearish death crosses. Pullbacks The 50-day EMA most often comes into play when you’re positioned in a trend that turns against you in a natural counterswing, or in reaction to an impulse that’s dragging thousands of financial instruments along for the ride. It makes sense to place a stop just across the moving average because it represents intermediate support (resistance in a downtrend) that should hold under normal tape conditions. The problem with this reasoning is it doesn’t work as intended in our volatile modern markets. The 50 and 200-day EMAs have morphed from narrow lines into broad zones in the last two decades due to aggressive stop hunting. You need to consider how deep these violations will go before placing a stop or timing an entry at or near the moving average. Patience is key in these circumstances because testing at the 50-day EMA usually resolves within three to four price bars. The trick is to stay out of the way until a) the reversal kicks in or b) the level breaks, yielding a price thrust against your position. Image by Sabrina Jiang © Investopedia 2020 The risk of getting it wrong will hurt your wallet, so how long should you stick around when price tests the 50-day EMA? While there’s no perfect way to avoid whipsaws, examining other technicals often pinpoints the exact extension of a reversal. For example, Intel (INTC) returned to the January high in April and sold off to the 50-day EMA. It broke support, dropped to the .386 Fibonacci rally retracement and bounced back to the moving average in the next session. The stock regained support on the third day and entered a recovery, completing a cup and handle breakout pattern. 50-Day Fractals The moving average works just as well in lower and higher time frames. As a result, day traders will find benefit in placing 50-bar EMAs on 15 and 60 minute charts because they define natural end points for intraday oscillations. Just keep in mind that noise increases as time frame decreases, lowering its value on 5 and 1 minute charts. On the flip side, the indicator shows excellent reliability on weekly and monthly charts, often pinpointing exact turning points in corrections and long term trends. This makes sense when considering that the 50-week EMA defines mean reversion over an entire year while the 50-month EMA tracks more than four years of market activity, approaching the average length of a typical business cycle. Market timers can use these long-term moving averages to establish profitable positions lasting for months or years while violations offer perfect levels to take profits and reallocate capital into other long term instruments. Image by Sabrina Jiang © Investopedia 2020 Apple (AAPL) set up excellent buying opportunities at the 50-month EMA in 2009 and 2013. It broke moving average support in September 2008 and spent 5 months grinding sideways before remounting that level in April 2009, issuing a “failure of a failure” buy signal that yielded more than 80 points over three years. It tested the moving average a second time in 2013, spending four months building a double bottom that triggered a 100 percent rally into 2014. Note how the lows matched support perfectly, offering an incredible low risk entry for patient market players. 50-200 Day Pinball Fast trends in both directions tend to increase the separation between the 50 and 200-day EMAs. Once a countertrend breaks one of these averages, it often carries into the other average, setting up a few rounds of the 50-200 “pinball” strategy. Swing traders are natural beneficiaries of this two-sided technique, going long and then short until one side of the box gives way to a more active trend impulse. Image by Sabrina Jiang © Investopedia 2020  Biogen (BIIB) hit a new high in March after a long uptrend and entered a steep correction that broke the 50-day EMA a few days later. Price action then entered a two month game of 50-200 pinball, traversing more than 75 points between new resistance at the 50-day EMA and long term support at the 200-day EMA. Swing reversals took place close to target numbers, allowing easy entry and relatively tight stops for a triple digit stock. Bullish and Bearish Crossovers The downward crossover of the 50-day EMA through the 200-day EMA signals a death cross that many technicians believe marks the end of an uptrend. An upward crossover or golden cross is alleged to possess similar magic properties in establishing a new uptrend. In reality, numerous crisscrosses can print in the life cycle of an uptrend or downtrend and these classic signals show little reliability.  Image by Sabrina Jiang © Investopedia 2020 It’s a different story with the 50 and 200-week EMAs. SPDR S&P Trust (SPY) shows four valid cross signals going back 15 years, two in each direction. More importantly, there were no false signals during this time, which included three bull markets and two bear markets. Looking at historic Dow Industrial data, the last invalid cross occurred more than 30 years ago, in 1982. This tells us that golden and death crosses deserve a respected place in market analysis. The Bottom Line The 50-day EMA identifies a natural mean reversion level for the intermediate time frame. It has numerous applications in price prediction, position choice and strategy building. Traders, market timers and investors all benefit from 50-day EMA study, making it an indispensable ingredient in your technical market analysis.

https://www.investopedia.com/inherited-401-k-rules-to-follow-5425958

Inherited 401(k) Options and Rules You Must Follow

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> When a loved one passes away, a 401(k) retirement account might be bequeathed to a spouse, family member, or friend. If you inherit such an account, here are your options and the rules you must follow. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>All 401(k) accounts offer tax-deferred retirement savings.</li><li>If you are married, you automatically inherit your spouse's 401(k) unless the will stipulates otherwise.<span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="10"></span></li><li>Spouses have more options than other heirs.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-a-401k"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> What Is a 401(k)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/08/401k-info.asp">401(k)</a> is an employer-sponsored retirement plan, typically funded through payroll deductions. Many employers match all or part of what their employees contribute as part of their benefits package.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Traditional 401(k)s are funded using pretax dollars, reducing your taxable income by the amount of your contribution. The taxes won't be due until you withdraw money from the account.<span class="ql-inline-citation" data-cite="13"></span>Roth 401(k)s use after-tax money for contributions, so you pay the income taxes immediately, but your money will not be taxed when it is withdrawn.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Withdrawals can be made without penalty from your 401(k) when you have reached the age of 59½, and you must start taking <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/requiredminimumdistribution.asp">required minimum distributions (RMDs)</a> at the age of 73.<span class="ql-inline-citation" data-cite="15"></span> After you die, any unused funds will pass to those you name as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-are-401k-beneficiary-rules-5496575">beneficiaries</a>. If you <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/05/inheritira.asp">do not name a beneficiary</a> or the account's beneficiary is deceased, the account will become part of your estate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-inheriting-a-401k-from-your-spouse"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Inheriting a 401(K) From Your Spouse </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> If you are the beneficiary of a 401(k) account, your options are dependent on your connection to the original owner. If you inherited the account from your spouse, you have more options than non-spousal beneficiaries.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="2"></span> If you're a spouse: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>You can designate yourself as the owner and place the account in your name. You'll have to take the required minimum distributions (RMDs) based on your life expectancy, but you can also continue contributing to the account.</li> <li>You can transfer the money into an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/082515/inherited-ira-and-401k-rules-explained.asp">inherited IRA</a>. Inherited IRAs can take the form of any IRA, including a Roth, traditional, SIMPLE, or SEP IRA.</li> <li>You can treat yourself as the beneficiary and withdraw the funds, accepting any taxes due at the time. If you're over 59½, you won't have to pay early withdrawal penalties. You will owe income tax on the disbursement.</li> <li>You can disclaim the account and pass it to an alternate beneficiary.</li> </ol> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_17-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_18-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If your partner dies and you are not legally married, you are not entitled to that person's 401(k). Domestic partnerships require a beneficiary designation to inherit the account, even if you've been together for many years.<span class="ql-inline-citation" data-cite="17"></span></p></div></div></div> <span class="heading-toc" id="toc-options-as-a-non-spousal-beneficiary"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Options as a Non-Spousal Beneficiary </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> You may inherit a 401(k) account from someone you're not married to—like a parent, legal guardian, or friend. You are not allowed to roll the 401(k) over into your accounts. Instead, you have only two options: disclaim the account or empty the account by the end of the 10th year after the year of the account owner's death.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> You must start taking RMDs from the inherited IRA by Dec. 31 of the year following the original owner's death. As a result of the recently adopted <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secure-act-4688468">SECURE Act</a>, you have 10 years after the original account holder's death to complete the RMDs.If you miss the deadline to begin the RMDs, your disbursement amount will be calculated on the original account holder's life expectancy rather than your own.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="18"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> If a beneficiary is disabled, chronically ill, the minor child of the account owner, or no more than 10 years younger than the original account holder, the beneficiary may stretch the distributions over their lifetime.<span class="ql-inline-citation" data-cite="19"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_26-0"><span class="heading-toc" id="toc-can-i-commingle-inherited-401ks-with-current-accounts"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Commingle Inherited 401(k)s With Current Accounts?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you are the surviving spouse of the original 401(k) holder, you may roll their accounts into your own. You are not allowed to do this if you are not a spouse. Instead, you can take withdrawals from the account over 10 years.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_28-0"><span class="heading-toc" id="toc-what-are-the-penalties-for-withdrawing-money-before-age-59"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Penalties for Withdrawing Money Before Age 59½?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Spouses can opt to transfer the 401(k) funds into an inherited IRA and make withdrawals without triggering an early withdrawal penalty from an inherited IRA. However, spouses will still have to pay income taxes on the money they withdraw. As part of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743">SECURE Act</a>, non-spouse beneficiaries of 401(k)s can withdraw from the account at any time without penalty as long as the balance of the account is depleted by the end of the 10th year following the account owner’s death. This is called the 10-year rule.<span class="ql-inline-citation" data-cite="21"></span> </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_30-0"><span class="heading-toc" id="toc-do-i-have-to-take-rmds-if-the-original-account-holder-was-younger-than-72"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do I Have to Take RMDs if the Original Account Holder Was Younger Than 72?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If your spouse was too young to begin taking RMDs when they passed away, you don't have to start taking RMDs until the year that person would have been 73. For example, if Joe died at 63 in 2022, this widow wouldn't have to take the first RMD until 2032.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The rules and regulations surrounding inherited 401(k)s can be confusing. An experienced tax consultant or estate planner will be a tremendous asset as you determine your course of action. For spousal inherited 401(k)s, there are several options to choose from, but non-spousal beneficiaries must make decisions quickly to satisfy the law. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <em>Correction—May 12, 2023:</em> A previous version of this article incorrectly stated that non-spouse beneficiaries are subject to a 10% early withdrawal penalty fee if younger than age 59½.<br/> </p></div>

When a loved one passes away, a 401(k) retirement account might be bequeathed to a spouse, family member, or friend. If you inherit such an account, here are your options and the rules you must follow. ### Key Takeways * All 401(k) accounts offer tax-deferred retirement savings. * If you are married, you automatically inherit your spouse's 401(k) unless the will stipulates otherwise. * Spouses have more options than other heirs. ## What Is a 401(k)? A [401(k)](https://www.investopedia.com/articles/retirement/08/401k-info.asp) is an employer-sponsored retirement plan, typically funded through payroll deductions. Many employers match all or part of what their employees contribute as part of their benefits package. Traditional 401(k)s are funded using pretax dollars, reducing your taxable income by the amount of your contribution. The taxes won't be due until you withdraw money from the account.Roth 401(k)s use after-tax money for contributions, so you pay the income taxes immediately, but your money will not be taxed when it is withdrawn. Withdrawals can be made without penalty from your 401(k) when you have reached the age of 59½, and you must start taking [required minimum distributions (RMDs)](https://www.investopedia.com/terms/r/requiredminimumdistribution.asp) at the age of 73. After you die, any unused funds will pass to those you name as [beneficiaries](https://www.investopedia.com/what-are-401k-beneficiary-rules-5496575). If you [do not name a beneficiary](https://www.investopedia.com/ask/answers/05/inheritira.asp) or the account's beneficiary is deceased, the account will become part of your estate. ## Inheriting a 401(K) From Your Spouse If you are the beneficiary of a 401(k) account, your options are dependent on your connection to the original owner. If you inherited the account from your spouse, you have more options than non-spousal beneficiaries. If you're a spouse: 1. You can designate yourself as the owner and place the account in your name. You'll have to take the required minimum distributions (RMDs) based on your life expectancy, but you can also continue contributing to the account. 2. You can transfer the money into an [inherited IRA](https://www.investopedia.com/articles/personal-finance/082515/inherited-ira-and-401k-rules-explained.asp). Inherited IRAs can take the form of any IRA, including a Roth, traditional, SIMPLE, or SEP IRA. 3. You can treat yourself as the beneficiary and withdraw the funds, accepting any taxes due at the time. If you're over 59½, you won't have to pay early withdrawal penalties. You will owe income tax on the disbursement. 4. You can disclaim the account and pass it to an alternate beneficiary. ### Important If your partner dies and you are not legally married, you are not entitled to that person's 401(k). Domestic partnerships require a beneficiary designation to inherit the account, even if you've been together for many years. ## Options as a Non-Spousal Beneficiary You may inherit a 401(k) account from someone you're not married to—like a parent, legal guardian, or friend. You are not allowed to roll the 401(k) over into your accounts. Instead, you have only two options: disclaim the account or empty the account by the end of the 10th year after the year of the account owner's death. You must start taking RMDs from the inherited IRA by Dec. 31 of the year following the original owner's death. As a result of the recently adopted [SECURE Act](https://www.investopedia.com/secure-act-4688468), you have 10 years after the original account holder's death to complete the RMDs.If you miss the deadline to begin the RMDs, your disbursement amount will be calculated on the original account holder's life expectancy rather than your own. If a beneficiary is disabled, chronically ill, the minor child of the account owner, or no more than 10 years younger than the original account holder, the beneficiary may stretch the distributions over their lifetime. ## Can I Commingle Inherited 401(k)s With Current Accounts? If you are the surviving spouse of the original 401(k) holder, you may roll their accounts into your own. You are not allowed to do this if you are not a spouse. Instead, you can take withdrawals from the account over 10 years. ## What Are the Penalties for Withdrawing Money Before Age 59½? Spouses can opt to transfer the 401(k) funds into an inherited IRA and make withdrawals without triggering an early withdrawal penalty from an inherited IRA. However, spouses will still have to pay income taxes on the money they withdraw. As part of the [SECURE Act](https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743), non-spouse beneficiaries of 401(k)s can withdraw from the account at any time without penalty as long as the balance of the account is depleted by the end of the 10th year following the account owner’s death. This is called the 10-year rule.  ## Do I Have to Take RMDs if the Original Account Holder Was Younger Than 72? If your spouse was too young to begin taking RMDs when they passed away, you don't have to start taking RMDs until the year that person would have been 73. For example, if Joe died at 63 in 2022, this widow wouldn't have to take the first RMD until 2032. ## The Bottom Line The rules and regulations surrounding inherited 401(k)s can be confusing. An experienced tax consultant or estate planner will be a tremendous asset as you determine your course of action. For spousal inherited 401(k)s, there are several options to choose from, but non-spousal beneficiaries must make decisions quickly to satisfy the law. *Correction—May 12, 2023:* A previous version of this article incorrectly stated that non-spouse beneficiaries are subject to a 10% early withdrawal penalty fee if younger than age 59½.

When a loved one passes away, a 401(k) retirement account might be bequeathed to a spouse, family member, or friend. If you inherit such an account, here are your options and the rules you must follow. Key Takeways All 401(k) accounts offer tax-deferred retirement savings.If you are married, you automatically inherit your spouse's 401(k) unless the will stipulates otherwise.Spouses have more options than other heirs. What Is a 401(k)? A 401(k) is an employer-sponsored retirement plan, typically funded through payroll deductions. Many employers match all or part of what their employees contribute as part of their benefits package. Traditional 401(k)s are funded using pretax dollars, reducing your taxable income by the amount of your contribution. The taxes won't be due until you withdraw money from the account.Roth 401(k)s use after-tax money for contributions, so you pay the income taxes immediately, but your money will not be taxed when it is withdrawn. Withdrawals can be made without penalty from your 401(k) when you have reached the age of 59½, and you must start taking required minimum distributions (RMDs) at the age of 73. After you die, any unused funds will pass to those you name as beneficiaries. If you do not name a beneficiary or the account's beneficiary is deceased, the account will become part of your estate. Inheriting a 401(K) From Your Spouse If you are the beneficiary of a 401(k) account, your options are dependent on your connection to the original owner. If you inherited the account from your spouse, you have more options than non-spousal beneficiaries. If you're a spouse: You can designate yourself as the owner and place the account in your name. You'll have to take the required minimum distributions (RMDs) based on your life expectancy, but you can also continue contributing to the account. You can transfer the money into an inherited IRA. Inherited IRAs can take the form of any IRA, including a Roth, traditional, SIMPLE, or SEP IRA. You can treat yourself as the beneficiary and withdraw the funds, accepting any taxes due at the time. If you're over 59½, you won't have to pay early withdrawal penalties. You will owe income tax on the disbursement. You can disclaim the account and pass it to an alternate beneficiary. Important If your partner dies and you are not legally married, you are not entitled to that person's 401(k). Domestic partnerships require a beneficiary designation to inherit the account, even if you've been together for many years. Options as a Non-Spousal Beneficiary You may inherit a 401(k) account from someone you're not married to—like a parent, legal guardian, or friend. You are not allowed to roll the 401(k) over into your accounts. Instead, you have only two options: disclaim the account or empty the account by the end of the 10th year after the year of the account owner's death. You must start taking RMDs from the inherited IRA by Dec. 31 of the year following the original owner's death. As a result of the recently adopted SECURE Act, you have 10 years after the original account holder's death to complete the RMDs.If you miss the deadline to begin the RMDs, your disbursement amount will be calculated on the original account holder's life expectancy rather than your own. If a beneficiary is disabled, chronically ill, the minor child of the account owner, or no more than 10 years younger than the original account holder, the beneficiary may stretch the distributions over their lifetime. Can I Commingle Inherited 401(k)s With Current Accounts? If you are the surviving spouse of the original 401(k) holder, you may roll their accounts into your own. You are not allowed to do this if you are not a spouse. Instead, you can take withdrawals from the account over 10 years. What Are the Penalties for Withdrawing Money Before Age 59½? Spouses can opt to transfer the 401(k) funds into an inherited IRA and make withdrawals without triggering an early withdrawal penalty from an inherited IRA. However, spouses will still have to pay income taxes on the money they withdraw. As part of the SECURE Act, non-spouse beneficiaries of 401(k)s can withdraw from the account at any time without penalty as long as the balance of the account is depleted by the end of the 10th year following the account owner’s death. This is called the 10-year rule.  Do I Have to Take RMDs if the Original Account Holder Was Younger Than 72? If your spouse was too young to begin taking RMDs when they passed away, you don't have to start taking RMDs until the year that person would have been 73. For example, if Joe died at 63 in 2022, this widow wouldn't have to take the first RMD until 2032. The Bottom Line The rules and regulations surrounding inherited 401(k)s can be confusing. An experienced tax consultant or estate planner will be a tremendous asset as you determine your course of action. For spousal inherited 401(k)s, there are several options to choose from, but non-spousal beneficiaries must make decisions quickly to satisfy the law. Correction—May 12, 2023: A previous version of this article incorrectly stated that non-spouse beneficiaries are subject to a 10% early withdrawal penalty fee if younger than age 59½.

https://www.investopedia.com/articles/investing/032116/how-etc-different-etf-iau.asp

ETC vs. ETF: What's the Difference?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-etc-vs-etf-an-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> ETC vs. ETF: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> In everyday conversation, an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchangetraded-commodity-etc.asp">exchange traded commodity (ETC)</a> could refer to a commodity <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange traded fund (ETF)</a>, but an ETC is actually a product name for a specific type of security. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The term ETC is commonly used in Europe, where the London Stock Exchange provide trading products called ETCs. Most investors won't notice a difference between most commodity ETFs or commodity <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etn.asp">exchange traded notes (ETNs)</a> and ETCs, but there are structural differences.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>An exchange traded commodity (ETC) is often described as a commodity-focused exchange traded fund (ETF), however, that is not the entire story.</li><li>An ETC is also a specific type of security traded on an exchange that tracks a commodity or a benchmark but whose assets are a debenture issued by a bank.</li><li>In contrast to ETFs, which typically contain a basket of commodities or other securities, an ETC allows for exposure to one single commodity.</li><li>The benefit of an ETC is that it allows investors exposure to commodities without having to trade in futures and options, which are more complicated instruments.</li></ul></div></div></div> <span class="heading-toc" id="toc-etc"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> ETC </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> An ETC is traded on a stock exchange, like a stock, but tracks the price of a commodity or a commodity index. This allows investors to gain exposure to commodity markets without buying <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futurescontract.asp">futures contracts</a> or the physical commodity. In this sense, ETCs have a share price that moves up and down as the price of the underlying commodities fluctuates in value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> ETCs make it easier for individual investors to gain access to specific commodities that may typically be difficult to gain access to, particularly without investing in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp">options</a>, which are more complicated products. While ETFs are generally a basket of stocks or commodities, an ETC allows for exposure to one single commodity.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The performance of an ETC is linked to either one of two factors: the spot commodity price or the futures price. The spot commodity price is the current price for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/delivery.asp">delivery</a> whereas the futures price is for delivery at a future date. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> ETCs are investment funds that are managed by an investment manager and charge an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp">expense ratio</a> to cover the costs of management. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-etf-or-etn"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> ETF (or ETN) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Commodity ETFs invest in a commodity; either by buying or selling the underlying commodity the ETF is meant to track, or buying or selling futures contracts on the underlying commodity.<span class="ql-inline-citation" data-cite="7"></span> An ETC doesn't do this directly. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> An ETC is a note or debt instrument which is underwritten by a bank for the issuer of the ETC.<span class="ql-inline-citation" data-cite="8"></span> An ETN has this same "note" structure. Therefore, it has a risk that the underwriter could default, and thus not be able to financially back the ETN. This would make the ETN worthless, even though the underlying commodity still has value.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The benefits of investing in commodities include acting as an inflation hedge and having a low correlation to equities and bonds.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> An ETC is a fusion between an ETF and ETN. It is backed by an underwritten note, but that note is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateralized</a> by physical commodities, purchased using the cash from capital <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fund-flow.asp">inflows</a> into the ETC. This reduces the risk of underwriter default issues.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Like an ETN, an ETC has very few <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trackingerror.asp">tracking errors</a>, since the note tracks an index and not the physical futures contracts or physical commodities it holds.<span class="ql-inline-citation" data-cite="11"></span> An ETF tracks its holdings, which makes it susceptible to tracking errors, where the movements of the commodity price are not accurately reflected in the price movements of the ETF over time.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-difference-between-etf-and-etc"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-heading__text"> Difference Between ETF and ETC </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Let's summarize some of the key differences between the two. The main differences between an ETF and an ETC are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> <li><strong>Underlying Assets: </strong>ETFs can hold a variety of assets such as stocks, bonds, or a combination of different asset classes. ETCs specifically track the performance of commodities such as precious metals (gold, silver), energy resources, or agricultural products.</li><li><strong>Structure: </strong>ETFs are investment funds that are traded on stock exchanges. They usually represent a diversified portfolio of assets. ETCs are also traded on stock exchanges, but they are specifically designed to provide exposure to the price movements of a particular commodity. In some ways, investors can see ETCs as less diversified.</li><li><strong>Management: </strong>ETFs can be passively managed or actively managed. ETCs are often passively managed.</li><li><strong>Liquidity and Trading: </strong>ETFs are generally highly liquid. In many cases, ETFs trade many shares throughout the entire day. ETCs, being commodity-focused, may have liquidity influenced by the specific commodity market they are tracking. In this case, they may have less liquidity compared to more common ETFs.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <span class="heading-toc" id="toc-real-world-examples"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-heading__text"> Real-World Examples </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Consider iShares Gold Trust (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=iau">IAU</a>). A trust is a type of ETF that buys physical gold in exchange for shares issued. The buyer of the ETF, therefore, owns a fractional piece of the gold held in trust.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> In the case of iShares Physical Gold ETC (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=sgln">SGLN</a>), investors don't own a piece of the gold they are investing in. Rather, the underwriters of the fund financially back the note (the ETC) with the holdings. The structures are similar, but not the same.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> While the first fund, IAU, has a 0.25% expense ratio, SGLN has a 0.12% expense ratio. Still, both very efficiently track the price movements of the London Bullion Market Association (LBMA) gold price, which the investment vehicles are meant to track. The yearly returns below show there are minimal performance differences between the two, against the benchmark.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_40-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Annual Returns</th> </tr> </thead> <tbody data-check="-1"> <tr> <td> </td> <td><b>2023</b></td> <td><b>2022</b></td> <td><b>2021</b></td> </tr> <tr> <td>iShares Physical Gold ETC (SGLN)</td> <td>13.7%</td> <td>-0.5%</td> <td>-3.9%</td> </tr> <tr> <td>iShares Gold Trust (IAU)</td> <td>13.5%</td> <td>-0.7%</td> <td>-4.0%</td> </tr> <tr> <td>LBMA Gold Price (Benchmark)</td> <td>13.8%</td> <td>-0.4%</td> <td>-3.8%</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Often there are only minor differences between the performance of an ETF, ETN, and ETC, but in certain circumstances, performance can vary greatly. Before investing or trading in any product, search out comparable ETFs, ETNs, and ETCs. There may be one that consistently performs better than its peers, or that has a lower expense ratio (which helps boost returns). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> The performance and the structure of an investment vehicle aren't the only considerations when choosing whether to invest in an ETF, ETN, or ETC. Other factors, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volume.asp">volume</a>, should also be considered. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> While a fund may track its index very closely in theory, if the investment vehicle has little volume it will be hard to enter and exit positions (especially large ones) at efficient prices, and that could have a negative impact on personal returns.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-are-commodity-etfs-worth-it"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Commodity ETFs Worth It?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, commodity ETFs can be a good investment and a great way for an investor to diversify their portfolio. There are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/080415/top-coffee-etfs.asp">a variety of commodity ETFs</a> that can suit an investor's investment goals and risk tolerance. Like any investment, an investor should research the potential investment to determine if it is a right fit for them.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-what-is-the-largest-commodity-etf"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Largest Commodity ETF?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The largest commodity ETF is SPDR Gold Trust (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GLD">GLD</a>). As of January 2024, it manages $57.06 billion. The fund holds physical gold and allows investors exposure to gold without having the need to hold physical gold themselves.<span class="ql-inline-citation" data-cite="3"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-what-is-the-most-diversified-commodity-etf"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Most Diversified Commodity ETF?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One of the most diversified commodity ETFs is the Invesco DB Commodity Index Tracking Fund (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DBC">DBC</a>). The fund trades in 14 of the most heavily traded and important commodities in the world, according to its prospectus.<span class="ql-inline-citation" data-cite="11"></span> The commodities traded are NY Harbor ULSD, Brent crude, gasoline, WTI crude, gold, wheat, aluminum, corn, soybeans, natural gas, zinc, copper, sugar, and silver.<span class="ql-inline-citation" data-cite="12"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> The differences between an ETC, an ETF, and an ETN are complex and filled with legal jargon. In terms of structural differences between an ETF and an ETC, the ETF invests directly in physical commodities or futures contracts. An ETC is a debt <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/note.asp">note</a>, backed by an underwriter, which then collateralizes the note with buying the commodity. </p></div>

## ETC vs. ETF: An Overview In everyday conversation, an [exchange traded commodity (ETC)](https://www.investopedia.com/terms/e/exchangetraded-commodity-etc.asp) could refer to a commodity [exchange traded fund (ETF)](https://www.investopedia.com/terms/e/etf.asp), but an ETC is actually a product name for a specific type of security. The term ETC is commonly used in Europe, where the London Stock Exchange provide trading products called ETCs. Most investors won't notice a difference between most commodity ETFs or commodity [exchange traded notes (ETNs)](https://www.investopedia.com/terms/e/etn.asp) and ETCs, but there are structural differences. ### Key Takeaways * An exchange traded commodity (ETC) is often described as a commodity-focused exchange traded fund (ETF), however, that is not the entire story. * An ETC is also a specific type of security traded on an exchange that tracks a commodity or a benchmark but whose assets are a debenture issued by a bank. * In contrast to ETFs, which typically contain a basket of commodities or other securities, an ETC allows for exposure to one single commodity. * The benefit of an ETC is that it allows investors exposure to commodities without having to trade in futures and options, which are more complicated instruments. ## ETC An ETC is traded on a stock exchange, like a stock, but tracks the price of a commodity or a commodity index. This allows investors to gain exposure to commodity markets without buying [futures contracts](https://www.investopedia.com/terms/f/futurescontract.asp) or the physical commodity. In this sense, ETCs have a share price that moves up and down as the price of the underlying commodities fluctuates in value. ETCs make it easier for individual investors to gain access to specific commodities that may typically be difficult to gain access to, particularly without investing in [futures](https://www.investopedia.com/terms/f/futures.asp) or [options](https://www.investopedia.com/terms/o/option.asp), which are more complicated products. While ETFs are generally a basket of stocks or commodities, an ETC allows for exposure to one single commodity. The performance of an ETC is linked to either one of two factors: the spot commodity price or the futures price. The spot commodity price is the current price for [delivery](https://www.investopedia.com/terms/d/delivery.asp) whereas the futures price is for delivery at a future date. ETCs are investment funds that are managed by an investment manager and charge an [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp) to cover the costs of management. ## ETF (or ETN) Commodity ETFs invest in a commodity; either by buying or selling the underlying commodity the ETF is meant to track, or buying or selling futures contracts on the underlying commodity. An ETC doesn't do this directly. An ETC is a note or debt instrument which is underwritten by a bank for the issuer of the ETC. An ETN has this same "note" structure. Therefore, it has a risk that the underwriter could default, and thus not be able to financially back the ETN. This would make the ETN worthless, even though the underlying commodity still has value. ### The benefits of investing in commodities include acting as an inflation hedge and having a low correlation to equities and bonds. An ETC is a fusion between an ETF and ETN. It is backed by an underwritten note, but that note is [collateralized](https://www.investopedia.com/terms/c/collateral.asp) by physical commodities, purchased using the cash from capital [inflows](https://www.investopedia.com/terms/f/fund-flow.asp) into the ETC. This reduces the risk of underwriter default issues. Like an ETN, an ETC has very few [tracking errors](https://www.investopedia.com/terms/t/trackingerror.asp), since the note tracks an index and not the physical futures contracts or physical commodities it holds. An ETF tracks its holdings, which makes it susceptible to tracking errors, where the movements of the commodity price are not accurately reflected in the price movements of the ETF over time. ## Difference Between ETF and ETC Let's summarize some of the key differences between the two. The main differences between an ETF and an ETC are: * **Underlying Assets:** ETFs can hold a variety of assets such as stocks, bonds, or a combination of different asset classes. ETCs specifically track the performance of commodities such as precious metals (gold, silver), energy resources, or agricultural products. * **Structure:** ETFs are investment funds that are traded on stock exchanges. They usually represent a diversified portfolio of assets. ETCs are also traded on stock exchanges, but they are specifically designed to provide exposure to the price movements of a particular commodity. In some ways, investors can see ETCs as less diversified. * **Management:** ETFs can be passively managed or actively managed. ETCs are often passively managed. * **Liquidity and Trading:** ETFs are generally highly liquid. In many cases, ETFs trade many shares throughout the entire day. ETCs, being commodity-focused, may have liquidity influenced by the specific commodity market they are tracking. In this case, they may have less liquidity compared to more common ETFs. ## Real-World Examples Consider iShares Gold Trust ([IAU](https://www.investopedia.com/markets/quote?tvwidgetsymbol=iau)). A trust is a type of ETF that buys physical gold in exchange for shares issued. The buyer of the ETF, therefore, owns a fractional piece of the gold held in trust.  In the case of iShares Physical Gold ETC ([SGLN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=sgln)), investors don't own a piece of the gold they are investing in. Rather, the underwriters of the fund financially back the note (the ETC) with the holdings. The structures are similar, but not the same.  While the first fund, IAU, has a 0.25% expense ratio, SGLN has a 0.12% expense ratio. Still, both very efficiently track the price movements of the London Bullion Market Association (LBMA) gold price, which the investment vehicles are meant to track. The yearly returns below show there are minimal performance differences between the two, against the benchmark. | Annual Returns | | | | | --- | --- | --- | --- | | | **2023** | **2022** | **2021** | | iShares Physical Gold ETC (SGLN) | 13.7% | -0.5% | -3.9% | | iShares Gold Trust (IAU) | 13.5% | -0.7% | -4.0% | | LBMA Gold Price (Benchmark) | 13.8% | -0.4% | -3.8% | Often there are only minor differences between the performance of an ETF, ETN, and ETC, but in certain circumstances, performance can vary greatly. Before investing or trading in any product, search out comparable ETFs, ETNs, and ETCs. There may be one that consistently performs better than its peers, or that has a lower expense ratio (which helps boost returns). The performance and the structure of an investment vehicle aren't the only considerations when choosing whether to invest in an ETF, ETN, or ETC. Other factors, such as [volume](https://www.investopedia.com/terms/v/volume.asp), should also be considered. While a fund may track its index very closely in theory, if the investment vehicle has little volume it will be hard to enter and exit positions (especially large ones) at efficient prices, and that could have a negative impact on personal returns.  ## Are Commodity ETFs Worth It? Yes, commodity ETFs can be a good investment and a great way for an investor to diversify their portfolio. There are [a variety of commodity ETFs](https://www.investopedia.com/articles/investing/080415/top-coffee-etfs.asp) that can suit an investor's investment goals and risk tolerance. Like any investment, an investor should research the potential investment to determine if it is a right fit for them. ## What Is the Largest Commodity ETF? The largest commodity ETF is SPDR Gold Trust ([GLD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GLD)). As of January 2024, it manages $57.06 billion. The fund holds physical gold and allows investors exposure to gold without having the need to hold physical gold themselves. ## What Is the Most Diversified Commodity ETF? One of the most diversified commodity ETFs is the Invesco DB Commodity Index Tracking Fund ([DBC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DBC)). The fund trades in 14 of the most heavily traded and important commodities in the world, according to its prospectus. The commodities traded are NY Harbor ULSD, Brent crude, gasoline, WTI crude, gold, wheat, aluminum, corn, soybeans, natural gas, zinc, copper, sugar, and silver. ## The Bottom Line The differences between an ETC, an ETF, and an ETN are complex and filled with legal jargon. In terms of structural differences between an ETF and an ETC, the ETF invests directly in physical commodities or futures contracts. An ETC is a debt [note](https://www.investopedia.com/terms/n/note.asp), backed by an underwriter, which then collateralizes the note with buying the commodity.

ETC vs. ETF: An Overview In everyday conversation, an exchange traded commodity (ETC) could refer to a commodity exchange traded fund (ETF), but an ETC is actually a product name for a specific type of security. The term ETC is commonly used in Europe, where the London Stock Exchange provide trading products called ETCs. Most investors won't notice a difference between most commodity ETFs or commodity exchange traded notes (ETNs) and ETCs, but there are structural differences. Key Takeaways An exchange traded commodity (ETC) is often described as a commodity-focused exchange traded fund (ETF), however, that is not the entire story.An ETC is also a specific type of security traded on an exchange that tracks a commodity or a benchmark but whose assets are a debenture issued by a bank.In contrast to ETFs, which typically contain a basket of commodities or other securities, an ETC allows for exposure to one single commodity.The benefit of an ETC is that it allows investors exposure to commodities without having to trade in futures and options, which are more complicated instruments. ETC An ETC is traded on a stock exchange, like a stock, but tracks the price of a commodity or a commodity index. This allows investors to gain exposure to commodity markets without buying futures contracts or the physical commodity. In this sense, ETCs have a share price that moves up and down as the price of the underlying commodities fluctuates in value. ETCs make it easier for individual investors to gain access to specific commodities that may typically be difficult to gain access to, particularly without investing in futures or options, which are more complicated products. While ETFs are generally a basket of stocks or commodities, an ETC allows for exposure to one single commodity. The performance of an ETC is linked to either one of two factors: the spot commodity price or the futures price. The spot commodity price is the current price for delivery whereas the futures price is for delivery at a future date. ETCs are investment funds that are managed by an investment manager and charge an expense ratio to cover the costs of management. ETF (or ETN) Commodity ETFs invest in a commodity; either by buying or selling the underlying commodity the ETF is meant to track, or buying or selling futures contracts on the underlying commodity. An ETC doesn't do this directly. An ETC is a note or debt instrument which is underwritten by a bank for the issuer of the ETC. An ETN has this same "note" structure. Therefore, it has a risk that the underwriter could default, and thus not be able to financially back the ETN. This would make the ETN worthless, even though the underlying commodity still has value. The benefits of investing in commodities include acting as an inflation hedge and having a low correlation to equities and bonds. An ETC is a fusion between an ETF and ETN. It is backed by an underwritten note, but that note is collateralized by physical commodities, purchased using the cash from capital inflows into the ETC. This reduces the risk of underwriter default issues. Like an ETN, an ETC has very few tracking errors, since the note tracks an index and not the physical futures contracts or physical commodities it holds. An ETF tracks its holdings, which makes it susceptible to tracking errors, where the movements of the commodity price are not accurately reflected in the price movements of the ETF over time. Difference Between ETF and ETC Let's summarize some of the key differences between the two. The main differences between an ETF and an ETC are: Underlying Assets: ETFs can hold a variety of assets such as stocks, bonds, or a combination of different asset classes. ETCs specifically track the performance of commodities such as precious metals (gold, silver), energy resources, or agricultural products.Structure: ETFs are investment funds that are traded on stock exchanges. They usually represent a diversified portfolio of assets. ETCs are also traded on stock exchanges, but they are specifically designed to provide exposure to the price movements of a particular commodity. In some ways, investors can see ETCs as less diversified.Management: ETFs can be passively managed or actively managed. ETCs are often passively managed.Liquidity and Trading: ETFs are generally highly liquid. In many cases, ETFs trade many shares throughout the entire day. ETCs, being commodity-focused, may have liquidity influenced by the specific commodity market they are tracking. In this case, they may have less liquidity compared to more common ETFs. Real-World Examples Consider iShares Gold Trust (IAU). A trust is a type of ETF that buys physical gold in exchange for shares issued. The buyer of the ETF, therefore, owns a fractional piece of the gold held in trust.  In the case of iShares Physical Gold ETC (SGLN), investors don't own a piece of the gold they are investing in. Rather, the underwriters of the fund financially back the note (the ETC) with the holdings. The structures are similar, but not the same.  While the first fund, IAU, has a 0.25% expense ratio, SGLN has a 0.12% expense ratio. Still, both very efficiently track the price movements of the London Bullion Market Association (LBMA) gold price, which the investment vehicles are meant to track. The yearly returns below show there are minimal performance differences between the two, against the benchmark. Annual Returns   2023 2022 2021 iShares Physical Gold ETC (SGLN) 13.7% -0.5% -3.9% iShares Gold Trust (IAU) 13.5% -0.7% -4.0% LBMA Gold Price (Benchmark) 13.8% -0.4% -3.8% Often there are only minor differences between the performance of an ETF, ETN, and ETC, but in certain circumstances, performance can vary greatly. Before investing or trading in any product, search out comparable ETFs, ETNs, and ETCs. There may be one that consistently performs better than its peers, or that has a lower expense ratio (which helps boost returns). The performance and the structure of an investment vehicle aren't the only considerations when choosing whether to invest in an ETF, ETN, or ETC. Other factors, such as volume, should also be considered. While a fund may track its index very closely in theory, if the investment vehicle has little volume it will be hard to enter and exit positions (especially large ones) at efficient prices, and that could have a negative impact on personal returns.  Are Commodity ETFs Worth It? Yes, commodity ETFs can be a good investment and a great way for an investor to diversify their portfolio. There are a variety of commodity ETFs that can suit an investor's investment goals and risk tolerance. Like any investment, an investor should research the potential investment to determine if it is a right fit for them. What Is the Largest Commodity ETF? The largest commodity ETF is SPDR Gold Trust (GLD). As of January 2024, it manages $57.06 billion. The fund holds physical gold and allows investors exposure to gold without having the need to hold physical gold themselves. What Is the Most Diversified Commodity ETF? One of the most diversified commodity ETFs is the Invesco DB Commodity Index Tracking Fund (DBC). The fund trades in 14 of the most heavily traded and important commodities in the world, according to its prospectus. The commodities traded are NY Harbor ULSD, Brent crude, gasoline, WTI crude, gold, wheat, aluminum, corn, soybeans, natural gas, zinc, copper, sugar, and silver. The Bottom Line The differences between an ETC, an ETF, and an ETN are complex and filled with legal jargon. In terms of structural differences between an ETF and an ETC, the ETF invests directly in physical commodities or futures contracts. An ETC is a debt note, backed by an underwriter, which then collateralizes the note with buying the commodity.

https://www.investopedia.com/articles/personal-finance/060515/asset-protection-high-net-worth-individuals.asp

Asset Protection for High Net Worth Individuals

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The steel magnate Andrew Carnegie, reputedly the world's richest man in the late 19^thcentury, had some advice for anyone who wished to follow his example: “Put all your eggs in one basket,” he said, “and then watch that basket.”<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Watching those eggs—aka asset protection—may no longer be that simple, if it ever was. But it's no less of a concern for anyone who has managed to amass some wealth. Making money is one thing; keeping it may require an entirely different set of strategies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <span class="heading-toc" id="toc-deposit-and-securities-insurance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Deposit and Securities Insurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> On the most basic level, asset protection can include simple safeguards such as deposit insurance on bank accounts and the equivalent for brokerage accounts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> For example, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corporation (FDIC</a>) covers money in member banks for up to $250,000 per depositor, per bank, and per “ownership category.” So, for example, you might have $250,000 each in an individual account, a joint account, an IRA, and a trust account and be covered for the full $1 million, all at one bank. There are several other ownership categories besides those four, and, of course, no shortage of banks.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sipc.asp">Securities Investor Protection Corporation (SIPC)</a> insures your cash and securities in member brokerage houses against the firm's failure and, in some instances, theft from your account.<span class="ql-inline-citation" data-cite="4"></span> The maximum coverage is $500,000, but, as with the FDIC and banks, you can structure your accounts in different ways (the SIPC calls this “separate capacity”) to multiply your total coverage.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-personal-insurance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Personal Insurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Perhaps a greater risk to your personal wealth than the possibility of a bank or brokerage failure is a costly lawsuit. That's where other types of coverage come in. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-subheading__text"> Liability Coverage </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Making sure that you have sufficient liability coverage for your home, auto, and business, if you own one, is a good place to start. In the case of a car, for example, you might be sued if you or a family member are involved in an accident, and someone is seriously hurt. Most states require automobile owners to have a certain minimum level of bodily injury coverage, but it's unlikely to be enough. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> In many states, the minimum is $25,000 or less, which obviously won't go very far if you're sued.<span class="ql-inline-citation" data-cite="5"></span> You can raise your coverage to several hundred thousand dollars with many insurance companies. Even that amount may be insufficient, however, especially if you have substantial assets to target. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>The wealthy are often targets of those with nefarious intentions. If you have significant assets, you may want to look into insurance.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Umbrella Insurance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> An <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/umbrella-insurance-policy.asp">umbrella policy</a> takes up where your home and auto insurance stop coverage. For example, a $1 million umbrella policy would extend your liability coverage to that amount, for a cost of about $150 to $300 a year, according to the Insurance Information Institute (III). The institute says an additional million in coverage might run you $75 a year, with each additional million adding another $50 or so.<span class="ql-inline-citation" data-cite="6"></span> Of course, this is all on top of what you're already paying for your home and auto insurance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-subheading__text"> Professional Liability Coverage </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Medical malpractice insurance may be the most famous example, but whatever your field, you might need <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/professional-liability-insurance.asp">professional liability</a> insurance. Some professions that should consider liability insurance include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <li>Accountants</li><li>Architects</li><li>Engineers</li><li>IT consultants</li><li>Investment advisers</li><li>Lawyers</li><li>Real-estate agents.<span class="ql-inline-citation" data-cite="16"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Your professional association is likely to be a good source of information on the kind of insurance you need and where you can buy it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-subheading__text"> Business Liability </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> What you'll need will depend on the size and nature of your business. One option for small and mid-sized companies is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/business-owners-policy.asp">business owner policy (BOP)</a>, which includes property, liability, and other types of coverage all rolled into one. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-subheading__text"> Directors and Officers Insurance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> If you serve on a board, even as an unpaid volunteer for a nonprofit, you could face a personal lawsuit. If the organization doesn't already provide <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-d-and-o-insurance-5181171">directors and officers (D&amp;O) liability insurance</a> for you, it's worth investigating. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-trusts-and-other-legal-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> Trusts and Other Legal Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> After you've consulted with an insurance broker or two, your next stop might be a lawyer's office to discuss other ways to shield your assets from possible risks. Remember that some of your assets may already be off-limits to creditors in most circumstances. Those generally include your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k) plan</a> and, in some states, your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">IRA</a>.<span class="ql-inline-citation" data-cite="10"></span> At least a portion of your principal residence's equity is protected under many states' laws. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_41-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_42-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You can also set up a limited liability company (LLC) or a family limited partnership (FLP) to distribute assets among family members. The assets would belong to the LLC, so creditors generally cannot seize them for personal debts.<span class="ql-inline-citation" data-cite="14"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_43-0"> <span class="mntl-sc-block-subheading__text"> Transfer Some Assets </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> You might consider transferring assets to a spouse or children to protect what's left. However, both of those moves have significant risks of their own—divorce in the case of a spouse and loss of control of the money in the case of children, to name just two. With children, you'll also face possible <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gifttax.asp">gift taxes</a>, which kick in if you give a child more than a certain amount in any year (the limit is $17,000 for 2023, up from $16,000 in 2022). Your spouse can also give a like amount, increasing to the total exempt amount to $34,000 ($32,000 in 2022).<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_46-0"> <span class="mntl-sc-block-subheading__text"> Create a Trust </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> A properly written trust can help achieve the same asset-protection goals without those issues. But note that you need to set up your trust before anything bad happens that could lead to a claim against you, even if you haven't actually been sued yet. If you attempt to establish a trust after that, it may be considered a fraudulent transfer to avoid paying creditors, creating a whole new set of legal problems for you. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-subheading__text"> Hire a Lawyer </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> A knowledgeable lawyer can walk you through the types of trusts and make recommendations based on your circumstances. One option you're likely to hear about is a domestic asset protection trust (DAPT), a relatively new variety. Sometimes referred to as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/alaska-trust-act.asp">Alaska trust,</a> after the first state to legalize them, it essentially allows you to put assets into a trust, with yourself as a beneficiary, that's out of the reach of creditors.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-what-is-the-lifetime-gift-tax-exemption-for-2023"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Lifetime Gift Tax Exemption for 2023?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can give a maximum of $12.92 million over your lifetime in gifts without being taxed.<span class="ql-inline-citation" data-cite="15"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-how-much-money-can-be-legally-given-to-a-family-member-as-a-gift"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Money Can Be Legally Given to a Family Member As a Gift?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can give as much as you want to a family member as a gift. However, any amount over the annual limit of $17,000 (in 2023) per recipient might trigger taxes. A married couple can give one person $34,000 in one year without incurring taxes. If you give more than this, you can add it to your lifetime exclusion amount of $12.92 million and not be taxed.<span class="ql-inline-citation" data-cite="13"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_56-0"><span class="heading-toc" id="toc-how-does-the-irs-know-if-you-give-a-gift"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does the IRS Know If You Give a Gift?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The IRS doesn't automatically know you gave someone a gift. However, it's in everyone's best interest to report the gift so that your recipient doesn't need to report it as taxable income. They'll likely report it as a gift to avoid taxes, so it's also best to report it on your tax filing.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_58-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Asset protection is not the only aspect of wealth management. Still, conserving and shielding assets is a critical consideration in any financial plan, especially for someone with a significant portfolio. You can't take it with you—but you don't want to lose it, either. </p></div>

The steel magnate Andrew Carnegie, reputedly the world's richest man in the late 19th century, had some advice for anyone who wished to follow his example: “Put all your eggs in one basket,” he said, “and then watch that basket.” Watching those eggs—aka asset protection—may no longer be that simple, if it ever was. But it's no less of a concern for anyone who has managed to amass some wealth. Making money is one thing; keeping it may require an entirely different set of strategies. ## Deposit and Securities Insurance On the most basic level, asset protection can include simple safeguards such as deposit insurance on bank accounts and the equivalent for brokerage accounts. For example, the [Federal Deposit Insurance Corporation (FDIC](https://www.investopedia.com/terms/f/fdic.asp)) covers money in member banks for up to $250,000 per depositor, per bank, and per “ownership category.” So, for example, you might have $250,000 each in an individual account, a joint account, an IRA, and a trust account and be covered for the full $1 million, all at one bank. There are several other ownership categories besides those four, and, of course, no shortage of banks. The [Securities Investor Protection Corporation (SIPC)](https://www.investopedia.com/terms/s/sipc.asp) insures your cash and securities in member brokerage houses against the firm's failure and, in some instances, theft from your account. The maximum coverage is $500,000, but, as with the FDIC and banks, you can structure your accounts in different ways (the SIPC calls this “separate capacity”) to multiply your total coverage. ## Personal Insurance Perhaps a greater risk to your personal wealth than the possibility of a bank or brokerage failure is a costly lawsuit. That's where other types of coverage come in. ### Liability Coverage Making sure that you have sufficient liability coverage for your home, auto, and business, if you own one, is a good place to start. In the case of a car, for example, you might be sued if you or a family member are involved in an accident, and someone is seriously hurt. Most states require automobile owners to have a certain minimum level of bodily injury coverage, but it's unlikely to be enough. In many states, the minimum is $25,000 or less, which obviously won't go very far if you're sued. You can raise your coverage to several hundred thousand dollars with many insurance companies. Even that amount may be insufficient, however, especially if you have substantial assets to target. ### The wealthy are often targets of those with nefarious intentions. If you have significant assets, you may want to look into insurance. ### Umbrella Insurance An [umbrella policy](https://www.investopedia.com/terms/u/umbrella-insurance-policy.asp) takes up where your home and auto insurance stop coverage. For example, a $1 million umbrella policy would extend your liability coverage to that amount, for a cost of about $150 to $300 a year, according to the Insurance Information Institute (III). The institute says an additional million in coverage might run you $75 a year, with each additional million adding another $50 or so. Of course, this is all on top of what you're already paying for your home and auto insurance. ### Professional Liability Coverage Medical malpractice insurance may be the most famous example, but whatever your field, you might need [professional liability](https://www.investopedia.com/terms/p/professional-liability-insurance.asp) insurance. Some professions that should consider liability insurance include: * Accountants * Architects * Engineers * IT consultants * Investment advisers * Lawyers * Real-estate agents. Your professional association is likely to be a good source of information on the kind of insurance you need and where you can buy it. ### Business Liability What you'll need will depend on the size and nature of your business. One option for small and mid-sized companies is a [business owner policy (BOP)](https://www.investopedia.com/terms/business-owners-policy.asp), which includes property, liability, and other types of coverage all rolled into one. ### Directors and Officers Insurance If you serve on a board, even as an unpaid volunteer for a nonprofit, you could face a personal lawsuit. If the organization doesn't already provide [directors and officers (D&O) liability insurance](https://www.investopedia.com/best-d-and-o-insurance-5181171) for you, it's worth investigating. ## Trusts and Other Legal Options After you've consulted with an insurance broker or two, your next stop might be a lawyer's office to discuss other ways to shield your assets from possible risks. Remember that some of your assets may already be off-limits to creditors in most circumstances. Those generally include your [401(k) plan](https://www.investopedia.com/terms/1/401kplan.asp) and, in some states, your [IRA](https://www.investopedia.com/terms/i/ira.asp). At least a portion of your principal residence's equity is protected under many states' laws. ### You can also set up a limited liability company (LLC) or a family limited partnership (FLP) to distribute assets among family members. The assets would belong to the LLC, so creditors generally cannot seize them for personal debts. ### Transfer Some Assets You might consider transferring assets to a spouse or children to protect what's left. However, both of those moves have significant risks of their own—divorce in the case of a spouse and loss of control of the money in the case of children, to name just two. With children, you'll also face possible [gift taxes](https://www.investopedia.com/terms/g/gifttax.asp), which kick in if you give a child more than a certain amount in any year (the limit is $17,000 for 2023, up from $16,000 in 2022). Your spouse can also give a like amount, increasing to the total exempt amount to $34,000 ($32,000 in 2022). ### Create a Trust A properly written trust can help achieve the same asset-protection goals without those issues. But note that you need to set up your trust before anything bad happens that could lead to a claim against you, even if you haven't actually been sued yet. If you attempt to establish a trust after that, it may be considered a fraudulent transfer to avoid paying creditors, creating a whole new set of legal problems for you. ### Hire a Lawyer A knowledgeable lawyer can walk you through the types of trusts and make recommendations based on your circumstances. One option you're likely to hear about is a domestic asset protection trust (DAPT), a relatively new variety. Sometimes referred to as an [Alaska trust,](https://www.investopedia.com/terms/a/alaska-trust-act.asp) after the first state to legalize them, it essentially allows you to put assets into a trust, with yourself as a beneficiary, that's out of the reach of creditors. ## What Is the Lifetime Gift Tax Exemption for 2023? You can give a maximum of $12.92 million over your lifetime in gifts without being taxed. ## How Much Money Can Be Legally Given to a Family Member As a Gift? You can give as much as you want to a family member as a gift. However, any amount over the annual limit of $17,000 (in 2023) per recipient might trigger taxes. A married couple can give one person $34,000 in one year without incurring taxes. If you give more than this, you can add it to your lifetime exclusion amount of $12.92 million and not be taxed. ## How Does the IRS Know If You Give a Gift? The IRS doesn't automatically know you gave someone a gift. However, it's in everyone's best interest to report the gift so that your recipient doesn't need to report it as taxable income. They'll likely report it as a gift to avoid taxes, so it's also best to report it on your tax filing. ## The Bottom Line Asset protection is not the only aspect of wealth management. Still, conserving and shielding assets is a critical consideration in any financial plan, especially for someone with a significant portfolio. You can't take it with you—but you don't want to lose it, either.

The steel magnate Andrew Carnegie, reputedly the world's richest man in the late 19th century, had some advice for anyone who wished to follow his example: “Put all your eggs in one basket,” he said, “and then watch that basket.” Watching those eggs—aka asset protection—may no longer be that simple, if it ever was. But it's no less of a concern for anyone who has managed to amass some wealth. Making money is one thing; keeping it may require an entirely different set of strategies. Deposit and Securities Insurance On the most basic level, asset protection can include simple safeguards such as deposit insurance on bank accounts and the equivalent for brokerage accounts. For example, the Federal Deposit Insurance Corporation (FDIC) covers money in member banks for up to $250,000 per depositor, per bank, and per “ownership category.” So, for example, you might have $250,000 each in an individual account, a joint account, an IRA, and a trust account and be covered for the full $1 million, all at one bank. There are several other ownership categories besides those four, and, of course, no shortage of banks. The Securities Investor Protection Corporation (SIPC) insures your cash and securities in member brokerage houses against the firm's failure and, in some instances, theft from your account. The maximum coverage is $500,000, but, as with the FDIC and banks, you can structure your accounts in different ways (the SIPC calls this “separate capacity”) to multiply your total coverage. Personal Insurance Perhaps a greater risk to your personal wealth than the possibility of a bank or brokerage failure is a costly lawsuit. That's where other types of coverage come in. Liability Coverage Making sure that you have sufficient liability coverage for your home, auto, and business, if you own one, is a good place to start. In the case of a car, for example, you might be sued if you or a family member are involved in an accident, and someone is seriously hurt. Most states require automobile owners to have a certain minimum level of bodily injury coverage, but it's unlikely to be enough. In many states, the minimum is $25,000 or less, which obviously won't go very far if you're sued. You can raise your coverage to several hundred thousand dollars with many insurance companies. Even that amount may be insufficient, however, especially if you have substantial assets to target. The wealthy are often targets of those with nefarious intentions. If you have significant assets, you may want to look into insurance. Umbrella Insurance An umbrella policy takes up where your home and auto insurance stop coverage. For example, a $1 million umbrella policy would extend your liability coverage to that amount, for a cost of about $150 to $300 a year, according to the Insurance Information Institute (III). The institute says an additional million in coverage might run you $75 a year, with each additional million adding another $50 or so. Of course, this is all on top of what you're already paying for your home and auto insurance. Professional Liability Coverage Medical malpractice insurance may be the most famous example, but whatever your field, you might need professional liability insurance. Some professions that should consider liability insurance include: AccountantsArchitectsEngineersIT consultantsInvestment advisersLawyersReal-estate agents. Your professional association is likely to be a good source of information on the kind of insurance you need and where you can buy it. Business Liability What you'll need will depend on the size and nature of your business. One option for small and mid-sized companies is a business owner policy (BOP), which includes property, liability, and other types of coverage all rolled into one. Directors and Officers Insurance If you serve on a board, even as an unpaid volunteer for a nonprofit, you could face a personal lawsuit. If the organization doesn't already provide directors and officers (D&O) liability insurance for you, it's worth investigating. Trusts and Other Legal Options After you've consulted with an insurance broker or two, your next stop might be a lawyer's office to discuss other ways to shield your assets from possible risks. Remember that some of your assets may already be off-limits to creditors in most circumstances. Those generally include your 401(k) plan and, in some states, your IRA. At least a portion of your principal residence's equity is protected under many states' laws. You can also set up a limited liability company (LLC) or a family limited partnership (FLP) to distribute assets among family members. The assets would belong to the LLC, so creditors generally cannot seize them for personal debts. Transfer Some Assets You might consider transferring assets to a spouse or children to protect what's left. However, both of those moves have significant risks of their own—divorce in the case of a spouse and loss of control of the money in the case of children, to name just two. With children, you'll also face possible gift taxes, which kick in if you give a child more than a certain amount in any year (the limit is $17,000 for 2023, up from $16,000 in 2022). Your spouse can also give a like amount, increasing to the total exempt amount to $34,000 ($32,000 in 2022). Create a Trust A properly written trust can help achieve the same asset-protection goals without those issues. But note that you need to set up your trust before anything bad happens that could lead to a claim against you, even if you haven't actually been sued yet. If you attempt to establish a trust after that, it may be considered a fraudulent transfer to avoid paying creditors, creating a whole new set of legal problems for you. Hire a Lawyer A knowledgeable lawyer can walk you through the types of trusts and make recommendations based on your circumstances. One option you're likely to hear about is a domestic asset protection trust (DAPT), a relatively new variety. Sometimes referred to as an Alaska trust, after the first state to legalize them, it essentially allows you to put assets into a trust, with yourself as a beneficiary, that's out of the reach of creditors. What Is the Lifetime Gift Tax Exemption for 2023? You can give a maximum of $12.92 million over your lifetime in gifts without being taxed. How Much Money Can Be Legally Given to a Family Member As a Gift? You can give as much as you want to a family member as a gift. However, any amount over the annual limit of $17,000 (in 2023) per recipient might trigger taxes. A married couple can give one person $34,000 in one year without incurring taxes. If you give more than this, you can add it to your lifetime exclusion amount of $12.92 million and not be taxed. How Does the IRS Know If You Give a Gift? The IRS doesn't automatically know you gave someone a gift. However, it's in everyone's best interest to report the gift so that your recipient doesn't need to report it as taxable income. They'll likely report it as a gift to avoid taxes, so it's also best to report it on your tax filing. The Bottom Line Asset protection is not the only aspect of wealth management. Still, conserving and shielding assets is a critical consideration in any financial plan, especially for someone with a significant portfolio. You can't take it with you—but you don't want to lose it, either.

https://www.investopedia.com/reddit-posts-45-percent-gain-in-week-since-its-trading-debut-as-us-ipo-market-heats-up-in-q1-8621600

Reddit Posts 45% Gain in Week Since Its Trading Debut as US IPO Market Heats Up in Q1

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Despite a steep decline to close out the week, Reddit posted a 45% gain in the week since its trading debut as the market for initial public offerings (IPOs) in the U.S. heats up.</li><li>IPO activity in the first quarter was up in many parts of the world compared to the same time last year, especially in the U.S., according to a report from EY.</li><li>EY found 16 more companies went public in the U.S. in the first quarter of 2024 than in the same period last year, producing $5.8 billion more in proceeds.<br/></li><li>Two-thirds of private equity firms EY surveyed expect interest rate reductions later this year could help drive up the level of IPO activity in the rest of 2024.<br/></li><li>EY also suggested a wave of AI-related IPOs could develop in the years to come.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Despite a steep decline to close out the week, Reddit (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=RDDT">RDDT</a>) shares posted a 45% gain in the week since its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/reddit-shares-surge-in-first-day-of-trading-8612667">debut as a public company</a>, in what could point to a rising appetite for new tech stocks as the market for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offerings (IPOs)</a> in the U.S. heats up. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> IPO activity in the first quarter of this year was up in many parts of the world compared to the same time last year, especially in the U.S., according to a report from EY.<span class="ql-inline-citation" data-cite="3"></span> In the U.S., there were 16 more IPOs generating about $5.8 billion more in proceeds in the first quarter of 2024 than in 2023. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Stock prices of companies that went public across a number of industries have also outpaced their IPO prices at a wider margin this year compared to last year, with EY noting growing confidence among issuers and investors amid optimism about the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723">potential lowering of interest rates</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Two-thirds of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/privateequity.asp">private equity (PE)</a> firms EY surveyed expect interest rate reductions later this year could help drive up the level of IPO activity in the rest of 2024. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> EY also suggested a wave of IPOs for companies related to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI)</a> could be on the horizon amid a surge in demand for AI. Astera Labs (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ALAB">ALAB</a>), which makes chip-based connectivity products to boost the efficiency of AI, also <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/astera-labs-surges-in-first-day-of-trading-8612176">started trading last week</a>, with its stock price more than doubling in value since. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> However, EY noted that with nearly 90% of the 277 AI-related companies it identified around the globe, 192 of which are in the U.S., that could be likely to IPO still in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seedcapital.asp">seed</a> or early <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/venturecapital.asp">venture capital</a> rounds of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/102015/series-b-c-funding-what-it-all-means-and-how-it-works.asp">funding</a>, an AI IPO wave could take time to develop in the years to come.<br/> </p></div>

### Key Takeaways * Despite a steep decline to close out the week, Reddit posted a 45% gain in the week since its trading debut as the market for initial public offerings (IPOs) in the U.S. heats up. * IPO activity in the first quarter was up in many parts of the world compared to the same time last year, especially in the U.S., according to a report from EY. * EY found 16 more companies went public in the U.S. in the first quarter of 2024 than in the same period last year, producing $5.8 billion more in proceeds. * Two-thirds of private equity firms EY surveyed expect interest rate reductions later this year could help drive up the level of IPO activity in the rest of 2024. * EY also suggested a wave of AI-related IPOs could develop in the years to come. Despite a steep decline to close out the week, Reddit ([RDDT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=RDDT)) shares posted a 45% gain in the week since its [debut as a public company](https://www.investopedia.com/reddit-shares-surge-in-first-day-of-trading-8612667), in what could point to a rising appetite for new tech stocks as the market for [initial public offerings (IPOs)](https://www.investopedia.com/terms/i/ipo.asp) in the U.S. heats up. IPO activity in the first quarter of this year was up in many parts of the world compared to the same time last year, especially in the U.S., according to a report from EY. In the U.S., there were 16 more IPOs generating about $5.8 billion more in proceeds in the first quarter of 2024 than in 2023. Stock prices of companies that went public across a number of industries have also outpaced their IPO prices at a wider margin this year compared to last year, with EY noting growing confidence among issuers and investors amid optimism about the [potential lowering of interest rates](https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723). Two-thirds of [private equity (PE)](https://www.investopedia.com/terms/p/privateequity.asp) firms EY surveyed expect interest rate reductions later this year could help drive up the level of IPO activity in the rest of 2024. EY also suggested a wave of IPOs for companies related to [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) could be on the horizon amid a surge in demand for AI. Astera Labs ([ALAB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ALAB)), which makes chip-based connectivity products to boost the efficiency of AI, also [started trading last week](https://www.investopedia.com/astera-labs-surges-in-first-day-of-trading-8612176), with its stock price more than doubling in value since. However, EY noted that with nearly 90% of the 277 AI-related companies it identified around the globe, 192 of which are in the U.S., that could be likely to IPO still in the [seed](https://www.investopedia.com/terms/s/seedcapital.asp) or early [venture capital](https://www.investopedia.com/terms/v/venturecapital.asp) rounds of [funding](https://www.investopedia.com/articles/personal-finance/102015/series-b-c-funding-what-it-all-means-and-how-it-works.asp), an AI IPO wave could take time to develop in the years to come.

Key Takeaways Despite a steep decline to close out the week, Reddit posted a 45% gain in the week since its trading debut as the market for initial public offerings (IPOs) in the U.S. heats up.IPO activity in the first quarter was up in many parts of the world compared to the same time last year, especially in the U.S., according to a report from EY.EY found 16 more companies went public in the U.S. in the first quarter of 2024 than in the same period last year, producing $5.8 billion more in proceeds.Two-thirds of private equity firms EY surveyed expect interest rate reductions later this year could help drive up the level of IPO activity in the rest of 2024.EY also suggested a wave of AI-related IPOs could develop in the years to come. Despite a steep decline to close out the week, Reddit (RDDT) shares posted a 45% gain in the week since its debut as a public company, in what could point to a rising appetite for new tech stocks as the market for initial public offerings (IPOs) in the U.S. heats up. IPO activity in the first quarter of this year was up in many parts of the world compared to the same time last year, especially in the U.S., according to a report from EY. In the U.S., there were 16 more IPOs generating about $5.8 billion more in proceeds in the first quarter of 2024 than in 2023. Stock prices of companies that went public across a number of industries have also outpaced their IPO prices at a wider margin this year compared to last year, with EY noting growing confidence among issuers and investors amid optimism about the potential lowering of interest rates. Two-thirds of private equity (PE) firms EY surveyed expect interest rate reductions later this year could help drive up the level of IPO activity in the rest of 2024. EY also suggested a wave of IPOs for companies related to artificial intelligence (AI) could be on the horizon amid a surge in demand for AI. Astera Labs (ALAB), which makes chip-based connectivity products to boost the efficiency of AI, also started trading last week, with its stock price more than doubling in value since. However, EY noted that with nearly 90% of the 277 AI-related companies it identified around the globe, 192 of which are in the U.S., that could be likely to IPO still in the seed or early venture capital rounds of funding, an AI IPO wave could take time to develop in the years to come.

https://www.investopedia.com/articles/forex/09/forex-taxation-basics.asp

How Forex Trades Are Taxed

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The primary goal for foreign exchange (forex) traders is to make successful trades and grow their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/f/forex-accounts-managed-mini-demo.asp">forex account</a> balance. In a market where profits and losses can be realized in the blink of an eye, many want to make money in the short term without really considering the longer-term ramifications. Nevertheless, it usually makes some sense to consider the tax implications of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/06/buyandsellforex.asp">buying and selling forex</a> before making that first trade. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Aspiring forex traders might want to consider tax implications before getting started.</li><li>Forex futures and options are 1256 contracts and taxed using the 60/40 rule, with 60% of gains or losses treated as long-term capital gains and 40% as short-term.<span class="ql-inline-citation" data-cite="1"></span></li><li>Spot forex traders are considered "988 traders" and can deduct all of their losses for the year.<span class="ql-inline-citation" data-cite="5"></span></li><li>Currency traders in the spot forex market can choose to be taxed under the same tax rules as regular commodities 1256 contracts or under the special rules of IRC Section 988 for currencies.</li></ul></div></div></div> <span class="heading-toc" id="toc-tax-considerations-on-forex-and-futures"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Tax Considerations on Forex and Futures </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> For tax purposes, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/f/foreign-currency-option-trading.asp">forex options</a> and futures contracts are considered <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/section-1256-contract.asp">IRC Section 1256 contracts</a>, which are subject to a 60/40 tax consideration. In other words, 60% of gains or losses are counted as long-term capital gains or losses, and the remaining 40% is counted as short-term.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A 60/40 tax treatment is often favorable for individuals in higher income tax brackets. For example, the proceeds of stocks sold within one year of their purchase are considered short-term capital gains and are always taxed at the same rate as the investor's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/ordinaryincome.asp">ordinary income</a>, which can be as much as 37%. When trading futures or options, investors are effectively taxed at the maximum long-term capital gains rate, or 20% (on 60% of the gains or losses), and the maximum <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/short-term-gain.asp">short-term capital gains</a> rate of 37% (on the other 40%).<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Section 1256 contracts held through the end of a tax year must be reported at fair market value—called marked to market—as capital gains or losses.<span class="ql-inline-citation" data-cite="6"></span></p></div></div></div> <span class="heading-toc" id="toc-taxes-for-over-the-counter-otc-forex-traders"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Taxes for Over-the-Counter (OTC) Forex Traders </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spottrade.asp">spot traders</a> are taxed according to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/section-988.asp">IRC Section 988 contracts</a>, which are for foreign exchange transactions settled within two days, making them open to treatment as ordinary losses and gains. If you trade spot forex, you will likely be grouped in this category as a "988 trader." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> If you experience <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/netloss.asp">net losses</a> through your year-end trading, being categorized as a "988 trader" is a substantial benefit. As in the 1256 contract category, you can count all of your losses as "ordinary losses," not just the first $3,000.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-forex-spot-traders-have-a-tax-choice"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Forex Spot Traders Have a Tax Choice </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Now comes the tricky part: Deciding how to file taxes for your situation. While options, futures, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/otc.asp">OTC</a> are grouped separately, the investor can choose to trade as either 1256 or 988. Individuals must decide which to use by the first day of the calendar year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> IRC 988 contracts are simpler than IRC 1256 contracts. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxrate.asp">tax rate</a> remains constant for both gains and losses, which is better when the trader is reporting losses. Notably, 1256 contracts, while more complex, offer 12% more savings for a trader with net gains.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Most accounting firms use 988 contracts for spot traders and 1256 contracts for futures traders. That's why it's important to talk with your accountant before investing. Once you begin trading, you cannot switch from one to the other. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The rules outlined here apply to U.S. traders with accounts at U.S. brokerage firms.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Most traders naturally anticipate net gains and often elect out of 988 status and into 1256 status. To opt out of a 988 status, you need to make an internal note in your books and file the change with your accountant. Complications can intensify if you trade stocks and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency.asp">currencies</a> because equity transactions are taxed differently, making it more difficult to select 988 or 1256 contracts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-record-keeping-for-forex-taxes"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-heading__text"> Record Keeping for Forex Taxes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> You can rely on your brokerage statements, but a more accurate and tax-friendly way of keeping track of profit and loss is through your performance record. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> This is a popular formula used in forex record-keeping: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <li>Subtract your beginning <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a> from your end assets (net)</li> <li>Subtract cash deposits (to your accounts) and add <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/withdrawal.asp">withdrawals </a>(from your accounts)</li> <li>Subtract income from interest and add interest paid</li> <li>Add in other trading expenses</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The performance record formula will give you a more accurate depiction of your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/profit_loss_ratio.asp">profit/loss ratio</a> and will make year-end filing easier for you and your accountant. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-forex-tax-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> Forex Tax Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> When it comes to forex taxation, there are a few habits you can adopt that will keep you in good standing with the IRS: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> <li><strong>Mind the deadline</strong>: In most cases, you are required to select a type of tax situation by Jan. 1. If you are a new trader, you can make this decision any time before your first trade.</li> <li><strong>Keep good records</strong><em>: </em>It will save you time when <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax-season.asp">tax season</a> approaches. That will give you more time to trade and less time to prepare your taxes.</li> <li><strong>Pay what you owe</strong>: Some traders try to beat the system and don't pay taxes on their forex trades. Since over-the-counter trading is not registered with the Commodities Futures Trading Commission (CFTC), some think they can get away with it. You should know that the IRS will catch up eventually, and the tax avoidance fees will be greater than any taxes you owe.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_42-0"><span class="heading-toc" id="toc-how-do-i-avoid-taxes-on-forex"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Avoid Taxes on Forex?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It's best to keep accurate records of your transactions and file accordingly. It is against the law to attempt to avoid paying the taxes you owe.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_44-0"><span class="heading-toc" id="toc-how-am-i-taxed-for-forex-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Am I Taxed for Forex Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you trade 1256 contracts, your trades are taxed at 60% long-term capital gains and 40% short-term capital gains. If you're trading 988 contracts, you treat losses and gains as ordinary (taxed at your income tax bracket level).</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-is-forex-tax-free-in-the-us"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Forex Tax Free in the US?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In the U.S., Forex trading is considered a business activity that generates income, so you're required to pay taxes.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Whether you are planning on making forex a career path or are simply interested in dabbling in it, taking the time to file correctly can save you hundreds, if not thousands, in taxes. It's a part of the process that's well worth the time. </p></div>

The primary goal for foreign exchange (forex) traders is to make successful trades and grow their [forex account](https://www.investopedia.com/terms/forex/f/forex-accounts-managed-mini-demo.asp) balance. In a market where profits and losses can be realized in the blink of an eye, many want to make money in the short term without really considering the longer-term ramifications. Nevertheless, it usually makes some sense to consider the tax implications of [buying and selling forex](https://www.investopedia.com/ask/answers/06/buyandsellforex.asp) before making that first trade. ### Key Takeaways * Aspiring forex traders might want to consider tax implications before getting started. * Forex futures and options are 1256 contracts and taxed using the 60/40 rule, with 60% of gains or losses treated as long-term capital gains and 40% as short-term. * Spot forex traders are considered "988 traders" and can deduct all of their losses for the year. * Currency traders in the spot forex market can choose to be taxed under the same tax rules as regular commodities 1256 contracts or under the special rules of IRC Section 988 for currencies. ## Tax Considerations on Forex and Futures For tax purposes, [forex options](https://www.investopedia.com/terms/forex/f/foreign-currency-option-trading.asp) and futures contracts are considered [IRC Section 1256 contracts](https://www.investopedia.com/terms/s/section-1256-contract.asp), which are subject to a 60/40 tax consideration. In other words, 60% of gains or losses are counted as long-term capital gains or losses, and the remaining 40% is counted as short-term. A 60/40 tax treatment is often favorable for individuals in higher income tax brackets. For example, the proceeds of stocks sold within one year of their purchase are considered short-term capital gains and are always taxed at the same rate as the investor's [ordinary income](https://www.investopedia.com/terms/o/ordinaryincome.asp), which can be as much as 37%. When trading futures or options, investors are effectively taxed at the maximum long-term capital gains rate, or 20% (on 60% of the gains or losses), and the maximum [short-term capital gains](https://www.investopedia.com/terms/s/short-term-gain.asp) rate of 37% (on the other 40%). ### Section 1256 contracts held through the end of a tax year must be reported at fair market value—called marked to market—as capital gains or losses. ## Taxes for Over-the-Counter (OTC) Forex Traders Most [spot traders](https://www.investopedia.com/terms/s/spottrade.asp) are taxed according to [IRC Section 988 contracts](https://www.investopedia.com/terms/s/section-988.asp), which are for foreign exchange transactions settled within two days, making them open to treatment as ordinary losses and gains. If you trade spot forex, you will likely be grouped in this category as a "988 trader." If you experience [net losses](https://www.investopedia.com/terms/n/netloss.asp) through your year-end trading, being categorized as a "988 trader" is a substantial benefit. As in the 1256 contract category, you can count all of your losses as "ordinary losses," not just the first $3,000. ## Forex Spot Traders Have a Tax Choice Now comes the tricky part: Deciding how to file taxes for your situation. While options, futures, and [OTC](https://www.investopedia.com/terms/o/otc.asp) are grouped separately, the investor can choose to trade as either 1256 or 988. Individuals must decide which to use by the first day of the calendar year. IRC 988 contracts are simpler than IRC 1256 contracts. The [tax rate](https://www.investopedia.com/terms/t/taxrate.asp) remains constant for both gains and losses, which is better when the trader is reporting losses. Notably, 1256 contracts, while more complex, offer 12% more savings for a trader with net gains. Most accounting firms use 988 contracts for spot traders and 1256 contracts for futures traders. That's why it's important to talk with your accountant before investing. Once you begin trading, you cannot switch from one to the other. ### The rules outlined here apply to U.S. traders with accounts at U.S. brokerage firms. Most traders naturally anticipate net gains and often elect out of 988 status and into 1256 status. To opt out of a 988 status, you need to make an internal note in your books and file the change with your accountant. Complications can intensify if you trade stocks and [currencies](https://www.investopedia.com/terms/c/currency.asp) because equity transactions are taxed differently, making it more difficult to select 988 or 1256 contracts. ## Record Keeping for Forex Taxes You can rely on your brokerage statements, but a more accurate and tax-friendly way of keeping track of profit and loss is through your performance record. This is a popular formula used in forex record-keeping: * Subtract your beginning [assets](https://www.investopedia.com/terms/a/asset.asp) from your end assets (net) * Subtract cash deposits (to your accounts) and add [withdrawals](https://www.investopedia.com/terms/w/withdrawal.asp) (from your accounts) * Subtract income from interest and add interest paid * Add in other trading expenses The performance record formula will give you a more accurate depiction of your [profit/loss ratio](https://www.investopedia.com/terms/p/profit_loss_ratio.asp) and will make year-end filing easier for you and your accountant. ## Forex Tax Special Considerations When it comes to forex taxation, there are a few habits you can adopt that will keep you in good standing with the IRS: * **Mind the deadline**: In most cases, you are required to select a type of tax situation by Jan. 1. If you are a new trader, you can make this decision any time before your first trade. * **Keep good records***:* It will save you time when [tax season](https://www.investopedia.com/terms/t/tax-season.asp) approaches. That will give you more time to trade and less time to prepare your taxes. * **Pay what you owe**: Some traders try to beat the system and don't pay taxes on their forex trades. Since over-the-counter trading is not registered with the Commodities Futures Trading Commission (CFTC), some think they can get away with it. You should know that the IRS will catch up eventually, and the tax avoidance fees will be greater than any taxes you owe. ## How Do I Avoid Taxes on Forex? It's best to keep accurate records of your transactions and file accordingly. It is against the law to attempt to avoid paying the taxes you owe. ## How Am I Taxed for Forex Trading? If you trade 1256 contracts, your trades are taxed at 60% long-term capital gains and 40% short-term capital gains. If you're trading 988 contracts, you treat losses and gains as ordinary (taxed at your income tax bracket level). ## Is Forex Tax Free in the US? In the U.S., Forex trading is considered a business activity that generates income, so you're required to pay taxes. ## The Bottom Line Whether you are planning on making forex a career path or are simply interested in dabbling in it, taking the time to file correctly can save you hundreds, if not thousands, in taxes. It's a part of the process that's well worth the time.

The primary goal for foreign exchange (forex) traders is to make successful trades and grow their forex account balance. In a market where profits and losses can be realized in the blink of an eye, many want to make money in the short term without really considering the longer-term ramifications. Nevertheless, it usually makes some sense to consider the tax implications of buying and selling forex before making that first trade. Key Takeaways Aspiring forex traders might want to consider tax implications before getting started.Forex futures and options are 1256 contracts and taxed using the 60/40 rule, with 60% of gains or losses treated as long-term capital gains and 40% as short-term.Spot forex traders are considered "988 traders" and can deduct all of their losses for the year.Currency traders in the spot forex market can choose to be taxed under the same tax rules as regular commodities 1256 contracts or under the special rules of IRC Section 988 for currencies. Tax Considerations on Forex and Futures For tax purposes, forex options and futures contracts are considered IRC Section 1256 contracts, which are subject to a 60/40 tax consideration. In other words, 60% of gains or losses are counted as long-term capital gains or losses, and the remaining 40% is counted as short-term. A 60/40 tax treatment is often favorable for individuals in higher income tax brackets. For example, the proceeds of stocks sold within one year of their purchase are considered short-term capital gains and are always taxed at the same rate as the investor's ordinary income, which can be as much as 37%. When trading futures or options, investors are effectively taxed at the maximum long-term capital gains rate, or 20% (on 60% of the gains or losses), and the maximum short-term capital gains rate of 37% (on the other 40%). Section 1256 contracts held through the end of a tax year must be reported at fair market value—called marked to market—as capital gains or losses. Taxes for Over-the-Counter (OTC) Forex Traders Most spot traders are taxed according to IRC Section 988 contracts, which are for foreign exchange transactions settled within two days, making them open to treatment as ordinary losses and gains. If you trade spot forex, you will likely be grouped in this category as a "988 trader." If you experience net losses through your year-end trading, being categorized as a "988 trader" is a substantial benefit. As in the 1256 contract category, you can count all of your losses as "ordinary losses," not just the first $3,000. Forex Spot Traders Have a Tax Choice Now comes the tricky part: Deciding how to file taxes for your situation. While options, futures, and OTC are grouped separately, the investor can choose to trade as either 1256 or 988. Individuals must decide which to use by the first day of the calendar year. IRC 988 contracts are simpler than IRC 1256 contracts. The tax rate remains constant for both gains and losses, which is better when the trader is reporting losses. Notably, 1256 contracts, while more complex, offer 12% more savings for a trader with net gains. Most accounting firms use 988 contracts for spot traders and 1256 contracts for futures traders. That's why it's important to talk with your accountant before investing. Once you begin trading, you cannot switch from one to the other. The rules outlined here apply to U.S. traders with accounts at U.S. brokerage firms. Most traders naturally anticipate net gains and often elect out of 988 status and into 1256 status. To opt out of a 988 status, you need to make an internal note in your books and file the change with your accountant. Complications can intensify if you trade stocks and currencies because equity transactions are taxed differently, making it more difficult to select 988 or 1256 contracts. Record Keeping for Forex Taxes You can rely on your brokerage statements, but a more accurate and tax-friendly way of keeping track of profit and loss is through your performance record. This is a popular formula used in forex record-keeping: Subtract your beginning assets from your end assets (net) Subtract cash deposits (to your accounts) and add withdrawals (from your accounts) Subtract income from interest and add interest paid Add in other trading expenses The performance record formula will give you a more accurate depiction of your profit/loss ratio and will make year-end filing easier for you and your accountant. Forex Tax Special Considerations When it comes to forex taxation, there are a few habits you can adopt that will keep you in good standing with the IRS: Mind the deadline: In most cases, you are required to select a type of tax situation by Jan. 1. If you are a new trader, you can make this decision any time before your first trade. Keep good records: It will save you time when tax season approaches. That will give you more time to trade and less time to prepare your taxes. Pay what you owe: Some traders try to beat the system and don't pay taxes on their forex trades. Since over-the-counter trading is not registered with the Commodities Futures Trading Commission (CFTC), some think they can get away with it. You should know that the IRS will catch up eventually, and the tax avoidance fees will be greater than any taxes you owe. How Do I Avoid Taxes on Forex? It's best to keep accurate records of your transactions and file accordingly. It is against the law to attempt to avoid paying the taxes you owe. How Am I Taxed for Forex Trading? If you trade 1256 contracts, your trades are taxed at 60% long-term capital gains and 40% short-term capital gains. If you're trading 988 contracts, you treat losses and gains as ordinary (taxed at your income tax bracket level). Is Forex Tax Free in the US? In the U.S., Forex trading is considered a business activity that generates income, so you're required to pay taxes. The Bottom Line Whether you are planning on making forex a career path or are simply interested in dabbling in it, taking the time to file correctly can save you hundreds, if not thousands, in taxes. It's a part of the process that's well worth the time.

https://www.investopedia.com/terms/d/dac.asp

What Are Deferred Acquisition Costs (DAC)? Definition

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-are-deferred-acquisition-costs-dac"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Are Deferred Acquisition Costs (DAC)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Deferred acquisition costs (DAC) is an accounting method that is applicable in the insurance industry. Using the DAC method allows a company to defer the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cogs.asp" rel="noopener noreferrer">sales costs</a> that are associated with acquiring a new customer over the term of the insurance contract. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Deferred acquisition costs (DAC) is an accounting method that is applicable in the insurance industry. </li><li>Using the DAC method allows a company to defer the sales costs that are associated with acquiring a new customer over the term of the insurance contract.</li><li>Using this accounting method tends to reduce the first-year strain of policy and produces a smoother pattern of earnings.</li><li>Companies may only defer costs associated with the successful placement of new business and cannot amortize all back-office expenses.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-deferred-acquisition-costs-dac"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Deferred Acquisition Costs (DAC) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/052015/what-main-business-model-insurance-companies.asp" rel="noopener noreferrer">Insurance companies</a> face large upfront costs when issuing new business, including referral <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commission.asp" rel="noopener noreferrer">commissions</a> to external distributors and brokers, underwriting, and medical expenses. Often these costs can exceed the premiums paid in the early years of different types of insurance plans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The implementation of DAC enables insurance companies to spread out these large costs (that otherwise would be paid upfront) gradually—as they earn revenues. Using this accounting method tends to produce a smoother pattern of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnings.asp" rel="noopener noreferrer">earnings</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> As of 2012, insurers are required to comply with a new <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fasb.asp" rel="noopener noreferrer">Federal Accounting Standards Board</a> (FASB) rule, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts,” or ASU 2010-26. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> FASB allows insurance companies to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalizedcost.asp" rel="noopener noreferrer">capitalize</a> on the costs of acquiring new customers by amortizing them over time. With this process, DACs are recorded as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp" rel="noopener noreferrer">assets</a>—rather than expenses—and they can be paid off gradually. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Deferred acquisition costs (DAC) are treated as an asset on the balance sheet and amortized over the life of the insurance contract.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The FASB also requires that companies amortize balances on a constant level basis over the expected term of contracts. In the case of unexpected contract terminations, FASB rules that DAC must be written off, but it is not subject to an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/impairment.asp" rel="noopener noreferrer">impairment test</a>. This means that the asset is not measured to see if it is still worth the amount stated on the balance sheet. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-subheading__text"> Deferred Acquisition Costs (DAC) Amortization </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> DAC represents the “un-recovered investment” in the policies issued and is therefore capitalized as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intangibleasset.asp" rel="noopener noreferrer">intangible asset</a> to match costs with related revenues. Over time, the acquisition costs are recognized as an expense that reduces the DAC asset. The process of recognizing the costs in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incomestatement.asp" rel="noopener noreferrer">income statement</a> is known as amortization and refers to the DAC asset being amortized, or reduced over a number of years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Amortization requires a basis that determines how much DAC should be turned into an expense for each accounting period. The amortization basis varies by the Federal Accounting Standards (FAS) classification: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <li>FAS 60/97LP – Premiums</li><li>FAS 97 – Estimated Gross Profits (EGP)</li><li>FAS 120 – Estimated Gross Margins (EGM)</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Under FAS 60, assumptions are "locked-in" at policy issue and cannot be changed. However, under FAS 97 and 120, assumptions are based on estimates that can be readjusted as needed. DAC amortization uses estimated <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grossmargin.asp" rel="noopener noreferrer">gross margins</a> as a basis and an interest rate is applied to the DAC based on investment returns. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-subheading__text"> Requirements for Deferred Acquisition Costs (DAC) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Prior to the introduction of ASU 2010-26, DAC was described vaguely as costs that “vary with— and are primarily related to—the acquisition of insurance contracts.” That led companies with the difficult task of interpreting which expenses qualified for deferral and often prompted a broad range of insurance firms to categorize most of their costs as DAC. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> FASB later concluded that DAC accounting was being abused. The board responded by providing clearer guidelines. ASU 2010-26 was accompanied by two important changes to meet the capitalization criteria: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <li>Companies may only defer costs associated with the successful placement of new business, rather than all sales-related expenses.</li><li>Only a portion of back-office expenses directly linked to revenues can be considered a DAC asset. </li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Examples of deferrable costs include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <li>Commissions in excess of ultimate commissions</li><li>Underwriting costs</li><li>Policy issuance costs</li> </ul></div>

## What Are Deferred Acquisition Costs (DAC)? Deferred acquisition costs (DAC) is an accounting method that is applicable in the insurance industry. Using the DAC method allows a company to defer the [sales costs](https://www.investopedia.com/terms/c/cogs.asp) that are associated with acquiring a new customer over the term of the insurance contract. ### Key Takeaways * Deferred acquisition costs (DAC) is an accounting method that is applicable in the insurance industry. * Using the DAC method allows a company to defer the sales costs that are associated with acquiring a new customer over the term of the insurance contract. * Using this accounting method tends to reduce the first-year strain of policy and produces a smoother pattern of earnings. * Companies may only defer costs associated with the successful placement of new business and cannot amortize all back-office expenses. ## Understanding Deferred Acquisition Costs (DAC) [Insurance companies](https://www.investopedia.com/ask/answers/052015/what-main-business-model-insurance-companies.asp) face large upfront costs when issuing new business, including referral [commissions](https://www.investopedia.com/terms/c/commission.asp) to external distributors and brokers, underwriting, and medical expenses. Often these costs can exceed the premiums paid in the early years of different types of insurance plans. The implementation of DAC enables insurance companies to spread out these large costs (that otherwise would be paid upfront) gradually—as they earn revenues. Using this accounting method tends to produce a smoother pattern of [earnings](https://www.investopedia.com/terms/e/earnings.asp). As of 2012, insurers are required to comply with a new [Federal Accounting Standards Board](https://www.investopedia.com/terms/f/fasb.asp) (FASB) rule, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts,” or ASU 2010-26. FASB allows insurance companies to [capitalize](https://www.investopedia.com/terms/c/capitalizedcost.asp) on the costs of acquiring new customers by amortizing them over time. With this process, DACs are recorded as [assets](https://www.investopedia.com/terms/a/asset.asp)—rather than expenses—and they can be paid off gradually. ### Deferred acquisition costs (DAC) are treated as an asset on the balance sheet and amortized over the life of the insurance contract. The FASB also requires that companies amortize balances on a constant level basis over the expected term of contracts. In the case of unexpected contract terminations, FASB rules that DAC must be written off, but it is not subject to an [impairment test](https://www.investopedia.com/terms/i/impairment.asp). This means that the asset is not measured to see if it is still worth the amount stated on the balance sheet. ## Special Considerations ### Deferred Acquisition Costs (DAC) Amortization DAC represents the “un-recovered investment” in the policies issued and is therefore capitalized as an [intangible asset](https://www.investopedia.com/terms/i/intangibleasset.asp) to match costs with related revenues. Over time, the acquisition costs are recognized as an expense that reduces the DAC asset. The process of recognizing the costs in the [income statement](https://www.investopedia.com/terms/i/incomestatement.asp) is known as amortization and refers to the DAC asset being amortized, or reduced over a number of years. Amortization requires a basis that determines how much DAC should be turned into an expense for each accounting period. The amortization basis varies by the Federal Accounting Standards (FAS) classification: * FAS 60/97LP – Premiums * FAS 97 – Estimated Gross Profits (EGP) * FAS 120 – Estimated Gross Margins (EGM) Under FAS 60, assumptions are "locked-in" at policy issue and cannot be changed. However, under FAS 97 and 120, assumptions are based on estimates that can be readjusted as needed. DAC amortization uses estimated [gross margins](https://www.investopedia.com/terms/g/grossmargin.asp) as a basis and an interest rate is applied to the DAC based on investment returns. ### Requirements for Deferred Acquisition Costs (DAC) Prior to the introduction of ASU 2010-26, DAC was described vaguely as costs that “vary with— and are primarily related to—the acquisition of insurance contracts.” That led companies with the difficult task of interpreting which expenses qualified for deferral and often prompted a broad range of insurance firms to categorize most of their costs as DAC. FASB later concluded that DAC accounting was being abused. The board responded by providing clearer guidelines. ASU 2010-26 was accompanied by two important changes to meet the capitalization criteria: * Companies may only defer costs associated with the successful placement of new business, rather than all sales-related expenses. * Only a portion of back-office expenses directly linked to revenues can be considered a DAC asset. Examples of deferrable costs include: * Commissions in excess of ultimate commissions * Underwriting costs * Policy issuance costs

What Are Deferred Acquisition Costs (DAC)? Deferred acquisition costs (DAC) is an accounting method that is applicable in the insurance industry. Using the DAC method allows a company to defer the sales costs that are associated with acquiring a new customer over the term of the insurance contract. Key Takeaways Deferred acquisition costs (DAC) is an accounting method that is applicable in the insurance industry. Using the DAC method allows a company to defer the sales costs that are associated with acquiring a new customer over the term of the insurance contract.Using this accounting method tends to reduce the first-year strain of policy and produces a smoother pattern of earnings.Companies may only defer costs associated with the successful placement of new business and cannot amortize all back-office expenses. Understanding Deferred Acquisition Costs (DAC) Insurance companies face large upfront costs when issuing new business, including referral commissions to external distributors and brokers, underwriting, and medical expenses. Often these costs can exceed the premiums paid in the early years of different types of insurance plans. The implementation of DAC enables insurance companies to spread out these large costs (that otherwise would be paid upfront) gradually—as they earn revenues. Using this accounting method tends to produce a smoother pattern of earnings. As of 2012, insurers are required to comply with a new Federal Accounting Standards Board (FASB) rule, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts,” or ASU 2010-26. FASB allows insurance companies to capitalize on the costs of acquiring new customers by amortizing them over time. With this process, DACs are recorded as assets—rather than expenses—and they can be paid off gradually. Deferred acquisition costs (DAC) are treated as an asset on the balance sheet and amortized over the life of the insurance contract. The FASB also requires that companies amortize balances on a constant level basis over the expected term of contracts. In the case of unexpected contract terminations, FASB rules that DAC must be written off, but it is not subject to an impairment test. This means that the asset is not measured to see if it is still worth the amount stated on the balance sheet. Special Considerations Deferred Acquisition Costs (DAC) Amortization DAC represents the “un-recovered investment” in the policies issued and is therefore capitalized as an intangible asset to match costs with related revenues. Over time, the acquisition costs are recognized as an expense that reduces the DAC asset. The process of recognizing the costs in the income statement is known as amortization and refers to the DAC asset being amortized, or reduced over a number of years. Amortization requires a basis that determines how much DAC should be turned into an expense for each accounting period. The amortization basis varies by the Federal Accounting Standards (FAS) classification: FAS 60/97LP – PremiumsFAS 97 – Estimated Gross Profits (EGP)FAS 120 – Estimated Gross Margins (EGM) Under FAS 60, assumptions are "locked-in" at policy issue and cannot be changed. However, under FAS 97 and 120, assumptions are based on estimates that can be readjusted as needed. DAC amortization uses estimated gross margins as a basis and an interest rate is applied to the DAC based on investment returns. Requirements for Deferred Acquisition Costs (DAC) Prior to the introduction of ASU 2010-26, DAC was described vaguely as costs that “vary with— and are primarily related to—the acquisition of insurance contracts.” That led companies with the difficult task of interpreting which expenses qualified for deferral and often prompted a broad range of insurance firms to categorize most of their costs as DAC. FASB later concluded that DAC accounting was being abused. The board responded by providing clearer guidelines. ASU 2010-26 was accompanied by two important changes to meet the capitalization criteria: Companies may only defer costs associated with the successful placement of new business, rather than all sales-related expenses.Only a portion of back-office expenses directly linked to revenues can be considered a DAC asset.  Examples of deferrable costs include: Commissions in excess of ultimate commissionsUnderwriting costsPolicy issuance costs

https://www.investopedia.com/terms/c/cartel.asp

What Is a Cartel? Definition, Examples, and Legality

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A cartel is an organization created from a formal agreement between a group of producers of a good or service to control <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/supply.asp">supply</a> or to regulate or manipulate prices. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> A collection of independent businesses or countries that act together like a single producer, cartel members may agree on prices, total industry output, market shares, allocation of customers, allocation of territories, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bid-rigging.asp">bid-rigging</a>, and the division of profits. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>A cartel is a collection of independent businesses or organizations that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collusion.asp">collude</a> to manipulate the price of a product or service.</li> <li>Cartels are competitors in the same industry and seek to reduce that competition by controlling pricing in agreement with one another.</li> <li>Tactics used by cartels include reduction of supply, price-fixing, collusive bidding, and market carving.</li> <li>In the majority of regions, cartels are considered illegal and promoters of anti-competitive practices.</li> <li>The actions of cartels hurt consumers through increased prices and lack of transparency.</li> </ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_7-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="Cartel" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/4fyJ9La98ST7fsmXUQH3cWJFzG0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/cartel.asp-Final-22b86bbf28c5462dba18472623df62d1.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/4fyJ9La98ST7fsmXUQH3cWJFzG0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/cartel.asp-Final-22b86bbf28c5462dba18472623df62d1.jpg" data-srcset="https://www.investopedia.com/thmb/MqnL64kRgLrMcRQMuuiYlTfJ9Kg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/cartel.asp-Final-22b86bbf28c5462dba18472623df62d1.jpg 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="Cartel" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/4fyJ9La98ST7fsmXUQH3cWJFzG0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/cartel.asp-Final-22b86bbf28c5462dba18472623df62d1.jpg" srcset="https://www.investopedia.com/thmb/MqnL64kRgLrMcRQMuuiYlTfJ9Kg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/cartel.asp-Final-22b86bbf28c5462dba18472623df62d1.jpg 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Yurle Villegas</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-a-cartel"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding a Cartel </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A cartel has less command over an industry than a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/monopoly.asp">monopoly</a>, where a single group or company owns all or nearly all of a given product or service's market share. Some cartels are formed to influence the price of legally traded goods and services, while others exist in illegal industries, such as the drug trade. In the United States cartels are unlawful under American <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/antitrust.asp">antitrust</a> laws.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Cartels hurt consumers because their existence results in higher prices and restricted supply. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/oecd.asp">The Organization for Economic Cooperation and Development </a>(OECD) identifies and prosecutes cartels when there is evidence of price-fixing, output restrictions, market allocation, bid-rigging, or the submission of collusive tenders.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">Collusive Tendering</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Collusive tendering occurs when companies coordinate their bids on procurement or project contracts for the acquisition of goods or services.</p></div></div></div> <span class="heading-toc" id="toc-types-of-cartel-agreements"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Types of Cartel Agreements </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> A cartel agreement can hinder, restrict, or create false competition. Types of agreements among members of a cartel may include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-subheading__text"> Price Fixing </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Price cartels maintain or fix a minimum pricing strategy where members cannot sell products or services below the floor price. Members may also be required to raise prices in unison and avoid discount pricing.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-subheading__text"> Market Share </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Customers or regions may be divided among the members of a cartel to ensure an even flow of revenue. Members may not be able to sell outside of a region or share customers with other members. Cartel members may also be restricted in their product offerings depending on the region or customers they serve.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-subheading__text"> Terms of Delivery </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Cartel members may agree to formal terms of delivery, like mode, locations, delivery time, and billing and interest payments.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-subheading__text"> Output and Production </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Cartels may require members to adhere to production levels, forcing higher price trends for goods or services.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-cartels"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of Cartels </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Cartels form to fix the prices, define trading terms, allocate trade zones or achieve economies of scale. A cartel's power often depends on the leadership of the nation in which it operates and cartels may not be challenged on their pricing or production. While the members of a cartel profit from the agreement, both competition and the consumer suffer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_33-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_34-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Provides a monopoly-like power to its members</p></li> <li><p>Savings for members is achieved through economies of scale</p></li> <li><p>Products or services are sold at higher margins to maximize profit</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Discourage new entrants into the market and act as a barrier to entry</p></li> <li><p>Lack of competition leads to price fixing and a lack of innovation</p></li> <li><p>Impact consumers as prices for products or services are over market price</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-cartels-and-market-inefficiencies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Cartels and Market Inefficiencies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Cartels harm consumers and affect economic efficiency. The success of a cartel depends upon its ability to raise prices above the competitive level while reducing output. Consumers may choose to pay the higher than the market price or forego the good or service as market forces are not in play. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> When the cartel guards its members against full exposure to competitive market forces, it reduces pressure on them to control costs or innovate. This adversely affects efficiency in a market economy.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <span class="heading-toc" id="toc-the-worlds-biggest-cartel"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-heading__text"> The World's Biggest Cartel </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/opec.asp">Organization of Petroleum Exporting Countries</a> (OPEC) is a group of 13 oil-producing countries whose mission is to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Its activities are legal because U.S. foreign trade laws protect it.<span class="ql-inline-citation" data-cite="4"></span>Controversy in the mid-2000s blocked the U.S. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/government-and-policy-4689793">Congress</a>' attempt to penalize OPEC as an illegal cartel.<span class="ql-inline-citation" data-cite="5"></span> Even though OPEC is considered by most to be a cartel, members of OPEC have maintained it is not a cartel at all but rather an international organization with a legal, permanent, and necessary mission. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <span class="heading-toc" id="toc-a-note-on-drug-cartels"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_46-0"> <span class="mntl-sc-block-heading__text"> A Note on Drug Cartels </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Drug trafficking organizations, especially in South America, are often referred to as "drug cartels." These organizations do meet the technical definition of being cartels. They are loosely affiliated groups who set rules among themselves to control the price and supply of a good, namely illegal drugs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> The best-known example of this is the Medellin Cartel, which was headed by Pablo Escobar in the 1980s until he died in 1993. The cartel famously trafficked large amounts of cocaine into the United States and was known for its violent methods. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-in-what-type-of-industry-do-cartels-thrive"></span> <h2 class="mntl-sc-block-questionandanswer__question">In What Type of Industry Do Cartels Thrive?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Cartels often operate best in an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/oligopoly.asp">oligopoly</a>, a market characterized by a small number of firms that are interdependent in their pricing and output policies. The small number of members allows each some market power. The theory of "cooperative" oligopoly provides the basis for analyzing the formation and the economic effects of cartels.<span class="ql-inline-citation" data-cite="6"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-how-is-collusion-evident-in-cartels"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Is Collusion Evident in Cartels?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The formation of a cartel involves open or explicit forms of collusion. Cartels are formed for the mutual benefit of member firms who agree on pricing, terms, and output.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-what-laws-regulate-cartels-in-the-united-states"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Laws Regulate Cartels In the United States?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Anti-trust legislation such as the Sherman Act and the Clayton Act regulate cartels within the United States since cartel activity robs consumers and other market participants of the benefits of competition.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> A cartel is a formal agreement between a group of producers of a good or service to control supply or to regulate or manipulate prices. Cartels often fix prices, define trading terms, and allocate trade or market share rules to achieve economies of scale. Cartels are illegal in the United States and regulated by anti-trust laws.<br/> </p></div>

A cartel is an organization created from a formal agreement between a group of producers of a good or service to control [supply](https://www.investopedia.com/terms/s/supply.asp) or to regulate or manipulate prices. A collection of independent businesses or countries that act together like a single producer, cartel members may agree on prices, total industry output, market shares, allocation of customers, allocation of territories, [bid-rigging](https://www.investopedia.com/terms/b/bid-rigging.asp), and the division of profits. ### Key Takeaways * A cartel is a collection of independent businesses or organizations that [collude](https://www.investopedia.com/terms/c/collusion.asp) to manipulate the price of a product or service. * Cartels are competitors in the same industry and seek to reduce that competition by controlling pricing in agreement with one another. * Tactics used by cartels include reduction of supply, price-fixing, collusive bidding, and market carving. * In the majority of regions, cartels are considered illegal and promoters of anti-competitive practices. * The actions of cartels hurt consumers through increased prices and lack of transparency. ![Cartel]() :max_bytes(150000):strip_icc()/cartel.asp-Final-22b86bbf28c5462dba18472623df62d1.jpg) Investopedia / Yurle Villegas ## Understanding a Cartel A cartel has less command over an industry than a [monopoly](https://www.investopedia.com/terms/m/monopoly.asp), where a single group or company owns all or nearly all of a given product or service's market share. Some cartels are formed to influence the price of legally traded goods and services, while others exist in illegal industries, such as the drug trade. In the United States cartels are unlawful under American [antitrust](https://www.investopedia.com/terms/a/antitrust.asp) laws. Cartels hurt consumers because their existence results in higher prices and restricted supply. [The Organization for Economic Cooperation and Development](https://www.investopedia.com/terms/o/oecd.asp) (OECD) identifies and prosecutes cartels when there is evidence of price-fixing, output restrictions, market allocation, bid-rigging, or the submission of collusive tenders. ### Collusive Tendering Collusive tendering occurs when companies coordinate their bids on procurement or project contracts for the acquisition of goods or services. ## Types of Cartel Agreements A cartel agreement can hinder, restrict, or create false competition. Types of agreements among members of a cartel may include: ### Price Fixing Price cartels maintain or fix a minimum pricing strategy where members cannot sell products or services below the floor price. Members may also be required to raise prices in unison and avoid discount pricing. ### Market Share Customers or regions may be divided among the members of a cartel to ensure an even flow of revenue. Members may not be able to sell outside of a region or share customers with other members. Cartel members may also be restricted in their product offerings depending on the region or customers they serve. ### Terms of Delivery Cartel members may agree to formal terms of delivery, like mode, locations, delivery time, and billing and interest payments. ### Output and Production Cartels may require members to adhere to production levels, forcing higher price trends for goods or services. ## Advantages and Disadvantages of Cartels Cartels form to fix the prices, define trading terms, allocate trade zones or achieve economies of scale. A cartel's power often depends on the leadership of the nation in which it operates and cartels may not be challenged on their pricing or production. While the members of a cartel profit from the agreement, both competition and the consumer suffer. Pros * Provides a monopoly-like power to its members * Savings for members is achieved through economies of scale * Products or services are sold at higher margins to maximize profit Cons * Discourage new entrants into the market and act as a barrier to entry * Lack of competition leads to price fixing and a lack of innovation * Impact consumers as prices for products or services are over market price ## Cartels and Market Inefficiencies Cartels harm consumers and affect economic efficiency. The success of a cartel depends upon its ability to raise prices above the competitive level while reducing output. Consumers may choose to pay the higher than the market price or forego the good or service as market forces are not in play. When the cartel guards its members against full exposure to competitive market forces, it reduces pressure on them to control costs or innovate. This adversely affects efficiency in a market economy. ## The World's Biggest Cartel The [Organization of Petroleum Exporting Countries](https://www.investopedia.com/terms/o/opec.asp) (OPEC) is a group of 13 oil-producing countries whose mission is to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets. Its activities are legal because U.S. foreign trade laws protect it.Controversy in the mid-2000s blocked the U.S. [Congress](https://www.investopedia.com/government-and-policy-4689793)' attempt to penalize OPEC as an illegal cartel. Even though OPEC is considered by most to be a cartel, members of OPEC have maintained it is not a cartel at all but rather an international organization with a legal, permanent, and necessary mission. ## A Note on Drug Cartels Drug trafficking organizations, especially in South America, are often referred to as "drug cartels." These organizations do meet the technical definition of being cartels. They are loosely affiliated groups who set rules among themselves to control the price and supply of a good, namely illegal drugs. The best-known example of this is the Medellin Cartel, which was headed by Pablo Escobar in the 1980s until he died in 1993. The cartel famously trafficked large amounts of cocaine into the United States and was known for its violent methods. ## In What Type of Industry Do Cartels Thrive? Cartels often operate best in an [oligopoly](https://www.investopedia.com/terms/o/oligopoly.asp), a market characterized by a small number of firms that are interdependent in their pricing and output policies. The small number of members allows each some market power. The theory of "cooperative" oligopoly provides the basis for analyzing the formation and the economic effects of cartels. ## How Is Collusion Evident in Cartels? The formation of a cartel involves open or explicit forms of collusion. Cartels are formed for the mutual benefit of member firms who agree on pricing, terms, and output. ## What Laws Regulate Cartels In the United States? Anti-trust legislation such as the Sherman Act and the Clayton Act regulate cartels within the United States since cartel activity robs consumers and other market participants of the benefits of competition. ## The Bottom Line A cartel is a formal agreement between a group of producers of a good or service to control supply or to regulate or manipulate prices. Cartels often fix prices, define trading terms, and allocate trade or market share rules to achieve economies of scale. Cartels are illegal in the United States and regulated by anti-trust laws.

A cartel is an organization created from a formal agreement between a group of producers of a good or service to control supply or to regulate or manipulate prices. A collection of independent businesses or countries that act together like a single producer, cartel members may agree on prices, total industry output, market shares, allocation of customers, allocation of territories, bid-rigging, and the division of profits. Key Takeaways A cartel is a collection of independent businesses or organizations that collude to manipulate the price of a product or service. Cartels are competitors in the same industry and seek to reduce that competition by controlling pricing in agreement with one another. Tactics used by cartels include reduction of supply, price-fixing, collusive bidding, and market carving. In the majority of regions, cartels are considered illegal and promoters of anti-competitive practices. The actions of cartels hurt consumers through increased prices and lack of transparency. Investopedia / Yurle Villegas Understanding a Cartel A cartel has less command over an industry than a monopoly, where a single group or company owns all or nearly all of a given product or service's market share. Some cartels are formed to influence the price of legally traded goods and services, while others exist in illegal industries, such as the drug trade. In the United States cartels are unlawful under American antitrust laws. Cartels hurt consumers because their existence results in higher prices and restricted supply. The Organization for Economic Cooperation and Development (OECD) identifies and prosecutes cartels when there is evidence of price-fixing, output restrictions, market allocation, bid-rigging, or the submission of collusive tenders. Collusive Tendering Collusive tendering occurs when companies coordinate their bids on procurement or project contracts for the acquisition of goods or services. Types of Cartel Agreements A cartel agreement can hinder, restrict, or create false competition. Types of agreements among members of a cartel may include: Price Fixing Price cartels maintain or fix a minimum pricing strategy where members cannot sell products or services below the floor price. Members may also be required to raise prices in unison and avoid discount pricing. Market Share Customers or regions may be divided among the members of a cartel to ensure an even flow of revenue. Members may not be able to sell outside of a region or share customers with other members. Cartel members may also be restricted in their product offerings depending on the region or customers they serve. Terms of Delivery Cartel members may agree to formal terms of delivery, like mode, locations, delivery time, and billing and interest payments. Output and Production Cartels may require members to adhere to production levels, forcing higher price trends for goods or services. Advantages and Disadvantages of Cartels Cartels form to fix the prices, define trading terms, allocate trade zones or achieve economies of scale. A cartel's power often depends on the leadership of the nation in which it operates and cartels may not be challenged on their pricing or production. While the members of a cartel profit from the agreement, both competition and the consumer suffer. Pros Provides a monopoly-like power to its members Savings for members is achieved through economies of scale Products or services are sold at higher margins to maximize profit Cons Discourage new entrants into the market and act as a barrier to entry Lack of competition leads to price fixing and a lack of innovation Impact consumers as prices for products or services are over market price Cartels and Market Inefficiencies Cartels harm consumers and affect economic efficiency. The success of a cartel depends upon its ability to raise prices above the competitive level while reducing output. Consumers may choose to pay the higher than the market price or forego the good or service as market forces are not in play. When the cartel guards its members against full exposure to competitive market forces, it reduces pressure on them to control costs or innovate. This adversely affects efficiency in a market economy. The World's Biggest Cartel The Organization of Petroleum Exporting Countries (OPEC) is a group of 13 oil-producing countries whose mission is to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets. Its activities are legal because U.S. foreign trade laws protect it.Controversy in the mid-2000s blocked the U.S. Congress' attempt to penalize OPEC as an illegal cartel. Even though OPEC is considered by most to be a cartel, members of OPEC have maintained it is not a cartel at all but rather an international organization with a legal, permanent, and necessary mission. A Note on Drug Cartels Drug trafficking organizations, especially in South America, are often referred to as "drug cartels." These organizations do meet the technical definition of being cartels. They are loosely affiliated groups who set rules among themselves to control the price and supply of a good, namely illegal drugs. The best-known example of this is the Medellin Cartel, which was headed by Pablo Escobar in the 1980s until he died in 1993. The cartel famously trafficked large amounts of cocaine into the United States and was known for its violent methods. In What Type of Industry Do Cartels Thrive? Cartels often operate best in an oligopoly, a market characterized by a small number of firms that are interdependent in their pricing and output policies. The small number of members allows each some market power. The theory of "cooperative" oligopoly provides the basis for analyzing the formation and the economic effects of cartels. How Is Collusion Evident in Cartels? The formation of a cartel involves open or explicit forms of collusion. Cartels are formed for the mutual benefit of member firms who agree on pricing, terms, and output. What Laws Regulate Cartels In the United States? Anti-trust legislation such as the Sherman Act and the Clayton Act regulate cartels within the United States since cartel activity robs consumers and other market participants of the benefits of competition. The Bottom Line A cartel is a formal agreement between a group of producers of a good or service to control supply or to regulate or manipulate prices. Cartels often fix prices, define trading terms, and allocate trade or market share rules to achieve economies of scale. Cartels are illegal in the United States and regulated by anti-trust laws.

https://www.investopedia.com/articles/personal-finance/042415/expats-opening-bank-account-philippines.asp

Expats: Opening a Bank Account in the Philippines

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The Philippines, an archipelago of 7,000+ islands in the western Pacific Ocean, is home to a substantial community of expats who enjoy the country’s natural beauty, laid-back lifestyle and lower <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cost-of-living.asp">cost of living</a>. Expats, whether planning to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/103015/buying-house-philippines-howto-guide.asp">live in the Philippines</a> for the long-term during retirement, or just in the country for an extended visit, might be interested in opening a bank account there to make it easier to access funds. Here, we take a quick look at what it takes to open a bank account in the Philippines. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Many Americans choose to live in the Philippines to work or retire, due to its relatively low cost of living and lifestyle.</li><li>The country hosts many global banks that also have branches in the U.S., making it easy to integrate your finances.</li><li>To open a new bank account in the Philippines, you must be prepared to present identification in-person and have the proper visas.</li></ul></div></div></div> <span class="heading-toc" id="toc-money-in-the-philippines"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Money in the Philippines </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Similar to the U.S., the banking system in the Philippines supports large international banks, national banking institutions and small, rural banks. Expats typically choose either national banks such as Philippine National Bank, Metrobank and Bank of the Philippine Islands or international institutions such as Citibank, Bank of America and HBSC. In general, expats should avoid small, rural banks as they tend to offer limited services and may be subject to closure with little or no notice. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Internet banking is available through most major national and international banks, and physical banks are usually open between 9 a.m. and 3 p.m. on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/business-day.asp">business days</a> and closed on weekends and holidays. The official currency of the Philippines is the Philippine Peso (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/p/php-philippine-peso.asp">PHP</a>).<span class="ql-inline-citation" data-cite="2"></span> Notes come in <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/denomination.asp">denominations</a> of 20, 50, 100, 200, 500 and 1,000 PHP. One peso is equal to 100 centavos, and coins are issued in 10, 5 and 1 PHP, and 50, 25, 10 and 5 centavos.<span class="ql-inline-citation" data-cite="11"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-opening-an-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Opening an Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> To open a bank account in the Philippines, you must visit the bank in person with several identification documents in hand. While you will always be required to show documentation at any bank, the particular documents that are required may depend on the bank. Many banks require you to have an Alien Certificate of Registration Identity Card (ACR I-Card), a microchip-based, <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit card</a> sized identification card.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> All foreign nationals holding immigrant and non-immigrant visas (including holders of a Temporary Visitor’s Visa) – who have been in the country for more than 59 days – are required to apply for an ACR I-Card. You can apply for the card at the main office of the Bureau of Immigration or at one of its field offices throughout the country. The card costs $50, plus P500 (about $60 total). In some cases, you may be able to open an account without an ACR I-Card; however, you may be required to meet directly with the bank manager before an account can be approved.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> You will also need a passport or some other form of photo identification, a passport-sized photo of yourself and proof of your address, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-pay-your-bills-when-you-lose-your-job-4801711">a current utility bill</a> or rental contract. The bank will also require a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/minimum_deposit.asp"> minimum deposit</a> for the account to be opened. The Philippine National Bank, for example, has a minimum deposit of P3,000, or about $60, for a debit savings account.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The bank may also require a bank reference from your country of permanent residence or country of citizenship. The Philippine bank may contact your bank of reference directly, or ask you to submit written certification from the bank. If you were not introduced to the bank by an existing bank client or employee (which is often the case), your account might be put on hold until the reference process is complete. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-are-deposits-insured"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Are Deposits Insured? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In the United States, any money you deposit at an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">FDIC-insured</a> bank is automatically protected by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">FDIC</a> (the Federal Deposit Insurance Corporation), created in 1933 in response to the many <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank-failure.asp">bank failures</a> of the 1920s and early 1930s.<span class="ql-inline-citation" data-cite="8"></span> This includes deposits made to a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/checkingaccount.asp">checking account</a>, <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nowaccount.asp">negotiable order of withdrawal (NOW) account</a>, <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp">savings account</a>, <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymarketaccount.asp">money market deposit account (MMDA)</a> or <a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timedeposit.asp">time deposit</a>, such as a <a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificate of deposit (CD)</a> – with a coverage limit of $250,000 per depositor, per account.<span class="ql-inline-citation" data-cite="7"></span> If a bank fails, the FDIC ensures you get quick access to your insured deposits.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The Philippine Deposit Insurance Corporation offers a similar program, but with a much lower level of protection than FDIC provides to U.S. depositors. In the Philippines, your deposits are insured up to P500,000 (about $10,000), which applies to the total amount of money you have on deposit in a bank, not to each individual account. So even if you have several different accounts, you are insured up to only a maximum of P500,000.<span class="ql-inline-citation" data-cite="9"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Expats and visitors have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/053116/top-10-checking-accounts-us-expats-living-abroad-cof-schw.asp">number of options for banking</a> in the Philippines. Large, national banks and international banks – including CitiBank and HBSC – are popular choices for expats. Citibank, for example, offers free withdrawals from any <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/atm.asp">ATM</a> in the Philippines (and 13,000+ Citibank ATMs worldwide) and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/onlinebanking.asp">online banking</a>, so it’s easy to keep track of your finances.<span class="ql-inline-citation" data-cite="10"></span> With any account, be sure to read the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fineprint.asp">fine print</a> so you know what fees to expect. </p></div>

The Philippines, an archipelago of 7,000+ islands in the western Pacific Ocean, is home to a substantial community of expats who enjoy the country’s natural beauty, laid-back lifestyle and lower [cost of living](https://www.investopedia.com/terms/c/cost-of-living.asp). Expats, whether planning to [live in the Philippines](https://www.investopedia.com/articles/personal-finance/103015/buying-house-philippines-howto-guide.asp) for the long-term during retirement, or just in the country for an extended visit, might be interested in opening a bank account there to make it easier to access funds. Here, we take a quick look at what it takes to open a bank account in the Philippines. ### Key Takeaways * Many Americans choose to live in the Philippines to work or retire, due to its relatively low cost of living and lifestyle. * The country hosts many global banks that also have branches in the U.S., making it easy to integrate your finances. * To open a new bank account in the Philippines, you must be prepared to present identification in-person and have the proper visas. ## Money in the Philippines Similar to the U.S., the banking system in the Philippines supports large international banks, national banking institutions and small, rural banks. Expats typically choose either national banks such as Philippine National Bank, Metrobank and Bank of the Philippine Islands or international institutions such as Citibank, Bank of America and HBSC. In general, expats should avoid small, rural banks as they tend to offer limited services and may be subject to closure with little or no notice. Internet banking is available through most major national and international banks, and physical banks are usually open between 9 a.m. and 3 p.m. on [business days](https://www.investopedia.com/terms/b/business-day.asp) and closed on weekends and holidays. The official currency of the Philippines is the Philippine Peso ([PHP](https://www.investopedia.com/terms/forex/p/php-philippine-peso.asp)). Notes come in [denominations](https://www.investopedia.com/terms/d/denomination.asp) of 20, 50, 100, 200, 500 and 1,000 PHP. One peso is equal to 100 centavos, and coins are issued in 10, 5 and 1 PHP, and 50, 25, 10 and 5 centavos.  ## Opening an Account To open a bank account in the Philippines, you must visit the bank in person with several identification documents in hand. While you will always be required to show documentation at any bank, the particular documents that are required may depend on the bank. Many banks require you to have an Alien Certificate of Registration Identity Card (ACR I-Card), a microchip-based, [credit card](https://www.investopedia.com/terms/c/creditcard.asp) sized identification card. All foreign nationals holding immigrant and non-immigrant visas (including holders of a Temporary Visitor’s Visa) – who have been in the country for more than 59 days – are required to apply for an ACR I-Card. You can apply for the card at the main office of the Bureau of Immigration or at one of its field offices throughout the country. The card costs $50, plus P500 (about $60 total). In some cases, you may be able to open an account without an ACR I-Card; however, you may be required to meet directly with the bank manager before an account can be approved. You will also need a passport or some other form of photo identification, a passport-sized photo of yourself and proof of your address, such as [a current utility bill](https://www.investopedia.com/how-to-pay-your-bills-when-you-lose-your-job-4801711) or rental contract. The bank will also require a [minimum deposit](https://www.investopedia.com/terms/m/minimum_deposit.asp) for the account to be opened. The Philippine National Bank, for example, has a minimum deposit of P3,000, or about $60, for a debit savings account. The bank may also require a bank reference from your country of permanent residence or country of citizenship. The Philippine bank may contact your bank of reference directly, or ask you to submit written certification from the bank. If you were not introduced to the bank by an existing bank client or employee (which is often the case), your account might be put on hold until the reference process is complete. ## Are Deposits Insured? In the United States, any money you deposit at an [FDIC-insured](https://www.investopedia.com/terms/f/fdic-insured-account.asp) bank is automatically protected by the [FDIC](https://www.investopedia.com/terms/f/fdic.asp) (the Federal Deposit Insurance Corporation), created in 1933 in response to the many [bank failures](https://www.investopedia.com/terms/b/bank-failure.asp) of the 1920s and early 1930s. This includes deposits made to a [checking account](https://www.investopedia.com/terms/c/checkingaccount.asp), [negotiable order of withdrawal (NOW) account](https://www.investopedia.com/terms/n/nowaccount.asp), [savings account](https://www.investopedia.com/terms/s/savingsaccount.asp), [money market deposit account (MMDA)](https://www.investopedia.com/terms/m/moneymarketaccount.asp) or [time deposit](https://www.investopedia.com/terms/t/timedeposit.asp), such as a [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp) – with a coverage limit of $250,000 per depositor, per account. If a bank fails, the FDIC ensures you get quick access to your insured deposits.  The Philippine Deposit Insurance Corporation offers a similar program, but with a much lower level of protection than FDIC provides to U.S. depositors. In the Philippines, your deposits are insured up to P500,000 (about $10,000), which applies to the total amount of money you have on deposit in a bank, not to each individual account. So even if you have several different accounts, you are insured up to only a maximum of P500,000.  ## The Bottom Line Expats and visitors have a [number of options for banking](https://www.investopedia.com/articles/personal-finance/053116/top-10-checking-accounts-us-expats-living-abroad-cof-schw.asp) in the Philippines. Large, national banks and international banks – including CitiBank and HBSC – are popular choices for expats. Citibank, for example, offers free withdrawals from any [ATM](https://www.investopedia.com/terms/a/atm.asp) in the Philippines (and 13,000+ Citibank ATMs worldwide) and [online banking](https://www.investopedia.com/terms/o/onlinebanking.asp), so it’s easy to keep track of your finances. With any account, be sure to read the [fine print](https://www.investopedia.com/terms/f/fineprint.asp) so you know what fees to expect.

The Philippines, an archipelago of 7,000+ islands in the western Pacific Ocean, is home to a substantial community of expats who enjoy the country’s natural beauty, laid-back lifestyle and lower cost of living. Expats, whether planning to live in the Philippines for the long-term during retirement, or just in the country for an extended visit, might be interested in opening a bank account there to make it easier to access funds. Here, we take a quick look at what it takes to open a bank account in the Philippines. Key Takeaways Many Americans choose to live in the Philippines to work or retire, due to its relatively low cost of living and lifestyle.The country hosts many global banks that also have branches in the U.S., making it easy to integrate your finances.To open a new bank account in the Philippines, you must be prepared to present identification in-person and have the proper visas. Money in the Philippines Similar to the U.S., the banking system in the Philippines supports large international banks, national banking institutions and small, rural banks. Expats typically choose either national banks such as Philippine National Bank, Metrobank and Bank of the Philippine Islands or international institutions such as Citibank, Bank of America and HBSC. In general, expats should avoid small, rural banks as they tend to offer limited services and may be subject to closure with little or no notice. Internet banking is available through most major national and international banks, and physical banks are usually open between 9 a.m. and 3 p.m. on business days and closed on weekends and holidays. The official currency of the Philippines is the Philippine Peso (PHP). Notes come in denominations of 20, 50, 100, 200, 500 and 1,000 PHP. One peso is equal to 100 centavos, and coins are issued in 10, 5 and 1 PHP, and 50, 25, 10 and 5 centavos.  Opening an Account To open a bank account in the Philippines, you must visit the bank in person with several identification documents in hand. While you will always be required to show documentation at any bank, the particular documents that are required may depend on the bank. Many banks require you to have an Alien Certificate of Registration Identity Card (ACR I-Card), a microchip-based, credit card sized identification card. All foreign nationals holding immigrant and non-immigrant visas (including holders of a Temporary Visitor’s Visa) – who have been in the country for more than 59 days – are required to apply for an ACR I-Card. You can apply for the card at the main office of the Bureau of Immigration or at one of its field offices throughout the country. The card costs $50, plus P500 (about $60 total). In some cases, you may be able to open an account without an ACR I-Card; however, you may be required to meet directly with the bank manager before an account can be approved. You will also need a passport or some other form of photo identification, a passport-sized photo of yourself and proof of your address, such as a current utility bill or rental contract. The bank will also require a minimum deposit for the account to be opened. The Philippine National Bank, for example, has a minimum deposit of P3,000, or about $60, for a debit savings account. The bank may also require a bank reference from your country of permanent residence or country of citizenship. The Philippine bank may contact your bank of reference directly, or ask you to submit written certification from the bank. If you were not introduced to the bank by an existing bank client or employee (which is often the case), your account might be put on hold until the reference process is complete. Are Deposits Insured? In the United States, any money you deposit at an FDIC-insured bank is automatically protected by the FDIC (the Federal Deposit Insurance Corporation), created in 1933 in response to the many bank failures of the 1920s and early 1930s. This includes deposits made to a checking account, negotiable order of withdrawal (NOW) account, savings account, money market deposit account (MMDA) or time deposit, such as a certificate of deposit (CD) – with a coverage limit of $250,000 per depositor, per account. If a bank fails, the FDIC ensures you get quick access to your insured deposits.  The Philippine Deposit Insurance Corporation offers a similar program, but with a much lower level of protection than FDIC provides to U.S. depositors. In the Philippines, your deposits are insured up to P500,000 (about $10,000), which applies to the total amount of money you have on deposit in a bank, not to each individual account. So even if you have several different accounts, you are insured up to only a maximum of P500,000.  The Bottom Line Expats and visitors have a number of options for banking in the Philippines. Large, national banks and international banks – including CitiBank and HBSC – are popular choices for expats. Citibank, for example, offers free withdrawals from any ATM in the Philippines (and 13,000+ Citibank ATMs worldwide) and online banking, so it’s easy to keep track of your finances. With any account, be sure to read the fine print so you know what fees to expect.

https://www.investopedia.com/terms/p/payday-loans.asp

What Is a Payday Loan? How It Works, How to Get One, and Legality

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-payday-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Payday Loan? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Payday loans are short-term, high-interest loans based on your income. The principal of the loan is generally equal to a part of your upcoming paycheck.<span class="ql-inline-citation" data-cite="7"></span> Payday loans take advantage of the borrower's need for immediate credit by charging a higher-than-normal interest rate. Before taking out a payday loan, learn your options, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/emergency-loans-for-bad-credit-5075539">emergency loans</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Payday loans are short-term, very-high-interest loans available to consumers.</li><li>Payday loans are typically based on how much you earn, and you usually have to provide a pay stub when applying for one.</li><li>Payday loans are not available in all states. Sixteen states—Arizona, Arkansas, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Dakota, Vermont, and West Virginia—and the District of Columbia outlaw payday loans of any kind.</li><li>A number of laws have been put in place over the years to regulate the high fees and interest rates of payday loans.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="What to Know About Payday Loans" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/OHCEdLOumjkEdOUCUDCUAuUt0-s=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Payday-loans_final-9a4b8a6d6e754a908e10be10d17e5b93.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/OHCEdLOumjkEdOUCUDCUAuUt0-s=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Payday-loans_final-9a4b8a6d6e754a908e10be10d17e5b93.png" data-srcset="https://www.investopedia.com/thmb/jnZC8w6t2gzBAV6UfisDM7TWnSg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Payday-loans_final-9a4b8a6d6e754a908e10be10d17e5b93.png 750w" data-tracking-container="true" height="1296" id="mntl-sc-block-image_1-0" width="1920"/> <noscript> <img alt="What to Know About Payday Loans" class="img--noscript universal-image__image" height="1296" sizes="750px" src="https://www.investopedia.com/thmb/OHCEdLOumjkEdOUCUDCUAuUt0-s=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Payday-loans_final-9a4b8a6d6e754a908e10be10d17e5b93.png" srcset="https://www.investopedia.com/thmb/jnZC8w6t2gzBAV6UfisDM7TWnSg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Payday-loans_final-9a4b8a6d6e754a908e10be10d17e5b93.png 750w" width="1920"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Michela Buttignol</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-a-payday-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Understanding a Payday Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Payday loans function as unsecured credit as they do not require any collateral. They are often considered a form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/predatory_lending.asp">predatory lending</a> due to their extremely high interest rates, hidden fees, and the lack of concern on the lender's part regarding whether the borrower can pay back the loan or not.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Because of these high costs, payday loans often end up being a debt trap for many consumers who find it impossible to claw back out of the burden of debt they've accumulated from these loans. Before taking out a payday loan, consider other options, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">safer personal loan alternatives</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-how-payday-loans-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> How Payday Loans Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Payday loan providers will normally require you to show proof of your income—usually your pay stubs from your employer. They will then lend you a portion of the money that you will be paid. You will have to pay the loan back within a short time, generally 30 days or less.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Payday lenders take on a lot of risk because they don’t check your ability to pay back the loan. Because of this, they normally charge very high interest rates for payday loans, and they may also charge high fees if you miss your repayments. This <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/12/the-debt-spiral.asp">can be dangerous</a> for borrowers because it can mean that you’ll need to borrow more money to cover the cost of the first loan.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-how-to-get-a-payday-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> How to Get a Payday Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> You can apply for payday loans online at various loan providers. You can also apply for payday loans at local providers who are generally small lenders with physical stores. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> For <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102814/what-are-basic-requirements-qualify-payday-loan.asp">a payday loan application</a>, you will need a bank account and government ID. You will also need to provide proof of income, which can be done through your work pay stubs. The principal of a payday loan is typically a percentage of your income. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Additionally, your wages may function as collateral where the lender can automatically receive a portion of your wages in order for the loan to be paid back. A credit check and your ability to pay back the loan are not usually considered when applying. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-payday-loan-interest-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Payday Loan Interest Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Payday lenders charge very high levels of interest: as much as 780% in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">annual percentage rate (APR)</a>, with an average loan running at nearly 400%. Most states have <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/usury-laws.asp">usury laws</a> that limit interest charges to anywhere from 5% to 30%. However, payday lenders fall under exemptions that allow for their high interest.<span class="ql-inline-citation" data-cite="23"></span><span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> As these loans qualify for many state lending loopholes, borrowers should be wary. Regulations on these loans are governed by the individual states, with 16 states—Arizona, Arkansas, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Dakota, Vermont, and West Virginia—and the District of Columbia outlawing payday loans of any kind.<span class="ql-inline-citation" data-cite="23"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> In California, for example, a payday lender can only lend up to $300 at a time. They can also charge a fee of up to 15% of the loan amount, with a maximum fee total of $45. Although 15% doesn't seem exceptionally high, on a 14-day loan, it becomes the equivalent of an APR of 460% for a $300 loan.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Although the federal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tila.asp">Truth in Lending Act</a> requires payday lenders to disclose their finance charges, many people overlook the costs. Most loans are for 30 days or less and help borrowers to meet short-term liabilities. The loans usually can be rolled over for additional finance charges, and many borrowers—as high as 80% of them—end up as repeat customers.<span class="ql-inline-citation" data-cite="24"></span><span class="ql-inline-citation" data-cite="7"></span><span class="ql-inline-citation" data-cite="21"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> A number of court cases have been filed against payday lenders as lending laws have been enacted <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/063015/what-are-major-laws-acts-regulating-financial-institutions-were-created-response-2008-financial.asp">since the 2008 financial crisis</a> to create a more transparent and fair lending market for consumers. If you’re considering taking out a payday loan, then a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-calculator-5082130">personal loan calculator</a> can be a vital tool for determining what kind of interest rate you can afford. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-are-payday-loans-legal"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> Are Payday Loans Legal? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Efforts to regulate payday lenders were proposed in 2016 under the Obama administration and put in place in 2017, when the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp">Consumer Financial Protection Bureau (CFPB)</a>, under then-Director Richard Cordray, passed rules to protect consumers from what Cordray referred to as “debt traps.”<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The rules included a mandatory underwriting provision requiring lenders to assess a borrower’s ability to repay a loan and still meet everyday living expenses before the loan is made. The rules also required lenders to provide written notice before trying to collect from a borrower’s bank account and further required that after two unsuccessful attempts to debit an account, the lender could not try again without the permission of the borrower.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> These rules were first proposed in 2016, and under the Biden administration, the new leadership at the CFPB established stricter rules for payday lending, which became mandatory on June 13, 2022.<span class="ql-inline-citation" data-cite="26"></span><span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> In Feb. 2019, the CFPB—then under the Trump Administration and Director Kathleen L. Kraninger—issued proposed rules to revoke the mandatory underwriting provision and delay implementation of the 2017 rules.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> In June 2019, the CFPB issued a final rule delaying the Aug. 2019 compliance date, and on July 7, 2020, it issued a final rule revoking the mandatory underwriting provision but leaving in place the limitation of repeated attempts by payday lenders to collect from a borrower’s bank account.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-are-payday-loans-fixed-or-variable"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Payday Loans Fixed or Variable?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Payday loans are usually meant to be paid off in one <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lump-sum-payment.asp">lump-sum payment</a> when you get your paycheck. Because of this, the interest rate on these loans is fixed. In fact, many payday lenders don’t even express their charges as an interest rate, but they instead charge a fixed flat fee that can be anywhere from $10 to $30 per $100 borrowed.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-is-a-payday-loan-secured-or-unsecured"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a Payday Loan Secured or Unsecured?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most payday loans are unsecured. This means that you do not have to give the lender any collateral or borrow against a valuable item as you do in a pawn shop.</p><p>Instead, the lender will normally ask you for permission to electronically take money from your bank, credit union, or prepaid card account. Alternatively, the lender may ask you to write a check for the repayment amount, which the lender will cash when the loan is due. Under federal law, lenders cannot condition a payday loan on obtaining authorization from the consumer for “preauthorized” (recurring) electronic fund transfers.<span class="ql-inline-citation" data-cite="18"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-how-long-do-payday-loans-stay-in-the-system"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Do Payday Loans Stay in the System?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The records of traditional loans may be kept for six to 10 years by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditbureau.asp">credit bureaus</a>—the companies that calculate <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit scores</a>—which in turn may affect your ability to borrow money in the future. Payday lenders do not usually report to the credit bureaus, even in case of overdue repayments; however, the payday loan may be filed once it is passed to the collectors after the lender sells the debts.<span class="ql-inline-citation" data-cite="20"></span></p><p>If you repay your payday loan on time, then your credit score shouldn’t be affected. On the other hand, if you default on your loan and your debt is placed in the hands of a collection agency, then you will see a dip in your score.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-can-payday-loan-debt-be-forgiven"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Payday Loan Debt Be Forgiven?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In practice, it’s very rare for payday loan debt to be written off. This is because payday lenders make significant sums from the interest that they charge on these loans.</p><p>This means that you should try and pay off payday loans as soon as you possibly can. If you can’t pay back a payday loan, the account may be sent to a collection agency, which will pursue you for the money and interest that you owe. This is not only unpleasant but also can add money to your overall debt—and it will damage your credit.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-can-you-get-a-payday-loan-without-a-bank-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Get a Payday Loan Without a Bank Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes. Having a bank account isn’t universally required to borrow money, but lenders that don’t require it generally charge high interest rates. This includes many payday lenders. Payday lenders may ask for a bank account, but sometimes a prepaid card account may be enough to qualify.<br/></p><p>Because these loans cost so much and may be difficult to repay, it’s almost always best to avoid them. If you can’t pay back the loan promptly, fees can add up, leading to a debt trap that’s hard to get out of. Because of this, you should only take out a payday loan if you are absolutely sure that you can pay it back.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Payday loans are designed to cover short-term expenses, and they can be taken out without collateral or even a bank account. The catch is that these loans charge very high fees and interest rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Borrowers should be wary of these loans. They may be considered predatory lending, as they have extremely high interest, don’t consider a borrower’s ability to repay, and have hidden provisions that charge borrowers added fees. As a result, they can create a debt trap for consumers. If you’re considering a payday loan, then you may want to first take a look at alternative <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/emergency-loans-for-bad-credit-5075539">emergency loans for bad credit</a>.<span class="ql-inline-citation" data-cite="8"></span> </p></div>

## What Is a Payday Loan? Payday loans are short-term, high-interest loans based on your income. The principal of the loan is generally equal to a part of your upcoming paycheck. Payday loans take advantage of the borrower's need for immediate credit by charging a higher-than-normal interest rate. Before taking out a payday loan, learn your options, such as [emergency loans](https://www.investopedia.com/emergency-loans-for-bad-credit-5075539). ### Key Takeaways * Payday loans are short-term, very-high-interest loans available to consumers. * Payday loans are typically based on how much you earn, and you usually have to provide a pay stub when applying for one. * Payday loans are not available in all states. Sixteen states—Arizona, Arkansas, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Dakota, Vermont, and West Virginia—and the District of Columbia outlaw payday loans of any kind. * A number of laws have been put in place over the years to regulate the high fees and interest rates of payday loans. ![What to Know About Payday Loans]() :max_bytes(150000):strip_icc()/Payday-loans_final-9a4b8a6d6e754a908e10be10d17e5b93.png) Investopedia / Michela Buttignol ## Understanding a Payday Loan Payday loans function as unsecured credit as they do not require any collateral. They are often considered a form of [predatory lending](https://www.investopedia.com/terms/p/predatory_lending.asp) due to their extremely high interest rates, hidden fees, and the lack of concern on the lender's part regarding whether the borrower can pay back the loan or not. Because of these high costs, payday loans often end up being a debt trap for many consumers who find it impossible to claw back out of the burden of debt they've accumulated from these loans. Before taking out a payday loan, consider other options, such as [safer personal loan alternatives](https://www.investopedia.com/best-personal-loans-4773300). ## How Payday Loans Work Payday loan providers will normally require you to show proof of your income—usually your pay stubs from your employer. They will then lend you a portion of the money that you will be paid. You will have to pay the loan back within a short time, generally 30 days or less. Payday lenders take on a lot of risk because they don’t check your ability to pay back the loan. Because of this, they normally charge very high interest rates for payday loans, and they may also charge high fees if you miss your repayments. This [can be dangerous](https://www.investopedia.com/articles/pf/12/the-debt-spiral.asp) for borrowers because it can mean that you’ll need to borrow more money to cover the cost of the first loan. ## How to Get a Payday Loan You can apply for payday loans online at various loan providers. You can also apply for payday loans at local providers who are generally small lenders with physical stores. For [a payday loan application](https://www.investopedia.com/ask/answers/102814/what-are-basic-requirements-qualify-payday-loan.asp), you will need a bank account and government ID. You will also need to provide proof of income, which can be done through your work pay stubs. The principal of a payday loan is typically a percentage of your income. Additionally, your wages may function as collateral where the lender can automatically receive a portion of your wages in order for the loan to be paid back. A credit check and your ability to pay back the loan are not usually considered when applying. ## Payday Loan Interest Rates Payday lenders charge very high levels of interest: as much as 780% in [annual percentage rate (APR)](https://www.investopedia.com/terms/a/apr.asp), with an average loan running at nearly 400%. Most states have [usury laws](https://www.investopedia.com/terms/u/usury-laws.asp) that limit interest charges to anywhere from 5% to 30%. However, payday lenders fall under exemptions that allow for their high interest. As these loans qualify for many state lending loopholes, borrowers should be wary. Regulations on these loans are governed by the individual states, with 16 states—Arizona, Arkansas, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Dakota, Vermont, and West Virginia—and the District of Columbia outlawing payday loans of any kind. In California, for example, a payday lender can only lend up to $300 at a time. They can also charge a fee of up to 15% of the loan amount, with a maximum fee total of $45. Although 15% doesn't seem exceptionally high, on a 14-day loan, it becomes the equivalent of an APR of 460% for a $300 loan. Although the federal [Truth in Lending Act](https://www.investopedia.com/terms/t/tila.asp) requires payday lenders to disclose their finance charges, many people overlook the costs. Most loans are for 30 days or less and help borrowers to meet short-term liabilities. The loans usually can be rolled over for additional finance charges, and many borrowers—as high as 80% of them—end up as repeat customers. A number of court cases have been filed against payday lenders as lending laws have been enacted [since the 2008 financial crisis](https://www.investopedia.com/ask/answers/063015/what-are-major-laws-acts-regulating-financial-institutions-were-created-response-2008-financial.asp) to create a more transparent and fair lending market for consumers. If you’re considering taking out a payday loan, then a [personal loan calculator](https://www.investopedia.com/personal-loan-calculator-5082130) can be a vital tool for determining what kind of interest rate you can afford. ## Are Payday Loans Legal? Efforts to regulate payday lenders were proposed in 2016 under the Obama administration and put in place in 2017, when the [Consumer Financial Protection Bureau (CFPB)](https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp), under then-Director Richard Cordray, passed rules to protect consumers from what Cordray referred to as “debt traps.” The rules included a mandatory underwriting provision requiring lenders to assess a borrower’s ability to repay a loan and still meet everyday living expenses before the loan is made. The rules also required lenders to provide written notice before trying to collect from a borrower’s bank account and further required that after two unsuccessful attempts to debit an account, the lender could not try again without the permission of the borrower. These rules were first proposed in 2016, and under the Biden administration, the new leadership at the CFPB established stricter rules for payday lending, which became mandatory on June 13, 2022. In Feb. 2019, the CFPB—then under the Trump Administration and Director Kathleen L. Kraninger—issued proposed rules to revoke the mandatory underwriting provision and delay implementation of the 2017 rules. In June 2019, the CFPB issued a final rule delaying the Aug. 2019 compliance date, and on July 7, 2020, it issued a final rule revoking the mandatory underwriting provision but leaving in place the limitation of repeated attempts by payday lenders to collect from a borrower’s bank account. ## Are Payday Loans Fixed or Variable? Payday loans are usually meant to be paid off in one [lump-sum payment](https://www.investopedia.com/terms/l/lump-sum-payment.asp) when you get your paycheck. Because of this, the interest rate on these loans is fixed. In fact, many payday lenders don’t even express their charges as an interest rate, but they instead charge a fixed flat fee that can be anywhere from $10 to $30 per $100 borrowed. ## Is a Payday Loan Secured or Unsecured? Most payday loans are unsecured. This means that you do not have to give the lender any collateral or borrow against a valuable item as you do in a pawn shop. Instead, the lender will normally ask you for permission to electronically take money from your bank, credit union, or prepaid card account. Alternatively, the lender may ask you to write a check for the repayment amount, which the lender will cash when the loan is due. Under federal law, lenders cannot condition a payday loan on obtaining authorization from the consumer for “preauthorized” (recurring) electronic fund transfers. ## How Long Do Payday Loans Stay in the System? The records of traditional loans may be kept for six to 10 years by [credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp)—the companies that calculate [credit scores](https://www.investopedia.com/terms/c/credit_score.asp)—which in turn may affect your ability to borrow money in the future. Payday lenders do not usually report to the credit bureaus, even in case of overdue repayments; however, the payday loan may be filed once it is passed to the collectors after the lender sells the debts. If you repay your payday loan on time, then your credit score shouldn’t be affected. On the other hand, if you default on your loan and your debt is placed in the hands of a collection agency, then you will see a dip in your score. ## Can Payday Loan Debt Be Forgiven? In practice, it’s very rare for payday loan debt to be written off. This is because payday lenders make significant sums from the interest that they charge on these loans. This means that you should try and pay off payday loans as soon as you possibly can. If you can’t pay back a payday loan, the account may be sent to a collection agency, which will pursue you for the money and interest that you owe. This is not only unpleasant but also can add money to your overall debt—and it will damage your credit. ## Can You Get a Payday Loan Without a Bank Account? Yes. Having a bank account isn’t universally required to borrow money, but lenders that don’t require it generally charge high interest rates. This includes many payday lenders. Payday lenders may ask for a bank account, but sometimes a prepaid card account may be enough to qualify. Because these loans cost so much and may be difficult to repay, it’s almost always best to avoid them. If you can’t pay back the loan promptly, fees can add up, leading to a debt trap that’s hard to get out of. Because of this, you should only take out a payday loan if you are absolutely sure that you can pay it back. ## The Bottom Line Payday loans are designed to cover short-term expenses, and they can be taken out without collateral or even a bank account. The catch is that these loans charge very high fees and interest rates. Borrowers should be wary of these loans. They may be considered predatory lending, as they have extremely high interest, don’t consider a borrower’s ability to repay, and have hidden provisions that charge borrowers added fees. As a result, they can create a debt trap for consumers. If you’re considering a payday loan, then you may want to first take a look at alternative [emergency loans for bad credit](https://www.investopedia.com/emergency-loans-for-bad-credit-5075539).

What Is a Payday Loan? Payday loans are short-term, high-interest loans based on your income. The principal of the loan is generally equal to a part of your upcoming paycheck. Payday loans take advantage of the borrower's need for immediate credit by charging a higher-than-normal interest rate. Before taking out a payday loan, learn your options, such as emergency loans. Key Takeaways Payday loans are short-term, very-high-interest loans available to consumers.Payday loans are typically based on how much you earn, and you usually have to provide a pay stub when applying for one.Payday loans are not available in all states. Sixteen states—Arizona, Arkansas, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Dakota, Vermont, and West Virginia—and the District of Columbia outlaw payday loans of any kind.A number of laws have been put in place over the years to regulate the high fees and interest rates of payday loans. Investopedia / Michela Buttignol Understanding a Payday Loan Payday loans function as unsecured credit as they do not require any collateral. They are often considered a form of predatory lending due to their extremely high interest rates, hidden fees, and the lack of concern on the lender's part regarding whether the borrower can pay back the loan or not. Because of these high costs, payday loans often end up being a debt trap for many consumers who find it impossible to claw back out of the burden of debt they've accumulated from these loans. Before taking out a payday loan, consider other options, such as safer personal loan alternatives. How Payday Loans Work Payday loan providers will normally require you to show proof of your income—usually your pay stubs from your employer. They will then lend you a portion of the money that you will be paid. You will have to pay the loan back within a short time, generally 30 days or less. Payday lenders take on a lot of risk because they don’t check your ability to pay back the loan. Because of this, they normally charge very high interest rates for payday loans, and they may also charge high fees if you miss your repayments. This can be dangerous for borrowers because it can mean that you’ll need to borrow more money to cover the cost of the first loan. How to Get a Payday Loan You can apply for payday loans online at various loan providers. You can also apply for payday loans at local providers who are generally small lenders with physical stores. For a payday loan application, you will need a bank account and government ID. You will also need to provide proof of income, which can be done through your work pay stubs. The principal of a payday loan is typically a percentage of your income. Additionally, your wages may function as collateral where the lender can automatically receive a portion of your wages in order for the loan to be paid back. A credit check and your ability to pay back the loan are not usually considered when applying. Payday Loan Interest Rates Payday lenders charge very high levels of interest: as much as 780% in annual percentage rate (APR), with an average loan running at nearly 400%. Most states have usury laws that limit interest charges to anywhere from 5% to 30%. However, payday lenders fall under exemptions that allow for their high interest. As these loans qualify for many state lending loopholes, borrowers should be wary. Regulations on these loans are governed by the individual states, with 16 states—Arizona, Arkansas, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, South Dakota, Vermont, and West Virginia—and the District of Columbia outlawing payday loans of any kind. In California, for example, a payday lender can only lend up to $300 at a time. They can also charge a fee of up to 15% of the loan amount, with a maximum fee total of $45. Although 15% doesn't seem exceptionally high, on a 14-day loan, it becomes the equivalent of an APR of 460% for a $300 loan. Although the federal Truth in Lending Act requires payday lenders to disclose their finance charges, many people overlook the costs. Most loans are for 30 days or less and help borrowers to meet short-term liabilities. The loans usually can be rolled over for additional finance charges, and many borrowers—as high as 80% of them—end up as repeat customers. A number of court cases have been filed against payday lenders as lending laws have been enacted since the 2008 financial crisis to create a more transparent and fair lending market for consumers. If you’re considering taking out a payday loan, then a personal loan calculator can be a vital tool for determining what kind of interest rate you can afford. Are Payday Loans Legal? Efforts to regulate payday lenders were proposed in 2016 under the Obama administration and put in place in 2017, when the Consumer Financial Protection Bureau (CFPB), under then-Director Richard Cordray, passed rules to protect consumers from what Cordray referred to as “debt traps.” The rules included a mandatory underwriting provision requiring lenders to assess a borrower’s ability to repay a loan and still meet everyday living expenses before the loan is made. The rules also required lenders to provide written notice before trying to collect from a borrower’s bank account and further required that after two unsuccessful attempts to debit an account, the lender could not try again without the permission of the borrower. These rules were first proposed in 2016, and under the Biden administration, the new leadership at the CFPB established stricter rules for payday lending, which became mandatory on June 13, 2022. In Feb. 2019, the CFPB—then under the Trump Administration and Director Kathleen L. Kraninger—issued proposed rules to revoke the mandatory underwriting provision and delay implementation of the 2017 rules. In June 2019, the CFPB issued a final rule delaying the Aug. 2019 compliance date, and on July 7, 2020, it issued a final rule revoking the mandatory underwriting provision but leaving in place the limitation of repeated attempts by payday lenders to collect from a borrower’s bank account. Are Payday Loans Fixed or Variable? Payday loans are usually meant to be paid off in one lump-sum payment when you get your paycheck. Because of this, the interest rate on these loans is fixed. In fact, many payday lenders don’t even express their charges as an interest rate, but they instead charge a fixed flat fee that can be anywhere from $10 to $30 per $100 borrowed. Is a Payday Loan Secured or Unsecured? Most payday loans are unsecured. This means that you do not have to give the lender any collateral or borrow against a valuable item as you do in a pawn shop.Instead, the lender will normally ask you for permission to electronically take money from your bank, credit union, or prepaid card account. Alternatively, the lender may ask you to write a check for the repayment amount, which the lender will cash when the loan is due. Under federal law, lenders cannot condition a payday loan on obtaining authorization from the consumer for “preauthorized” (recurring) electronic fund transfers. How Long Do Payday Loans Stay in the System? The records of traditional loans may be kept for six to 10 years by credit bureaus—the companies that calculate credit scores—which in turn may affect your ability to borrow money in the future. Payday lenders do not usually report to the credit bureaus, even in case of overdue repayments; however, the payday loan may be filed once it is passed to the collectors after the lender sells the debts.If you repay your payday loan on time, then your credit score shouldn’t be affected. On the other hand, if you default on your loan and your debt is placed in the hands of a collection agency, then you will see a dip in your score. Can Payday Loan Debt Be Forgiven? In practice, it’s very rare for payday loan debt to be written off. This is because payday lenders make significant sums from the interest that they charge on these loans.This means that you should try and pay off payday loans as soon as you possibly can. If you can’t pay back a payday loan, the account may be sent to a collection agency, which will pursue you for the money and interest that you owe. This is not only unpleasant but also can add money to your overall debt—and it will damage your credit. Can You Get a Payday Loan Without a Bank Account? Yes. Having a bank account isn’t universally required to borrow money, but lenders that don’t require it generally charge high interest rates. This includes many payday lenders. Payday lenders may ask for a bank account, but sometimes a prepaid card account may be enough to qualify.Because these loans cost so much and may be difficult to repay, it’s almost always best to avoid them. If you can’t pay back the loan promptly, fees can add up, leading to a debt trap that’s hard to get out of. Because of this, you should only take out a payday loan if you are absolutely sure that you can pay it back. The Bottom Line Payday loans are designed to cover short-term expenses, and they can be taken out without collateral or even a bank account. The catch is that these loans charge very high fees and interest rates. Borrowers should be wary of these loans. They may be considered predatory lending, as they have extremely high interest, don’t consider a borrower’s ability to repay, and have hidden provisions that charge borrowers added fees. As a result, they can create a debt trap for consumers. If you’re considering a payday loan, then you may want to first take a look at alternative emergency loans for bad credit.

https://www.investopedia.com/what-teens-need-to-know-about-cryptocurrency-7152233

What Teens Need to Know About Cryptocurrency

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-cryptocurrency"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Cryptocurrency? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Cryptocurrency is virtual money that can be bought and sold on an encrypted network called the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain</a> or used to pay for a growing number of goods and services. It is not issued by any government and it has no physical existence. Many rival cryptocurrencies have been created, from Bitcoin to Ethereum and Doge. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Many Americans believe that crypto is the future of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finance.asp">finance</a>, making it a reasonable subject for young people to learn about. But should they be investing in it? There are no current regulations preventing minors from investing in cryptocurrencies, though they face barriers to entry. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>Cryptocurrency is a digital currency that can be bought and sold on an encrypted network called the blockchain. </li> <li>More than 20,000 cryptocurrencies are in existence, but only a few have significant <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketvalue.asp">market value</a>.</li> <li>People of any age can legally invest in cryptocurrency, but many U.S.-based crypto exchanges require users to be at least 18 years old. </li> <li>Crypto investing is high-risk and mostly unregulated, so teens shouldn’t invest more than they—or their parents—are willing to lose.</li> </ul></div></div></div> <span class="heading-toc" id="toc-can-teens-invest-in-cryptocurrency"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Can Teens Invest in Cryptocurrency? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Yes, teenagers can invest in cryptocurrency legally. While many U.S.-based investments aren’t sold to minors, there are no laws forbidding anyone to invest in cryptocurrencies.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The most popular way to buy cryptocurrency is through a centralized exchange like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/coinbase-what-it-and-how-do-you-use-it/">Coinbase</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/binance-us-review-5214161">Binance.US</a>. These exchanges allow you to deposit U.S. dollars and purchase crypto. But most exchanges require registrants to be at least 18 years of age. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> If you are a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-teach-your-child-about-cryptocurrency-5224013#:~:text=You%20can%20help%20your%20kid,is%20filled%20with%20tutorial%20videos">teen who wants to invest in cryptocurrency</a>, there are a few ways to go about it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-what-it-means-to-invest-in-cryptocurrency"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> What It Means to Invest in Cryptocurrency </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Cryptocurrency is a decentralized currency, meaning that it is not issued by a government's central bank. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Cryptocurrency is designed to be ultra-secure, using cryptography techniques and encryption algorithms to secure the blockchain networks on which it is exchanged. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Nevertheless, crypto traders can be exposed to hacks or fraud. The blockchain is run by independent computers that exist outside the control of any government or regulatory authority. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Cryptocurrency gets its value the same way any other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">asset</a> does: The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/law-of-supply-demand.asp">law of supply and demand</a> determines its price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> This means that you can invest in any given crypto asset, and the price will fluctuate based on market demand. Cryptocurrencies are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/speculation.asp">speculative</a> investments, meaning they are at risk of extreme price fluctuations. Investors can lose most or all of the money they put in. "Dead coins" that have dropped out of existence are common. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Even the best-known survivors tend to fluctuate wildly in value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-subheading__text"> Bitcoin </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp">Bitcoin</a> (BTC) was the first cryptocurrency. It was created in 2009 by a programmer using the alias Satoshi Nakamoto. Bitcoins were given as a reward to users for processing and verifying transactions on the original blockchain network.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> As it grew in popularity, more began <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin-mining.asp">mining Bitcoin</a>, and eventually exchanges were established for the sole purpose of buying and trading Bitcoin.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp">Bitcoin’s price</a> rose from a few cents in 2010 to more than $20,000 in 2017. It suffered a period of declining prices before surging to a record high of more than $68,000 in 2021. Bitcoin prices fell from those levels, falling sharply below $20,000 before crossing that milestone again in 2023.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_35-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_36-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You can invest in cryptocurrencies through cryptocurrency exchanges, brokerage accounts, and some money apps.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-subheading__text"> Ethereum </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ethereum.asp">Ethereum</a> (its native token is called Ether, or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ETHusd">ETH</a>) is the second-most popular cryptocurrency today. It pioneered <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smart-contracts.asp">smart contract</a> functionality on the blockchain, providing another practical use for the blockchain beyond verifying cryptocurrency transactions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Ethereum has thousands of apps built on its blockchain that use these smart contracts, and it offers higher transaction speeds than the standard Bitcoin network.<span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Ethereum is programmable, so it’s seen as the operating system on which many decentralized crypto apps are being built today.<span class="ql-inline-citation" data-cite="17"></span> Ethereum can be bought or sold on most major crypto exchanges, some brokerages, and some finance apps. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <span class="heading-toc" id="toc-what-is-a-crypto-wallet"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-heading__text"> What Is a Crypto Wallet? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> When anyone of any age buys cryptocurrency, it needs to be stored somewhere. In most cases, if you buy a cryptocurrency on a public exchange, the crypto will be held for you in a built-in exchange wallet. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> If you want to take custody of the cryptocurrency, you create a personal crypto wallet and transfer the cryptocurrency to it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin-wallet.asp">crypto wallet</a> holds the keys to your cryptocurrency. While the word wallet suggests a place to keep money, a crypto wallet keeps only the keys to your money. All cryptocurrencies live on the blockchain, and using them requires access to those keys. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_51-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_52-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_3-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Using a crypto wallet, you can transfer funds to another wallet, exchange your cryptocurrency for other tokens, and store your private keys for safekeeping.</p></div></div></div> <span class="heading-toc" id="toc-types-of-cryptocurrency"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-heading__text"> Types of Cryptocurrency </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> There are thousands of cryptocurrencies in existence. While many of them don’t hold much value, the global cryptocurrency market cap is roughly $2.5 trillion as of April 2024.<span class="ql-inline-citation" data-cite="8"></span> All fall into two main categories: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> <li><strong>Coins</strong>: Crypto coins are the native cryptocurrencies that exist within a specific blockchain’s code. Each cryptocurrency has its own blockchain network, which is used to exchange the coins. Some examples of crypto coins are Bitcoin, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/litecoin.asp">Litecoin</a>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dogecoin.asp">Dogecoin</a>.</li> <li><strong>Tokens</strong>: <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crypto-token.asp">Tokens</a> are cryptocurrencies built on top of an existing blockchain network. Tokens can be used for more than just exchange—they can also be used in blockchain applications to manage access, track products, or verify actions within the app. Examples of these include <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tether-usdt.asp">Tether</a> and <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/chainlink-link-definition-5217559">Chainlink</a>.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> There are many ways to use each type of cryptocurrency, with more being developed each year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <span class="heading-toc" id="toc-ways-teens-can-invest-in-crypto"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_60-0"> <span class="mntl-sc-block-heading__text"> Ways Teens Can Invest in Crypto </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Teens investing in the crypto market are no different from adults in the choices they have for transacting digital assets. The following are the main ways that you can set up and manage crypto trading accounts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-subheading__text"> Crypto Custodial Account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/custodialaccount.asp">custodial account</a> is an adult-managed investment account that allows a parent or other guardian to open an account on behalf of a child. They give parents or families the ability to invest for their minor children, but the assets legally belong to the child. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> For example, EarlyBird is one of the first custodial accounts to offer crypto investing. You can deposit funds to your child’s EarlyBird account, and within the account, you can choose to invest in Bitcoin or Ethereum. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> EarlyBird also supports investing in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds</a> (ETFs) and other traditional investment choices.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_70-0"> <span class="mntl-sc-block-subheading__text"> Crypto Apps </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Some crypto apps allow kids to earn crypto. Apps like Step offer a simple way to buy and sell Bitcoin for a flat fee.<span class="ql-inline-citation" data-cite="19"></span> Step offers a secured credit card for teens and a finance app that lets your kids buy and sell Bitcoin within the app.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Step requires an adult sponsor to open an account for a minor.<span class="ql-inline-citation" data-cite="18"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-subheading__text"> Decentralized Exchange </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> Crypto exchanges that are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/decentralized-applications-dapps.asp">decentralized</a> process transactions directly on the blockchain. Because these exchanges are currently unregulated, there are no age limits on their use and teens can connect their own digital wallets and trade cryptocurrencies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> These exchanges are highly risky, and there is no way to exchange <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiatmoney.asp">fiat currency</a> (such as U.S. dollars) for crypto. You must already have crypto in a digital wallet to use them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <span class="heading-toc" id="toc-risks-of-investing-in-cryptocurrency"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_80-0"> <span class="mntl-sc-block-heading__text"> Risks of Investing in Cryptocurrency </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> Crypto investing is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialrisk.asp">risky</a>, period. It is considered a speculative investment, and you should never invest more than you are willing to lose. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> Here are a few of the basic risks of investing in cryptocurrency, for teens as well as everyone else: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_85-0"> <span class="mntl-sc-block-subheading__text"> Volatility </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> Crypto is volatile by nature. As a new <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assetclasses.asp">asset class</a>, there remain a lot of ups and downs in price as more and more <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a> enter the market. This <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> means you could lose some or all of your investment, and you should expect to see <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/crypto-winter-6504445">50% or greater drops</a> in your crypto value at times. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_88-0"> <span class="mntl-sc-block-subheading__text"> Regulatory Uncertainty </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> The crypto industry currently enjoys relative freedom from regulation. There is a risk that some cryptocurrencies could be banned outright and that some governments will restrict their use. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_91-0"> These events could significantly affect the value of your investment or erase it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_92-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_93-0"> <span class="mntl-sc-block-subheading__text"> Security </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> While crypto itself is secured through encryption and cryptography, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/042315/beware-these-five-bitcoin-scams.asp">scams</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/largest-cryptocurrency-hacks-so-far-year/">hacks</a> have cost investors billions of dollars since the creation of crypto in 2009.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_95-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_96-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_97-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0">Warning</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>While you can take steps to secure your crypto wallet, exchange accounts, and other crypto apps, there is a higher risk of fraud than with most other assets.</p></div></div></div> <span class="heading-toc" id="toc-alternative-investments-to-cryptocurrency"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_98-0"> <span class="mntl-sc-block-heading__text"> Alternative Investments to Cryptocurrency </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_99-0"> While investing in crypto is an attractive option to many, there are other speculative investments that can help you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversify your portfolio</a> without some of the risks that come with crypto investing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_100-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_101-0"> <span class="mntl-sc-block-subheading__text"> Real Estate </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_102-0"> While buying real estate can be expensive, you can invest in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reit.asp">real estate investment trusts</a> (REITs) or real estate-focused ETFs to gain exposure while reducing risk. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_104-0"> REITs offer an opportunity to invest directly in commercial and residential real estate projects, with some paying out regular dividends from rents collected. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_105-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_106-0"> <span class="mntl-sc-block-subheading__text"> Precious Metals </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_107-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/09/precious-metals-gold-silver-platinum.asp">Precious metals</a> such as gold, silver, and platinum offer another way to invest outside the stock market. Gold is seen as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/storeofvalue.asp">store of value</a>, with its purchasing power remaining relatively stable over time while other precious metals can provide high returns or high losses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_108-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_109-0"> Precious metals haven’t had a great return as of late, but they can be another way to diversify your investments.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_110-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_111-0"> <span class="mntl-sc-block-subheading__text"> Collectibles </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_112-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collectible.asp">Collectibles</a> have made a comeback in the past few years, with baseball cards, Pokémon cards, classic cars, and artwork gaining all-time-high demand. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_113-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_114-0"> Collectibles can be a good way to invest a small portion of your money with the potential for outsized <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">returns</a>, but there is also a significant risk of loss if you buy the wrong thing at the wrong time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_115-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_116-0"> Collectible prices are very volatile, but the best of them grow in value over the long term. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_117-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_118-0"><span class="heading-toc" id="toc-can-a-minor-have-a-crypto-wallet"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can a Minor Have a Crypto Wallet?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are no age limits for self-controlled crypto wallets, but wallets that are part of a regulated crypto exchange are limited to users who are at least 18 years old.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_119-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_120-0"><span class="heading-toc" id="toc-what-is-the-best-crypto-account-for-kids"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Best Crypto Account for Kids?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A custodial account is the best crypto account for kids, as it is opened and managed by an adult on behalf of a child. These are typically regulated, adding some level of security to cryptocurrency investing.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_121-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_122-0"><span class="heading-toc" id="toc-at-what-age-should-you-get-into-crypto"></span> <h2 class="mntl-sc-block-questionandanswer__question">At What Age Should You Get Into Crypto?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Cryptocurrency is well enough established now that it should be included in basic financial education for a preteen or teenager.</p><p>You don’t have to be a crypto investor to take an interest in the space and how it all works.</p><p>If you want to invest a small amount of money in cryptocurrencies as a teen, it could be a great way to learn about <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/digital-transaction.asp">digital transactions</a>, the blockchain, crypto wallets, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/distributed-ledger-technology-dlt.asp">distributed ledger technology</a>.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_123-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_124-0"><span class="heading-toc" id="toc-what-is-the-minimum-age-to-use-cryptocurrency"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Minimum Age to Use Cryptocurrency?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There is no minimum age to use cryptocurrency, but most regulated crypto apps and exchanges require that you be at least 18 years old to register.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_125-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_126-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_127-0"> Cryptocurrency is a new and disruptive technology that offers another way to transact business as well as to invest. Bitcoin and other top cryptocurrencies have at times provided impressive returns. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_128-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_129-0"> Investing in crypto remains very speculative, and the potential for loss is much greater than with most other investments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_130-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_131-0"> If you are a teenager, the best thing you can do is to continue learning about cryptocurrency and how it’s changing the financial world. If you want to invest a small amount of your money in this new asset, you can do so through a custodial account or approved crypto app.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_132-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_133-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Young Person Looking at Smartphone" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/p-cG4LPdNnCgAd63l6c2oXMF35A=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatTeensNeedtoKnowAboutCryptocurrency-86c7808395b9464ea1670ab3f04b737f.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/p-cG4LPdNnCgAd63l6c2oXMF35A=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatTeensNeedtoKnowAboutCryptocurrency-86c7808395b9464ea1670ab3f04b737f.jpg" data-srcset="https://www.investopedia.com/thmb/p9pl1bDgdun1XC7A5gJmiUVJeS8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatTeensNeedtoKnowAboutCryptocurrency-86c7808395b9464ea1670ab3f04b737f.jpg 750w" data-tracking-container="true" height="4167" id="mntl-sc-block-image_1-0" width="6250"/> <noscript> <img alt="Young Person Looking at Smartphone" class="img--noscript universal-image__image" height="4167" sizes="750px" src="https://www.investopedia.com/thmb/p-cG4LPdNnCgAd63l6c2oXMF35A=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatTeensNeedtoKnowAboutCryptocurrency-86c7808395b9464ea1670ab3f04b737f.jpg" srcset="https://www.investopedia.com/thmb/p9pl1bDgdun1XC7A5gJmiUVJeS8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatTeensNeedtoKnowAboutCryptocurrency-86c7808395b9464ea1670ab3f04b737f.jpg 750w" width="6250"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-text">Young person looking at their smartphone.</span> <span class="figure-article-caption-owner"><p>Alice Morgan / Investopedia</p></span> </figcaption></figure></div>

## What Is Cryptocurrency? Cryptocurrency is virtual money that can be bought and sold on an encrypted network called the [blockchain](https://www.investopedia.com/terms/b/blockchain.asp) or used to pay for a growing number of goods and services. It is not issued by any government and it has no physical existence. Many rival cryptocurrencies have been created, from Bitcoin to Ethereum and Doge. Many Americans believe that crypto is the future of [finance](https://www.investopedia.com/terms/f/finance.asp), making it a reasonable subject for young people to learn about. But should they be investing in it? There are no current regulations preventing minors from investing in cryptocurrencies, though they face barriers to entry. ### Key Takeaways * Cryptocurrency is a digital currency that can be bought and sold on an encrypted network called the blockchain. * More than 20,000 cryptocurrencies are in existence, but only a few have significant [market value](https://www.investopedia.com/terms/m/marketvalue.asp). * People of any age can legally invest in cryptocurrency, but many U.S.-based crypto exchanges require users to be at least 18 years old. * Crypto investing is high-risk and mostly unregulated, so teens shouldn’t invest more than they—or their parents—are willing to lose. ## Can Teens Invest in Cryptocurrency? Yes, teenagers can invest in cryptocurrency legally. While many U.S.-based investments aren’t sold to minors, there are no laws forbidding anyone to invest in cryptocurrencies. The most popular way to buy cryptocurrency is through a centralized exchange like [Coinbase](https://www.investopedia.com/tech/coinbase-what-it-and-how-do-you-use-it/) or [Binance.US](https://www.investopedia.com/binance-us-review-5214161). These exchanges allow you to deposit U.S. dollars and purchase crypto. But most exchanges require registrants to be at least 18 years of age. If you are a [teen who wants to invest in cryptocurrency](https://www.investopedia.com/how-to-teach-your-child-about-cryptocurrency-5224013#:~:text=You%20can%20help%20your%20kid,is%20filled%20with%20tutorial%20videos), there are a few ways to go about it. ## What It Means to Invest in Cryptocurrency Cryptocurrency is a decentralized currency, meaning that it is not issued by a government's central bank. Cryptocurrency is designed to be ultra-secure, using cryptography techniques and encryption algorithms to secure the blockchain networks on which it is exchanged. Nevertheless, crypto traders can be exposed to hacks or fraud. The blockchain is run by independent computers that exist outside the control of any government or regulatory authority. Cryptocurrency gets its value the same way any other [asset](https://www.investopedia.com/terms/a/asset.asp) does: The [law of supply and demand](https://www.investopedia.com/terms/l/law-of-supply-demand.asp) determines its price. This means that you can invest in any given crypto asset, and the price will fluctuate based on market demand. Cryptocurrencies are [speculative](https://www.investopedia.com/terms/s/speculation.asp) investments, meaning they are at risk of extreme price fluctuations. Investors can lose most or all of the money they put in. "Dead coins" that have dropped out of existence are common. Even the best-known survivors tend to fluctuate wildly in value. ### Bitcoin [Bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp) (BTC) was the first cryptocurrency. It was created in 2009 by a programmer using the alias Satoshi Nakamoto. Bitcoins were given as a reward to users for processing and verifying transactions on the original blockchain network. As it grew in popularity, more began [mining Bitcoin](https://www.investopedia.com/terms/b/bitcoin-mining.asp), and eventually exchanges were established for the sole purpose of buying and trading Bitcoin.  [Bitcoin’s price](https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp) rose from a few cents in 2010 to more than $20,000 in 2017. It suffered a period of declining prices before surging to a record high of more than $68,000 in 2021. Bitcoin prices fell from those levels, falling sharply below $20,000 before crossing that milestone again in 2023. ### Tip You can invest in cryptocurrencies through cryptocurrency exchanges, brokerage accounts, and some money apps. ### Ethereum [Ethereum](https://www.investopedia.com/terms/e/ethereum.asp) (its native token is called Ether, or [ETH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ETHusd)) is the second-most popular cryptocurrency today. It pioneered [smart contract](https://www.investopedia.com/terms/s/smart-contracts.asp) functionality on the blockchain, providing another practical use for the blockchain beyond verifying cryptocurrency transactions. Ethereum has thousands of apps built on its blockchain that use these smart contracts, and it offers higher transaction speeds than the standard Bitcoin network. Ethereum is programmable, so it’s seen as the operating system on which many decentralized crypto apps are being built today. Ethereum can be bought or sold on most major crypto exchanges, some brokerages, and some finance apps. ## What Is a Crypto Wallet? When anyone of any age buys cryptocurrency, it needs to be stored somewhere. In most cases, if you buy a cryptocurrency on a public exchange, the crypto will be held for you in a built-in exchange wallet. If you want to take custody of the cryptocurrency, you create a personal crypto wallet and transfer the cryptocurrency to it. A [crypto wallet](https://www.investopedia.com/terms/b/bitcoin-wallet.asp) holds the keys to your cryptocurrency. While the word wallet suggests a place to keep money, a crypto wallet keeps only the keys to your money. All cryptocurrencies live on the blockchain, and using them requires access to those keys. ### Note Using a crypto wallet, you can transfer funds to another wallet, exchange your cryptocurrency for other tokens, and store your private keys for safekeeping. ## Types of Cryptocurrency There are thousands of cryptocurrencies in existence. While many of them don’t hold much value, the global cryptocurrency market cap is roughly $2.5 trillion as of April 2024. All fall into two main categories: * **Coins**: Crypto coins are the native cryptocurrencies that exist within a specific blockchain’s code. Each cryptocurrency has its own blockchain network, which is used to exchange the coins. Some examples of crypto coins are Bitcoin, [Litecoin](https://www.investopedia.com/terms/l/litecoin.asp), and [Dogecoin](https://www.investopedia.com/terms/d/dogecoin.asp). * **Tokens**: [Tokens](https://www.investopedia.com/terms/c/crypto-token.asp) are cryptocurrencies built on top of an existing blockchain network. Tokens can be used for more than just exchange—they can also be used in blockchain applications to manage access, track products, or verify actions within the app. Examples of these include [Tether](https://www.investopedia.com/terms/t/tether-usdt.asp) and [Chainlink](https://www.investopedia.com/chainlink-link-definition-5217559). There are many ways to use each type of cryptocurrency, with more being developed each year. ## Ways Teens Can Invest in Crypto Teens investing in the crypto market are no different from adults in the choices they have for transacting digital assets. The following are the main ways that you can set up and manage crypto trading accounts. ### Crypto Custodial Account A [custodial account](https://www.investopedia.com/terms/c/custodialaccount.asp) is an adult-managed investment account that allows a parent or other guardian to open an account on behalf of a child. They give parents or families the ability to invest for their minor children, but the assets legally belong to the child. For example, EarlyBird is one of the first custodial accounts to offer crypto investing. You can deposit funds to your child’s EarlyBird account, and within the account, you can choose to invest in Bitcoin or Ethereum. EarlyBird also supports investing in [exchange-traded funds](https://www.investopedia.com/terms/e/etf.asp) (ETFs) and other traditional investment choices. ### Crypto Apps Some crypto apps allow kids to earn crypto. Apps like Step offer a simple way to buy and sell Bitcoin for a flat fee. Step offers a secured credit card for teens and a finance app that lets your kids buy and sell Bitcoin within the app. Step requires an adult sponsor to open an account for a minor. ### Decentralized Exchange Crypto exchanges that are [decentralized](https://www.investopedia.com/terms/d/decentralized-applications-dapps.asp) process transactions directly on the blockchain. Because these exchanges are currently unregulated, there are no age limits on their use and teens can connect their own digital wallets and trade cryptocurrencies. These exchanges are highly risky, and there is no way to exchange [fiat currency](https://www.investopedia.com/terms/f/fiatmoney.asp) (such as U.S. dollars) for crypto. You must already have crypto in a digital wallet to use them. ## Risks of Investing in Cryptocurrency Crypto investing is [risky](https://www.investopedia.com/terms/f/financialrisk.asp), period. It is considered a speculative investment, and you should never invest more than you are willing to lose. Here are a few of the basic risks of investing in cryptocurrency, for teens as well as everyone else: ### Volatility Crypto is volatile by nature. As a new [asset class](https://www.investopedia.com/terms/a/assetclasses.asp), there remain a lot of ups and downs in price as more and more [investors](https://www.investopedia.com/terms/i/investor.asp) enter the market. This [volatility](https://www.investopedia.com/terms/v/volatility.asp) means you could lose some or all of your investment, and you should expect to see [50% or greater drops](https://www.investopedia.com/crypto-winter-6504445) in your crypto value at times. ### Regulatory Uncertainty The crypto industry currently enjoys relative freedom from regulation. There is a risk that some cryptocurrencies could be banned outright and that some governments will restrict their use. These events could significantly affect the value of your investment or erase it. ### Security While crypto itself is secured through encryption and cryptography, [scams](https://www.investopedia.com/articles/forex/042315/beware-these-five-bitcoin-scams.asp) and [hacks](https://www.investopedia.com/news/largest-cryptocurrency-hacks-so-far-year/) have cost investors billions of dollars since the creation of crypto in 2009.  ### Warning While you can take steps to secure your crypto wallet, exchange accounts, and other crypto apps, there is a higher risk of fraud than with most other assets. ## Alternative Investments to Cryptocurrency While investing in crypto is an attractive option to many, there are other speculative investments that can help you [diversify your portfolio](https://www.investopedia.com/terms/d/diversification.asp) without some of the risks that come with crypto investing. ### Real Estate While buying real estate can be expensive, you can invest in [real estate investment trusts](https://www.investopedia.com/terms/r/reit.asp) (REITs) or real estate-focused ETFs to gain exposure while reducing risk. REITs offer an opportunity to invest directly in commercial and residential real estate projects, with some paying out regular dividends from rents collected. ### Precious Metals [Precious metals](https://www.investopedia.com/articles/basics/09/precious-metals-gold-silver-platinum.asp) such as gold, silver, and platinum offer another way to invest outside the stock market. Gold is seen as a [store of value](https://www.investopedia.com/terms/s/storeofvalue.asp), with its purchasing power remaining relatively stable over time while other precious metals can provide high returns or high losses. Precious metals haven’t had a great return as of late, but they can be another way to diversify your investments. ### Collectibles [Collectibles](https://www.investopedia.com/terms/c/collectible.asp) have made a comeback in the past few years, with baseball cards, Pokémon cards, classic cars, and artwork gaining all-time-high demand. Collectibles can be a good way to invest a small portion of your money with the potential for outsized [returns](https://www.investopedia.com/terms/r/return.asp), but there is also a significant risk of loss if you buy the wrong thing at the wrong time. Collectible prices are very volatile, but the best of them grow in value over the long term. ## Can a Minor Have a Crypto Wallet? There are no age limits for self-controlled crypto wallets, but wallets that are part of a regulated crypto exchange are limited to users who are at least 18 years old. ## What Is the Best Crypto Account for Kids? A custodial account is the best crypto account for kids, as it is opened and managed by an adult on behalf of a child. These are typically regulated, adding some level of security to cryptocurrency investing. ## At What Age Should You Get Into Crypto? Cryptocurrency is well enough established now that it should be included in basic financial education for a preteen or teenager. You don’t have to be a crypto investor to take an interest in the space and how it all works. If you want to invest a small amount of money in cryptocurrencies as a teen, it could be a great way to learn about [digital transactions](https://www.investopedia.com/terms/d/digital-transaction.asp), the blockchain, crypto wallets, and [distributed ledger technology](https://www.investopedia.com/terms/d/distributed-ledger-technology-dlt.asp). ## What Is the Minimum Age to Use Cryptocurrency? There is no minimum age to use cryptocurrency, but most regulated crypto apps and exchanges require that you be at least 18 years old to register. ## The Bottom Line Cryptocurrency is a new and disruptive technology that offers another way to transact business as well as to invest. Bitcoin and other top cryptocurrencies have at times provided impressive returns. Investing in crypto remains very speculative, and the potential for loss is much greater than with most other investments. If you are a teenager, the best thing you can do is to continue learning about cryptocurrency and how it’s changing the financial world. If you want to invest a small amount of your money in this new asset, you can do so through a custodial account or approved crypto app. ![Young Person Looking at Smartphone]() :max_bytes(150000):strip_icc()/WhatTeensNeedtoKnowAboutCryptocurrency-86c7808395b9464ea1670ab3f04b737f.jpg) Young person looking at their smartphone. Alice Morgan / Investopedia

What Is Cryptocurrency? Cryptocurrency is virtual money that can be bought and sold on an encrypted network called the blockchain or used to pay for a growing number of goods and services. It is not issued by any government and it has no physical existence. Many rival cryptocurrencies have been created, from Bitcoin to Ethereum and Doge. Many Americans believe that crypto is the future of finance, making it a reasonable subject for young people to learn about. But should they be investing in it? There are no current regulations preventing minors from investing in cryptocurrencies, though they face barriers to entry. Key Takeaways Cryptocurrency is a digital currency that can be bought and sold on an encrypted network called the blockchain.  More than 20,000 cryptocurrencies are in existence, but only a few have significant market value. People of any age can legally invest in cryptocurrency, but many U.S.-based crypto exchanges require users to be at least 18 years old.  Crypto investing is high-risk and mostly unregulated, so teens shouldn’t invest more than they—or their parents—are willing to lose. Can Teens Invest in Cryptocurrency? Yes, teenagers can invest in cryptocurrency legally. While many U.S.-based investments aren’t sold to minors, there are no laws forbidding anyone to invest in cryptocurrencies. The most popular way to buy cryptocurrency is through a centralized exchange like Coinbase or Binance.US. These exchanges allow you to deposit U.S. dollars and purchase crypto. But most exchanges require registrants to be at least 18 years of age. If you are a teen who wants to invest in cryptocurrency, there are a few ways to go about it. What It Means to Invest in Cryptocurrency Cryptocurrency is a decentralized currency, meaning that it is not issued by a government's central bank. Cryptocurrency is designed to be ultra-secure, using cryptography techniques and encryption algorithms to secure the blockchain networks on which it is exchanged. Nevertheless, crypto traders can be exposed to hacks or fraud. The blockchain is run by independent computers that exist outside the control of any government or regulatory authority. Cryptocurrency gets its value the same way any other asset does: The law of supply and demand determines its price. This means that you can invest in any given crypto asset, and the price will fluctuate based on market demand. Cryptocurrencies are speculative investments, meaning they are at risk of extreme price fluctuations. Investors can lose most or all of the money they put in. "Dead coins" that have dropped out of existence are common. Even the best-known survivors tend to fluctuate wildly in value. Bitcoin Bitcoin (BTC) was the first cryptocurrency. It was created in 2009 by a programmer using the alias Satoshi Nakamoto. Bitcoins were given as a reward to users for processing and verifying transactions on the original blockchain network. As it grew in popularity, more began mining Bitcoin, and eventually exchanges were established for the sole purpose of buying and trading Bitcoin.  Bitcoin’s price rose from a few cents in 2010 to more than $20,000 in 2017. It suffered a period of declining prices before surging to a record high of more than $68,000 in 2021. Bitcoin prices fell from those levels, falling sharply below $20,000 before crossing that milestone again in 2023. Tip You can invest in cryptocurrencies through cryptocurrency exchanges, brokerage accounts, and some money apps. Ethereum Ethereum (its native token is called Ether, or ETH) is the second-most popular cryptocurrency today. It pioneered smart contract functionality on the blockchain, providing another practical use for the blockchain beyond verifying cryptocurrency transactions. Ethereum has thousands of apps built on its blockchain that use these smart contracts, and it offers higher transaction speeds than the standard Bitcoin network. Ethereum is programmable, so it’s seen as the operating system on which many decentralized crypto apps are being built today. Ethereum can be bought or sold on most major crypto exchanges, some brokerages, and some finance apps. What Is a Crypto Wallet? When anyone of any age buys cryptocurrency, it needs to be stored somewhere. In most cases, if you buy a cryptocurrency on a public exchange, the crypto will be held for you in a built-in exchange wallet. If you want to take custody of the cryptocurrency, you create a personal crypto wallet and transfer the cryptocurrency to it. A crypto wallet holds the keys to your cryptocurrency. While the word wallet suggests a place to keep money, a crypto wallet keeps only the keys to your money. All cryptocurrencies live on the blockchain, and using them requires access to those keys. Note Using a crypto wallet, you can transfer funds to another wallet, exchange your cryptocurrency for other tokens, and store your private keys for safekeeping. Types of Cryptocurrency There are thousands of cryptocurrencies in existence. While many of them don’t hold much value, the global cryptocurrency market cap is roughly $2.5 trillion as of April 2024. All fall into two main categories: Coins: Crypto coins are the native cryptocurrencies that exist within a specific blockchain’s code. Each cryptocurrency has its own blockchain network, which is used to exchange the coins. Some examples of crypto coins are Bitcoin, Litecoin, and Dogecoin. Tokens: Tokens are cryptocurrencies built on top of an existing blockchain network. Tokens can be used for more than just exchange—they can also be used in blockchain applications to manage access, track products, or verify actions within the app. Examples of these include Tether and Chainlink. There are many ways to use each type of cryptocurrency, with more being developed each year. Ways Teens Can Invest in Crypto Teens investing in the crypto market are no different from adults in the choices they have for transacting digital assets. The following are the main ways that you can set up and manage crypto trading accounts. Crypto Custodial Account A custodial account is an adult-managed investment account that allows a parent or other guardian to open an account on behalf of a child. They give parents or families the ability to invest for their minor children, but the assets legally belong to the child. For example, EarlyBird is one of the first custodial accounts to offer crypto investing. You can deposit funds to your child’s EarlyBird account, and within the account, you can choose to invest in Bitcoin or Ethereum. EarlyBird also supports investing in exchange-traded funds (ETFs) and other traditional investment choices. Crypto Apps Some crypto apps allow kids to earn crypto. Apps like Step offer a simple way to buy and sell Bitcoin for a flat fee. Step offers a secured credit card for teens and a finance app that lets your kids buy and sell Bitcoin within the app. Step requires an adult sponsor to open an account for a minor. Decentralized Exchange Crypto exchanges that are decentralized process transactions directly on the blockchain. Because these exchanges are currently unregulated, there are no age limits on their use and teens can connect their own digital wallets and trade cryptocurrencies. These exchanges are highly risky, and there is no way to exchange fiat currency (such as U.S. dollars) for crypto. You must already have crypto in a digital wallet to use them. Risks of Investing in Cryptocurrency Crypto investing is risky, period. It is considered a speculative investment, and you should never invest more than you are willing to lose. Here are a few of the basic risks of investing in cryptocurrency, for teens as well as everyone else: Volatility Crypto is volatile by nature. As a new asset class, there remain a lot of ups and downs in price as more and more investors enter the market. This volatility means you could lose some or all of your investment, and you should expect to see 50% or greater drops in your crypto value at times. Regulatory Uncertainty The crypto industry currently enjoys relative freedom from regulation. There is a risk that some cryptocurrencies could be banned outright and that some governments will restrict their use. These events could significantly affect the value of your investment or erase it. Security While crypto itself is secured through encryption and cryptography, scams and hacks have cost investors billions of dollars since the creation of crypto in 2009.  Warning While you can take steps to secure your crypto wallet, exchange accounts, and other crypto apps, there is a higher risk of fraud than with most other assets. Alternative Investments to Cryptocurrency While investing in crypto is an attractive option to many, there are other speculative investments that can help you diversify your portfolio without some of the risks that come with crypto investing. Real Estate While buying real estate can be expensive, you can invest in real estate investment trusts (REITs) or real estate-focused ETFs to gain exposure while reducing risk. REITs offer an opportunity to invest directly in commercial and residential real estate projects, with some paying out regular dividends from rents collected. Precious Metals Precious metals such as gold, silver, and platinum offer another way to invest outside the stock market. Gold is seen as a store of value, with its purchasing power remaining relatively stable over time while other precious metals can provide high returns or high losses. Precious metals haven’t had a great return as of late, but they can be another way to diversify your investments. Collectibles Collectibles have made a comeback in the past few years, with baseball cards, Pokémon cards, classic cars, and artwork gaining all-time-high demand. Collectibles can be a good way to invest a small portion of your money with the potential for outsized returns, but there is also a significant risk of loss if you buy the wrong thing at the wrong time. Collectible prices are very volatile, but the best of them grow in value over the long term. Can a Minor Have a Crypto Wallet? There are no age limits for self-controlled crypto wallets, but wallets that are part of a regulated crypto exchange are limited to users who are at least 18 years old. What Is the Best Crypto Account for Kids? A custodial account is the best crypto account for kids, as it is opened and managed by an adult on behalf of a child. These are typically regulated, adding some level of security to cryptocurrency investing. At What Age Should You Get Into Crypto? Cryptocurrency is well enough established now that it should be included in basic financial education for a preteen or teenager.You don’t have to be a crypto investor to take an interest in the space and how it all works.If you want to invest a small amount of money in cryptocurrencies as a teen, it could be a great way to learn about digital transactions, the blockchain, crypto wallets, and distributed ledger technology. What Is the Minimum Age to Use Cryptocurrency? There is no minimum age to use cryptocurrency, but most regulated crypto apps and exchanges require that you be at least 18 years old to register. The Bottom Line Cryptocurrency is a new and disruptive technology that offers another way to transact business as well as to invest. Bitcoin and other top cryptocurrencies have at times provided impressive returns. Investing in crypto remains very speculative, and the potential for loss is much greater than with most other investments. If you are a teenager, the best thing you can do is to continue learning about cryptocurrency and how it’s changing the financial world. If you want to invest a small amount of your money in this new asset, you can do so through a custodial account or approved crypto app. Young person looking at their smartphone. Alice Morgan / Investopedia

https://www.investopedia.com/thrift-savings-plan-vs-401-k-5212330

Thrift Savings Plan (TSP) vs. 401(k)

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> For decades, Americans working in the private sector have relied on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k) plans</a> to fund their retirement. However, if you take a job in the federal government or the military, you can expect a different investment vehicle as part of your benefits package: the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/thrift_savings_plan.asp">thrift savings plan (TSP)</a>.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> The TSP was modeled on the 401(k), so the two plans have many similarities. However, there are some important distinctions, including which investments you can select, that can have important implications for building your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nestegg.asp">nest egg</a>.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>A thrift savings plan (TSP) is available to uniformed and civilian employees of the federal government, whereas private employers may offer a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/08/401k-info.asp">401(k) retirement plan</a>. </li> <li>The TSP has the same contribution limits and early withdrawal penalties as a 401(k).</li> <li>The two plans differ when it comes to investment choices, with a TSP offering fewer fund options than a typical 401(k). </li> </ul></div></div></div> <span class="heading-toc" id="toc-thrift-savings-plan-tsp-vs-401k-an-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Thrift Savings Plan (TSP) vs. 401(k): An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Now a cornerstone of retirement investing, 401(k) plans were first introduced in the early 1980s. Eager to lower their expenses, private employers used a new provision in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/internal-revenue-code.asp">Internal Revenue Code</a> that allowed them to sidestep taxation on deferred compensation.<span class="ql-inline-citation" data-cite="45"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Soon, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/06/demiseofdbplan.asp">many companies began shedding their pension plans</a> in exchange for employee-directed accounts, which allowed them to contribute funds but not have to guarantee the amount that workers would receive in retirement. Workers could add their own funds to the account, up to allowable limits, and choose the stock and bond funds through which they would invest.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> A few years later, Congress latched onto the same concept for uniformed service members and employees of the federal government, passing the Federal Employees’ Retirement System Act of 1986.<span class="ql-inline-citation" data-cite="28"></span> The law created the TSP, which provided <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/doing-it-yourself-selfdirected-401k-and-ira/">self-directed investment options</a> and similar tax benefits to the 401(k).<span class="ql-inline-citation" data-cite="2"></span> <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The two retirement plan options are nearly identical in many ways, including how much employees can contribute each year. However, those who work in the public sector will notice that in other ways, such as where they get to invest their dollars, there are important differences. <br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-tax-benefits"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> Tax Benefits </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Both the 401(k) and TSP offer traditional and Roth versions. If you choose the traditional route, money that you kick in is tax deductible and tax deferred.<span class="ql-inline-citation" data-cite="47"></span><span class="ql-inline-citation" data-cite="46"></span> So while your money is invested, you don’t have to pay taxes on any gains that accumulate when, for example, a mutual fund sells shares of stock for a profit or earns <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a>. However, you do pay ordinary income tax on money that you withdraw after age 59½.<span class="ql-inline-citation" data-cite="48"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Unlike with traditional retirement contributions, those made to a<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/roth-tsp-vs-roth-ira-how-do-they-compare-4770656"> Roth 401(k) or Roth TSP account</a> will not reduce your taxable income.<span class="ql-inline-citation" data-cite="47"></span><span class="ql-inline-citation" data-cite="50"></span> However, your money grows on a tax-deferred basis, and you can make withdrawals without paying tax or early withdrawal fees as long as you’ve had the account for at least five years and are age 59½ or older.<span class="ql-inline-citation" data-cite="49"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/matchingcontribution.asp">Employer contributions</a>, whether to a 401(k) or TSP, are typically allowed to be used as deductions from the employee’s taxable income, up to identical limits set by the <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service (IRS)</a>.<span class="ql-inline-citation" data-cite="46"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <span class="heading-toc" id="toc-contribution-limits"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> Contribution Limits </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Employee contribution limits to a 401(k) or TSP are identical. These amounts are revised every year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> For 2024, employees can contribute up to $23,000 to either a 401(k) or a TSP. If you are age 50 or older, you can use the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/catchupcontribution.asp">catch-up provision</a> to contribute an additional $7,500. For 2023, these numbers were $22,500 and $7,500.<span class="ql-inline-citation" data-cite="57"></span><span class="ql-inline-citation" data-cite="40"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-early-withdrawals"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-heading__text"> Early Withdrawals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Both 401(k)s and TSPs create powerful incentives for employees to leave their money in the account until retirement. Traditional accounts will slap you with a <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/101314/how-do-you-withdraw-money-your-401k.asp">10% early withdrawal penalty</a> on the entire balance—both <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a> and earnings—that you withdraw before age 59½, and you may have to pay income taxes on that money as well.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="8"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> With a Roth 401(k) or Roth TSP, you’ve already paid income taxes on the amount that you contribute. This means you can withdraw your principal at any time without incurring taxes. However, you may have to pay income tax and the 10% penalty on earnings that you pull out if you haven’t both reached age 59½ and owned the account for at least five years.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="31"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> If you have a 401(k), you can avoid the 10% hit if you qualify for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hardship_withdrawal.asp">hardship distribution</a>, as determined by your employer. Doing so requires you to prove an “immediate and heavy financial need” that you can’t meet by other means. But even if you can escape the penalty, you’ll still have to pay applicable taxes on the amount that you withdraw.<span class="ql-inline-citation" data-cite="52"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The TSP is not as lenient. While you can make hardship withdrawals if you meet certain criteria, you normally still incur the 10% penalty, plus applicable taxes.<span class="ql-inline-citation" data-cite="8"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> As with some 401(k) plans, a TSP allows employees to take loans from their retirement funds, which they have to repay to their account with interest. And like 401(k) loans, the amount that you can borrow from yourself is equal to half of your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vesting.asp">vested</a> balance, up to $50,000. For TSP loans, however, the borrowed amount cannot exceed the employee’s own contributions to the account plus earnings from it.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> These loans ordinarily have to be repaid on schedule over one to five years. However, you can repay loans made for the purchase of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principalresidence.asp">primary residence</a> over a longer period. For TSP participants, the repayment period for residential loans can be anywhere from one to 15 years.<span class="ql-inline-citation" data-cite="34"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-distributions-in-retirement"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_42-0"> <span class="mntl-sc-block-heading__text"> Distributions in Retirement  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Private-sector employees with a 401(k) typically have a few options for withdrawing funds when they retire, depending on the rules of their specific plan. These may include taking a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lumpsumdistribution.asp">lump-sum distribution</a>, making periodic distributions of a specific amount, or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rollover.asp">rolling over</a> the money into an <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">individual retirement account (IRA)</a>.  Some plans also allow you to buy an <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/what-is-an-annuity.asp">annuity</a> from an insurance carrier that has partnered with your employer. This enables you to convert your balance into payouts over a specific time period or a lifetime stream of income.<span class="ql-inline-citation" data-cite="13"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> A TSP similarly provides a good deal of flexibility when it comes to accessing your retirement money. Federal employees can set up installment payments, which can be fixed dollar amounts or an amount calculated based on life expectancy data. You can also make single withdrawals.<span class="ql-inline-citation" data-cite="36"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> A third option for TSP participants is to convert their balance into an annuity that guarantees payments to you for the rest of your life. Retirees have multiple options for the annuity, such as adding a joint annuitant (typically a spouse) or selecting a “10-year certain” feature that guarantees funds to a beneficiary if you die within a decade of receiving payments.<span class="ql-inline-citation" data-cite="53"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_49-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_50-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>TSP participants can annuitize all or part of their balance in retirement, guaranteeing a set monthly income for life.<span class="ql-inline-citation" data-cite="36"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Like 401(k)s, federal employees with a TSP account can also roll over their balance into an IRA once they leave the federal government.<span class="ql-inline-citation" data-cite="48"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <span class="heading-toc" id="toc-required-minimum-distributions-rmds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-heading__text"> Required Minimum Distributions (RMDs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Both plans impose <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/requiredminimumdistribution.asp">required minimum distributions (RMDs)</a> for participants in retirement. Those who don’t make these minimum withdrawals are faced with a steep 25% tax on any required distribution that wasn’t made in time.<span class="ql-inline-citation" data-cite="48"></span><span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Whether you worked for a private company or the federal government, you have to start making RMDs at age 73. They’re pushed back, however, if you’re still working for the government or—in the case of a 401(k) participant, for the company sponsoring the plan.<span class="ql-inline-citation" data-cite="48"></span><span class="ql-inline-citation" data-cite="19"></span><br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_58-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_59-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>If you turned 72 by December 31, 2022, you would have needed to start taking RMDs in the year you turned 72 or retired—unless you’re a 401(k) participant born prior to July 1, 1949. Then you would have needed to start taking RMDs at age 70½.<span class="ql-inline-citation" data-cite="19"></span><span class="ql-inline-citation" data-cite="54"></span></p></div></div></div> <span class="heading-toc" id="toc-investment-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_60-0"> <span class="mntl-sc-block-heading__text"> Investment Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Perhaps the most striking difference between a 401(k) plan and a TSP is the choice of investments. With a 401(k), the employer hires an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/plan_administrator.asp">administrator</a> to manage the plan and provides a menu of investment options. Employees have an average of 28 options, according to research conducted by the Investment Company Institute (ICI).<span class="ql-inline-citation" data-cite="56"></span> The options often include <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual funds</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mutualfund/09/stable-value-funds.asp">stable-value funds</a>, and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/target-date_fund.asp">target-date funds</a>. Some plans offer access to <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerageaccount.asp">brokerage services</a>, opening up your choices to literally thousands of funds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Investment options within the TSP are more limited. You’ll have access to several target-date funds, which the TSP calls “lifecycle funds.” They’re essentially a basket of stock and bond funds that automatically adjusts your asset mix in favor of more conservative choices as you approach the target retirement date.<span class="ql-inline-citation" data-cite="21"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_65-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_66-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_4-0">28</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>The average number of investment options in a 401(k).<span class="ql-inline-citation" data-cite="56"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> Service members and federal employees also have access to five individual funds that they can mix and match: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> <li><strong>C Fund</strong>—This tracks the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sp500.asp">S&amp;P 500</a> index, which includes 500 of the largest U.S. companies. </li> <li><strong>F Fund</strong>—This mirrors a broad index that covers the entire U.S. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondmarket.asp">bond market</a>.</li> <li><strong>G Fund</strong>—This focuses on <a class="pseudoStyle" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/041916/money-market-vs-shortterm-bonds-compare-and-contrast-case-study.asp#:~:text=Bonds%20have%20much%20in%20common,finance%20specific%20projects%20and%20activities.">short-term bonds</a> whose principal and interest are guaranteed by the U.S. government.</li> <li><strong>I Fund</strong>—This tracks the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eafe_index.asp">MSCI EAFE</a>, an index that includes companies from Europe, Australasia, and east Asia.</li> <li><strong>S Fund</strong>—This mimics a broad index of <a class="pseudoStyle" data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/small-cap.asp">small-cap</a> and <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/midcapstock.asp">mid-cap</a> U.S. companies not included in the S&amp;P 500.<span class="ql-inline-citation" data-cite="43"></span> <br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <span class="heading-toc" id="toc-fees"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_71-0"> <span class="mntl-sc-block-heading__text"> Fees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> While they may not have as many funds to choose from, TSP participants do have one big advantage over most 401(k) investors: lower fees. The total <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp">expense ratio</a>, which covers both investment and administrative fees, is 0.066% for individual TSP funds.<span class="ql-inline-citation" data-cite="38"></span> So if you have a $1,000 account balance, you’re paying a paltry $0.66 to the administrator every year.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> Investment fees for private employees vary from one 401(k) plan to the next, but, according to the ICI, the average plan cost for participants was 0.58% in 2017 (though it’s often lower at larger companies).<span class="ql-inline-citation" data-cite="25"></span> This means that a typical 401(k) plan charges roughly 10 times what the federal government does for its employees. Because those fees are taken out every year, they have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compounding.asp">compounding</a> effect and can make a substantial impact on your returns over the long run.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <span class="heading-toc" id="toc-employer-contributions"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_76-0"> <span class="mntl-sc-block-heading__text"> Employer Contributions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> A TSP offers a 1%-of-salary automatic employer contribution to each employee’s account, and it will match up to 4% of your salary, resulting in a potential contribution totaling 5%.<span class="ql-inline-citation" data-cite="40"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> That compares pretty favorably with most 401(k)s. According to the ICI, the most popular benefit for large plans is a 50% match on up to 6% of the employee’s salary, making the maximum employer contribution equal to only 3% of your wages.<span class="ql-inline-citation" data-cite="26"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_81-0"><span class="heading-toc" id="toc-what-is-a-thrift-savings-plan-tsp"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Thrift Savings Plan (TSP)?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A thrift savings plan (TSP) is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/definedcontributionplan.asp">defined-contribution retirement plan</a> for federal employees and uniformed service members. It offers similar tax benefits to 401(k) plans that many private employers offer, but the investment options and fees differ.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_83-0"><span class="heading-toc" id="toc-how-does-the-tsp-differ-from-a-401k"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does the TSP Differ From a 401(k)?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In many ways, the two <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax-advantaged.asp">tax-advantaged</a> retirement plans are similar. However, there are some important distinctions. For example, 401(k) participants choose from a menu of investment choices—typically a dozen or more—selected by their employer.</p><p>The choices for TSP participants are more streamlined; the plan includes several life cycle (target-date) funds and five individual index funds. However, the investment fees within the TSP are lower than those of most 401(k) plans. </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_85-0"><span class="heading-toc" id="toc-how-much-can-you-contribute-to-a-tsp"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Can You Contribute to a TSP?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The IRS limit for annual contributions is the same for a TSP and a 401(k). Federal employees can invest up to $23,000 in 2024. Those ages 50 and older can contribute an additional $7,500 in 2024.<span class="ql-inline-citation" data-cite="57"></span><span class="ql-inline-citation" data-cite="40"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_87-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_88-0"> The Thrift Savings Plan is similar to a 401(k), but there are important differences. Investment options are more limited, but the expense ratio is much lower than at many private employer funds. And the employer match is a bit more generous than average. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> If you have access to a TSP, max out the match before you explore any other tax-advantaged retirement accounts, such as a traditional or Roth IRA.<br> </br></p></div>

For decades, Americans working in the private sector have relied on [401(k) plans](https://www.investopedia.com/terms/1/401kplan.asp) to fund their retirement. However, if you take a job in the federal government or the military, you can expect a different investment vehicle as part of your benefits package: the [thrift savings plan (TSP)](https://www.investopedia.com/terms/t/thrift_savings_plan.asp).  The TSP was modeled on the 401(k), so the two plans have many similarities. However, there are some important distinctions, including which investments you can select, that can have important implications for building your [nest egg](https://www.investopedia.com/terms/n/nestegg.asp).  ### Key Takeaways * A thrift savings plan (TSP) is available to uniformed and civilian employees of the federal government, whereas private employers may offer a [401(k) retirement plan](https://www.investopedia.com/articles/retirement/08/401k-info.asp). * The TSP has the same contribution limits and early withdrawal penalties as a 401(k). * The two plans differ when it comes to investment choices, with a TSP offering fewer fund options than a typical 401(k). ## Thrift Savings Plan (TSP) vs. 401(k): An Overview Now a cornerstone of retirement investing, 401(k) plans were first introduced in the early 1980s. Eager to lower their expenses, private employers used a new provision in the [Internal Revenue Code](https://www.investopedia.com/terms/i/internal-revenue-code.asp) that allowed them to sidestep taxation on deferred compensation. Soon, [many companies began shedding their pension plans](https://www.investopedia.com/articles/retirement/06/demiseofdbplan.asp) in exchange for employee-directed accounts, which allowed them to contribute funds but not have to guarantee the amount that workers would receive in retirement. Workers could add their own funds to the account, up to allowable limits, and choose the stock and bond funds through which they would invest.  A few years later, Congress latched onto the same concept for uniformed service members and employees of the federal government, passing the Federal Employees’ Retirement System Act of 1986. The law created the TSP, which provided [self-directed investment options](https://www.investopedia.com/retirement/doing-it-yourself-selfdirected-401k-and-ira/) and similar tax benefits to the 401(k).  The two retirement plan options are nearly identical in many ways, including how much employees can contribute each year. However, those who work in the public sector will notice that in other ways, such as where they get to invest their dollars, there are important differences.  ## Tax Benefits Both the 401(k) and TSP offer traditional and Roth versions. If you choose the traditional route, money that you kick in is tax deductible and tax deferred. So while your money is invested, you don’t have to pay taxes on any gains that accumulate when, for example, a mutual fund sells shares of stock for a profit or earns [dividends](https://www.investopedia.com/terms/d/dividend.asp). However, you do pay ordinary income tax on money that you withdraw after age 59½. Unlike with traditional retirement contributions, those made to a [Roth 401(k) or Roth TSP account](https://www.investopedia.com/roth-tsp-vs-roth-ira-how-do-they-compare-4770656) will not reduce your taxable income. However, your money grows on a tax-deferred basis, and you can make withdrawals without paying tax or early withdrawal fees as long as you’ve had the account for at least five years and are age 59½ or older. [Employer contributions](https://www.investopedia.com/terms/m/matchingcontribution.asp), whether to a 401(k) or TSP, are typically allowed to be used as deductions from the employee’s taxable income, up to identical limits set by the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp). ## Contribution Limits Employee contribution limits to a 401(k) or TSP are identical. These amounts are revised every year. For 2024, employees can contribute up to $23,000 to either a 401(k) or a TSP. If you are age 50 or older, you can use the [catch-up provision](https://www.investopedia.com/terms/c/catchupcontribution.asp) to contribute an additional $7,500. For 2023, these numbers were $22,500 and $7,500. ## Early Withdrawals Both 401(k)s and TSPs create powerful incentives for employees to leave their money in the account until retirement. Traditional accounts will slap you with a [10% early withdrawal penalty](https://www.investopedia.com/ask/answers/101314/how-do-you-withdraw-money-your-401k.asp) on the entire balance—both [principal](https://www.investopedia.com/terms/p/principal.asp) and earnings—that you withdraw before age 59½, and you may have to pay income taxes on that money as well. With a Roth 401(k) or Roth TSP, you’ve already paid income taxes on the amount that you contribute. This means you can withdraw your principal at any time without incurring taxes. However, you may have to pay income tax and the 10% penalty on earnings that you pull out if you haven’t both reached age 59½ and owned the account for at least five years. If you have a 401(k), you can avoid the 10% hit if you qualify for a [hardship distribution](https://www.investopedia.com/terms/h/hardship_withdrawal.asp), as determined by your employer. Doing so requires you to prove an “immediate and heavy financial need” that you can’t meet by other means. But even if you can escape the penalty, you’ll still have to pay applicable taxes on the amount that you withdraw. The TSP is not as lenient. While you can make hardship withdrawals if you meet certain criteria, you normally still incur the 10% penalty, plus applicable taxes. ## Loans As with some 401(k) plans, a TSP allows employees to take loans from their retirement funds, which they have to repay to their account with interest. And like 401(k) loans, the amount that you can borrow from yourself is equal to half of your [vested](https://www.investopedia.com/terms/v/vesting.asp) balance, up to $50,000. For TSP loans, however, the borrowed amount cannot exceed the employee’s own contributions to the account plus earnings from it. These loans ordinarily have to be repaid on schedule over one to five years. However, you can repay loans made for the purchase of a [primary residence](https://www.investopedia.com/terms/p/principalresidence.asp) over a longer period. For TSP participants, the repayment period for residential loans can be anywhere from one to 15 years. ## Distributions in Retirement Private-sector employees with a 401(k) typically have a few options for withdrawing funds when they retire, depending on the rules of their specific plan. These may include taking a [lump-sum distribution](https://www.investopedia.com/terms/l/lumpsumdistribution.asp), making periodic distributions of a specific amount, or [rolling over](https://www.investopedia.com/terms/r/rollover.asp) the money into an [individual retirement account (IRA)](https://www.investopedia.com/terms/i/ira.asp).  Some plans also allow you to buy an [annuity](https://www.investopedia.com/ask/answers/12/what-is-an-annuity.asp) from an insurance carrier that has partnered with your employer. This enables you to convert your balance into payouts over a specific time period or a lifetime stream of income.  A TSP similarly provides a good deal of flexibility when it comes to accessing your retirement money. Federal employees can set up installment payments, which can be fixed dollar amounts or an amount calculated based on life expectancy data. You can also make single withdrawals. A third option for TSP participants is to convert their balance into an annuity that guarantees payments to you for the rest of your life. Retirees have multiple options for the annuity, such as adding a joint annuitant (typically a spouse) or selecting a “10-year certain” feature that guarantees funds to a beneficiary if you die within a decade of receiving payments. ### TSP participants can annuitize all or part of their balance in retirement, guaranteeing a set monthly income for life. Like 401(k)s, federal employees with a TSP account can also roll over their balance into an IRA once they leave the federal government. ## Required Minimum Distributions (RMDs) Both plans impose [required minimum distributions (RMDs)](https://www.investopedia.com/terms/r/requiredminimumdistribution.asp) for participants in retirement. Those who don’t make these minimum withdrawals are faced with a steep 25% tax on any required distribution that wasn’t made in time. Whether you worked for a private company or the federal government, you have to start making RMDs at age 73. They’re pushed back, however, if you’re still working for the government or—in the case of a 401(k) participant, for the company sponsoring the plan. ### If you turned 72 by December 31, 2022, you would have needed to start taking RMDs in the year you turned 72 or retired—unless you’re a 401(k) participant born prior to July 1, 1949. Then you would have needed to start taking RMDs at age 70½. ## Investment Options Perhaps the most striking difference between a 401(k) plan and a TSP is the choice of investments. With a 401(k), the employer hires an [administrator](https://www.investopedia.com/terms/p/plan_administrator.asp) to manage the plan and provides a menu of investment options. Employees have an average of 28 options, according to research conducted by the Investment Company Institute (ICI). The options often include [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp), [stable-value funds](https://www.investopedia.com/articles/mutualfund/09/stable-value-funds.asp), and [target-date funds](https://www.investopedia.com/terms/t/target-date_fund.asp). Some plans offer access to [brokerage services](https://www.investopedia.com/terms/b/brokerageaccount.asp), opening up your choices to literally thousands of funds. Investment options within the TSP are more limited. You’ll have access to several target-date funds, which the TSP calls “lifecycle funds.” They’re essentially a basket of stock and bond funds that automatically adjusts your asset mix in favor of more conservative choices as you approach the target retirement date. ### 28 The average number of investment options in a 401(k). Service members and federal employees also have access to five individual funds that they can mix and match: * **C Fund**—This tracks the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) index, which includes 500 of the largest U.S. companies. * **F Fund**—This mirrors a broad index that covers the entire U.S. [bond market](https://www.investopedia.com/terms/b/bondmarket.asp). * **G Fund**—This focuses on [short-term bonds](https://www.investopedia.com/articles/investing/041916/money-market-vs-shortterm-bonds-compare-and-contrast-case-study.asp#:~:text=Bonds%20have%20much%20in%20common,finance%20specific%20projects%20and%20activities.) whose principal and interest are guaranteed by the U.S. government. * **I Fund**—This tracks the [MSCI EAFE](https://www.investopedia.com/terms/e/eafe_index.asp), an index that includes companies from Europe, Australasia, and east Asia. * **S Fund**—This mimics a broad index of [small-cap](https://www.investopedia.com/terms/s/small-cap.asp) and [mid-cap](https://www.investopedia.com/terms/m/midcapstock.asp) U.S. companies not included in the S&P 500. ## Fees While they may not have as many funds to choose from, TSP participants do have one big advantage over most 401(k) investors: lower fees. The total [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp), which covers both investment and administrative fees, is 0.066% for individual TSP funds. So if you have a $1,000 account balance, you’re paying a paltry $0.66 to the administrator every year.   Investment fees for private employees vary from one 401(k) plan to the next, but, according to the ICI, the average plan cost for participants was 0.58% in 2017 (though it’s often lower at larger companies). This means that a typical 401(k) plan charges roughly 10 times what the federal government does for its employees. Because those fees are taken out every year, they have a [compounding](https://www.investopedia.com/terms/c/compounding.asp) effect and can make a substantial impact on your returns over the long run. ## Employer Contributions A TSP offers a 1%-of-salary automatic employer contribution to each employee’s account, and it will match up to 4% of your salary, resulting in a potential contribution totaling 5%. That compares pretty favorably with most 401(k)s. According to the ICI, the most popular benefit for large plans is a 50% match on up to 6% of the employee’s salary, making the maximum employer contribution equal to only 3% of your wages. ## What Is a Thrift Savings Plan (TSP)? A thrift savings plan (TSP) is a [defined-contribution retirement plan](https://www.investopedia.com/terms/d/definedcontributionplan.asp) for federal employees and uniformed service members. It offers similar tax benefits to 401(k) plans that many private employers offer, but the investment options and fees differ. ## How Does the TSP Differ From a 401(k)? In many ways, the two [tax-advantaged](https://www.investopedia.com/terms/t/tax-advantaged.asp) retirement plans are similar. However, there are some important distinctions. For example, 401(k) participants choose from a menu of investment choices—typically a dozen or more—selected by their employer. The choices for TSP participants are more streamlined; the plan includes several life cycle (target-date) funds and five individual index funds. However, the investment fees within the TSP are lower than those of most 401(k) plans.  ## How Much Can You Contribute to a TSP? The IRS limit for annual contributions is the same for a TSP and a 401(k). Federal employees can invest up to $23,000 in 2024. Those ages 50 and older can contribute an additional $7,500 in 2024. ## The Bottom Line The Thrift Savings Plan is similar to a 401(k), but there are important differences. Investment options are more limited, but the expense ratio is much lower than at many private employer funds. And the employer match is a bit more generous than average. If you have access to a TSP, max out the match before you explore any other tax-advantaged retirement accounts, such as a traditional or Roth IRA.

For decades, Americans working in the private sector have relied on 401(k) plans to fund their retirement. However, if you take a job in the federal government or the military, you can expect a different investment vehicle as part of your benefits package: the thrift savings plan (TSP).  The TSP was modeled on the 401(k), so the two plans have many similarities. However, there are some important distinctions, including which investments you can select, that can have important implications for building your nest egg.  Key Takeaways A thrift savings plan (TSP) is available to uniformed and civilian employees of the federal government, whereas private employers may offer a 401(k) retirement plan.  The TSP has the same contribution limits and early withdrawal penalties as a 401(k). The two plans differ when it comes to investment choices, with a TSP offering fewer fund options than a typical 401(k).  Thrift Savings Plan (TSP) vs. 401(k): An Overview Now a cornerstone of retirement investing, 401(k) plans were first introduced in the early 1980s. Eager to lower their expenses, private employers used a new provision in the Internal Revenue Code that allowed them to sidestep taxation on deferred compensation. Soon, many companies began shedding their pension plans in exchange for employee-directed accounts, which allowed them to contribute funds but not have to guarantee the amount that workers would receive in retirement. Workers could add their own funds to the account, up to allowable limits, and choose the stock and bond funds through which they would invest.  A few years later, Congress latched onto the same concept for uniformed service members and employees of the federal government, passing the Federal Employees’ Retirement System Act of 1986. The law created the TSP, which provided self-directed investment options and similar tax benefits to the 401(k).  The two retirement plan options are nearly identical in many ways, including how much employees can contribute each year. However, those who work in the public sector will notice that in other ways, such as where they get to invest their dollars, there are important differences.  Tax Benefits Both the 401(k) and TSP offer traditional and Roth versions. If you choose the traditional route, money that you kick in is tax deductible and tax deferred. So while your money is invested, you don’t have to pay taxes on any gains that accumulate when, for example, a mutual fund sells shares of stock for a profit or earns dividends. However, you do pay ordinary income tax on money that you withdraw after age 59½. Unlike with traditional retirement contributions, those made to a Roth 401(k) or Roth TSP account will not reduce your taxable income. However, your money grows on a tax-deferred basis, and you can make withdrawals without paying tax or early withdrawal fees as long as you’ve had the account for at least five years and are age 59½ or older. Employer contributions, whether to a 401(k) or TSP, are typically allowed to be used as deductions from the employee’s taxable income, up to identical limits set by the Internal Revenue Service (IRS). Contribution Limits Employee contribution limits to a 401(k) or TSP are identical. These amounts are revised every year. For 2024, employees can contribute up to $23,000 to either a 401(k) or a TSP. If you are age 50 or older, you can use the catch-up provision to contribute an additional $7,500. For 2023, these numbers were $22,500 and $7,500. Early Withdrawals Both 401(k)s and TSPs create powerful incentives for employees to leave their money in the account until retirement. Traditional accounts will slap you with a 10% early withdrawal penalty on the entire balance—both principal and earnings—that you withdraw before age 59½, and you may have to pay income taxes on that money as well. With a Roth 401(k) or Roth TSP, you’ve already paid income taxes on the amount that you contribute. This means you can withdraw your principal at any time without incurring taxes. However, you may have to pay income tax and the 10% penalty on earnings that you pull out if you haven’t both reached age 59½ and owned the account for at least five years. If you have a 401(k), you can avoid the 10% hit if you qualify for a hardship distribution, as determined by your employer. Doing so requires you to prove an “immediate and heavy financial need” that you can’t meet by other means. But even if you can escape the penalty, you’ll still have to pay applicable taxes on the amount that you withdraw. The TSP is not as lenient. While you can make hardship withdrawals if you meet certain criteria, you normally still incur the 10% penalty, plus applicable taxes. Loans As with some 401(k) plans, a TSP allows employees to take loans from their retirement funds, which they have to repay to their account with interest. And like 401(k) loans, the amount that you can borrow from yourself is equal to half of your vested balance, up to $50,000. For TSP loans, however, the borrowed amount cannot exceed the employee’s own contributions to the account plus earnings from it. These loans ordinarily have to be repaid on schedule over one to five years. However, you can repay loans made for the purchase of a primary residence over a longer period. For TSP participants, the repayment period for residential loans can be anywhere from one to 15 years. Distributions in Retirement  Private-sector employees with a 401(k) typically have a few options for withdrawing funds when they retire, depending on the rules of their specific plan. These may include taking a lump-sum distribution, making periodic distributions of a specific amount, or rolling over the money into an individual retirement account (IRA).  Some plans also allow you to buy an annuity from an insurance carrier that has partnered with your employer. This enables you to convert your balance into payouts over a specific time period or a lifetime stream of income.  A TSP similarly provides a good deal of flexibility when it comes to accessing your retirement money. Federal employees can set up installment payments, which can be fixed dollar amounts or an amount calculated based on life expectancy data. You can also make single withdrawals. A third option for TSP participants is to convert their balance into an annuity that guarantees payments to you for the rest of your life. Retirees have multiple options for the annuity, such as adding a joint annuitant (typically a spouse) or selecting a “10-year certain” feature that guarantees funds to a beneficiary if you die within a decade of receiving payments. TSP participants can annuitize all or part of their balance in retirement, guaranteeing a set monthly income for life. Like 401(k)s, federal employees with a TSP account can also roll over their balance into an IRA once they leave the federal government. Required Minimum Distributions (RMDs) Both plans impose required minimum distributions (RMDs) for participants in retirement. Those who don’t make these minimum withdrawals are faced with a steep 25% tax on any required distribution that wasn’t made in time. Whether you worked for a private company or the federal government, you have to start making RMDs at age 73. They’re pushed back, however, if you’re still working for the government or—in the case of a 401(k) participant, for the company sponsoring the plan. If you turned 72 by December 31, 2022, you would have needed to start taking RMDs in the year you turned 72 or retired—unless you’re a 401(k) participant born prior to July 1, 1949. Then you would have needed to start taking RMDs at age 70½. Investment Options Perhaps the most striking difference between a 401(k) plan and a TSP is the choice of investments. With a 401(k), the employer hires an administrator to manage the plan and provides a menu of investment options. Employees have an average of 28 options, according to research conducted by the Investment Company Institute (ICI). The options often include mutual funds, stable-value funds, and target-date funds. Some plans offer access to brokerage services, opening up your choices to literally thousands of funds. Investment options within the TSP are more limited. You’ll have access to several target-date funds, which the TSP calls “lifecycle funds.” They’re essentially a basket of stock and bond funds that automatically adjusts your asset mix in favor of more conservative choices as you approach the target retirement date. 28 The average number of investment options in a 401(k). Service members and federal employees also have access to five individual funds that they can mix and match: C Fund—This tracks the S&P 500 index, which includes 500 of the largest U.S. companies.  F Fund—This mirrors a broad index that covers the entire U.S. bond market. G Fund—This focuses on short-term bonds whose principal and interest are guaranteed by the U.S. government. I Fund—This tracks the MSCI EAFE, an index that includes companies from Europe, Australasia, and east Asia. S Fund—This mimics a broad index of small-cap and mid-cap U.S. companies not included in the S&P 500.  Fees While they may not have as many funds to choose from, TSP participants do have one big advantage over most 401(k) investors: lower fees. The total expense ratio, which covers both investment and administrative fees, is 0.066% for individual TSP funds. So if you have a $1,000 account balance, you’re paying a paltry $0.66 to the administrator every year.   Investment fees for private employees vary from one 401(k) plan to the next, but, according to the ICI, the average plan cost for participants was 0.58% in 2017 (though it’s often lower at larger companies). This means that a typical 401(k) plan charges roughly 10 times what the federal government does for its employees. Because those fees are taken out every year, they have a compounding effect and can make a substantial impact on your returns over the long run. Employer Contributions A TSP offers a 1%-of-salary automatic employer contribution to each employee’s account, and it will match up to 4% of your salary, resulting in a potential contribution totaling 5%. That compares pretty favorably with most 401(k)s. According to the ICI, the most popular benefit for large plans is a 50% match on up to 6% of the employee’s salary, making the maximum employer contribution equal to only 3% of your wages. What Is a Thrift Savings Plan (TSP)? A thrift savings plan (TSP) is a defined-contribution retirement plan for federal employees and uniformed service members. It offers similar tax benefits to 401(k) plans that many private employers offer, but the investment options and fees differ. How Does the TSP Differ From a 401(k)? In many ways, the two tax-advantaged retirement plans are similar. However, there are some important distinctions. For example, 401(k) participants choose from a menu of investment choices—typically a dozen or more—selected by their employer.The choices for TSP participants are more streamlined; the plan includes several life cycle (target-date) funds and five individual index funds. However, the investment fees within the TSP are lower than those of most 401(k) plans.  How Much Can You Contribute to a TSP? The IRS limit for annual contributions is the same for a TSP and a 401(k). Federal employees can invest up to $23,000 in 2024. Those ages 50 and older can contribute an additional $7,500 in 2024. The Bottom Line The Thrift Savings Plan is similar to a 401(k), but there are important differences. Investment options are more limited, but the expense ratio is much lower than at many private employer funds. And the employer match is a bit more generous than average. If you have access to a TSP, max out the match before you explore any other tax-advantaged retirement accounts, such as a traditional or Roth IRA.

https://www.investopedia.com/preparing-for-retirement-as-an-lgbtq-person-5183693

Preparing for Retirement as an LGBTQ+ Person

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> For many adults in the U.S., saving enough for a comfortable retirement isn't easy. If you are part of the LGBTQ+ community, you may face additional challenges. Many LGBTQ+ adults lag behind heterosexual adults in retirement savings, with discrimination sometimes hindering their financial wellbeing. There’s a lot to learn about preparing for retirement, starting when you begin working. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Saving for a comfortable retirement can pose extra challenges for LGBTQ+ people.</li><li>Many LGBTQ+ adults lag behind heterosexual adults in retirement savings.</li><li>While LGBTQ+ people face the same challenges as everyone else, discrimination continues to hamper financial wellbeing.</li><li>LGBTQ+ adults need to seek out professionals with whom they are comfortable for help with financial, retirement, and estate planning.</li><li>LGBTQ+ retirees also need to consider community, support, acceptance, and safety for their retirement. </li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> If you work for a company that offers a savings plan, then you’ll need to learn how a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k) plan</a> works, as well as some investing basics. All workers should know how an IRA might be an alternative way to save for retirement, whether in addition to a company plan or as their only method for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/taxes/11/tax-deferred-tax-exempt.asp">tax-advantaged saving</a>.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Accumulating sufficient assets for a comfortable retirement is even more difficult if you get a late start. Earning a lower salary is another headwind. Unfortunately, for older members of the LGBTQ+ communities, both factors play a part in widespread retirement uncertainty. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Nearly half of older LGBTQ+ people fear they will outlive the money they saved for retirement, compared with just a quarter of non-LGBTQ+ older people, according to David Vincent, chief program officer at SAGE, an LGBTQ+ advocacy organization in New York. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> “One in two single LGBT older people believe they will have to work well beyond retirement age, as compared to less than a third of single non-LGBT older people; and more than half of the LGBT older adult population is concerned about not having enough money to survive retirement,” Vincent said.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-save-for-retirement-now"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Save for Retirement Now </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> LGBTQ+ individuals of most races and ethnicities show higher rates of poverty than their cisgender straight counterparts, Vincent said. “According to the Williams Institute [at UCLA School of Law], 22% of LGBT people in the U.S. live in poverty, compared with 16% of cisgender straight people, and 29% of transgender people and bisexual women live in poverty,” Vincent said.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The ability to wed has helped improve the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/080415/gay-marriage-and-taxes-everything-you-should-know.asp">financial lives of some same-sex couples</a>, but many LGBTQ+ investors still lag behind heterosexual people in terms of retirement savings. Prudential found in a study that LGBTQ+ people are less likely to have a will or estate plan (19% vs. 26%). In addition, they are less likely to have 401(k) savings (35% vs. 40%) and to save less of their paycheck (18% vs. 30%) in retirement accounts.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> “It is difficult to make generalizations about members of the LGBTQ+ community,” said Jennifer Hatch, president of New York firm Christopher Street Financial, which specializes in the financial issues of LGBTQ+ couples, individuals, and their allies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-subheading__text"> Unique Financial Challenge for LGBTQ+ Community </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> LGBTQ+ people are members in every socioeconomic, demographic and ethnic group, as well as every geographical location. “What we do have in common is social and legal support—or opposition—to our lives,” Hatch said. “That is where we can begin to identify financial benefits and challenges.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> People need to set aside preconceived notions and recognize that these inequities stem from a lifetime of systemic discrimination, Vincent said. “You can’t build a nest egg for your later years when you’re not getting the job you deserve, or the raise, or the loan, or the credit line, because you’re being discriminated against. Only sweeping change, such as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.congress.gov/bill/117th-congress/house-bill/5">Equality Act</a>, and time, can help change these numbers.”<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Depending on the state where you live, discrimination still impacts the livelihoods of LGBTQ+ people, Hatch said. “Sometimes this is overt and legal, and sometimes it is covert and illegal. Either way, all forms of employment discrimination impact an individual’s career choices, ambitions, expectations, and ultimate financial resources,” Hatch said. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> “Discrimination is still rampant and has a chilling effect on financial wellness,” Vincent said. “The LGBTQ+ community still has less financial security than the general population due to a lack of federal nondiscrimination protections. That’s why it is vitally important for the Equality Act to become law.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_29-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_30-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">7 million</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The estimated number of LGBTQ+ adults by 2030 in the U.S., according to SAGE.<span class="ql-inline-citation" data-cite="13"></span></p></div></div></div> <span class="heading-toc" id="toc-know-your-financial-needs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Know Your Financial Needs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> For single people in the LGBTQ+ community, financial needs are no different from those of a straight person. But those in committed same-sex relationships might well have completely different issues, according to Hatch. For one thing, if you had jointly owned assets and were planning for the future, the picture was entirely different before the U.S. Supreme Court established marriage equality in 2015.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lgbtq-marriage-and-personal-finance-5176477">The benefits of marriage are huge</a>, and no amount of financial or legal planning can substitute for them,” Hatch said. “There are over 1,100 different statutes that provide benefits, rights and responsibilities exclusively to married spouses. Financial planners, estate attorneys and accountants spent a lot of time trying to create work-arounds that did not exist.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Today, with the option of marriage, the tools for protecting families and wealth are immeasurably stronger. But, all the same, there are plenty of people—gay and straight—who choose not to be married, Hatch said.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_38-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_39-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Marriage comes with financial benefits, such the ability to file joint tax returns and having access to a spouse’s Social Security benefits or health insurance.</p></div></div></div> <span class="heading-toc" id="toc-why-lgbtq-americans-may-have-a-savings-shortfall"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> Why LGBTQ+ Americans May Have a Savings Shortfall </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Members of the LGBTQ+ community face the same challenges as everyone else, Hatch said—namely, a lack of financial literacy. For anyone to prepare adequately for a comfortable retirement, it helps to arm yourself with a working knowledge of financial basics. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/budgeting-calculator-5101411">Getting a grip on everyday budgeting</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-read-your-paycheck-5094518">understanding your paycheck</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/07/cut-credit-debt.asp">avoiding credit card debt</a>, and taking advantage of tax-advantaged savings plans are all essential components of creating a solid financial foundation.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Some in the LGBTQ+ community may suffer additional scrutiny and discrimination, said Laura LaTourette, a CFP and independent advisor in Dahlonega, Ga. Someone may lose employment and be afraid to return to work because they’re in a population that faces discrimination. Also, LaTourette noted, some people have underlying health issues, a particular issue for members of the trans community. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> “Some clients who needed help with money had a really hard time working with the system because they have to divulge everything,” she said. “They are trying to stay under the radar.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> When people find it difficult to ask for help, they often wait until the last minute to apply for unemployment benefits, LaTourette said. “They try to stay away from big government [programs] where they will have their identity questioned.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <span class="heading-toc" id="toc-how-spending-can-hamper-preparedness"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-heading__text"> How Spending Can Hamper Preparedness </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> People’s top financial goals are generally saving more money and preparing for retirement, according to the Prudential study. Both LGBTQ+ respondents and respondents in the general population say they are keenly interested in financial preparedness, with saving enough for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lgbtq-elder-care-in-retirement-5176588">comfortable retirement</a> a top financial goal. But LGBTQ+ respondents are more likely to identify themselves as “spenders”, the study found.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_52-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_53-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_4-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>LGBTQ+ people tend to spend more (and save less) compared to the general population, according to a Prudential survey.<span class="ql-inline-citation" data-cite="9"></span></p></div></div></div> <span class="heading-toc" id="toc-steps-to-take-closer-to-retirement"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-heading__text"> Steps to Take Closer to Retirement  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> People who are older but have inadequate savings can take advantage of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/catchupcontribution.asp">catch-up provisions</a> on tax-advantaged retirement plans that allow you to contribute more money after age 50.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> It makes sense to scrutinize expenses, especially housing costs, in your 50s, Michael Sangirardi, a financial advisor and CFP with Ameriprise in New York, told Investopedia. Ask yourself if your home is the home that you plan to retire in, and whether it makes sense to downsize or rent. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Having more career choices as you get older is important. If you lose your job, then you might be able to leverage more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0712/how-to-start-a-side-business.aspx">money from a side hustle</a>. This may start out as a way to explore something interesting that is also profitable if you’ve never had a chance to test a different career, Sangirardi said.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> When deciding where you live in retirement, many have priorities such as locations with accessible and affordable healthcare or a warmer climate. People in the LGBTQ+ community often also prioritize community, support, acceptance, and safety, Sangirardi said. “This community historically has suffered tremendously with issues of safety and acceptance, and it comes back to what you need even more as you age,” Sangirardi said. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <span class="heading-toc" id="toc-resources-for-lgbtq-older-adults"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-heading__text"> Resources for LGBTQ+ Older Adults  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> Connect with professionals with whom you feel comfortable, whether it’s a financial planner, lawyer, or estate planner. Many <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/banks-that-support-lgbtq-community-5185262">banks and credit unions</a> are welcoming to LGBTQ+ people.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> SAGECents is a digital wellness platform made specifically for older LGBTQ+ people to increase financial stability and reduce economic stress.<span class="ql-inline-citation" data-cite="7"></span> The app was created in partnership with a financial tech firm with support from the Wells Fargo Foundation with a goal of addressing the needs of older LGBTQ+ people. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_68-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_69-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>SAGECents asks specific questions about sexual orientation and gender identity, to match you to the right resources.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> “We have heard from users how much they appreciate being able to choose their own pronouns and how helpful particular resources are, like ‘Creating End-of-Life Documents for Trans Individuals,’” said Vincent. “Some people may not ask those questions or get to those resources because thinking about retirement, healthcare proxies, or end-of-life issues is incredibly difficult. Or they might not know who to talk to.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <span class="heading-toc" id="toc-how-expectations-are-changing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_72-0"> <span class="mntl-sc-block-heading__text"> How Expectations Are Changing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> In recent decades, the LGBTQ+ community has welcomed a number of social and legal changes, and the future could bring more change. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Marriage equality has a positive impact on retirement income streams, such as Social Security benefits and state pensions, among others, Vincent noted. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> “These revenue streams did not always recognize same-sex partners, so marriage made it easier for couples to have access,” Vincent said. “In addition, there have also been workplace discrimination cases decided favorably by the Supreme Court, which has helped some.”  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> Another change in expectations is reflected in the number of young LGBTQ+ people who assume they will be parents, Hatch said. According to Family Equality, 63% of LGBTQ+ millennials expect to become parents.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> “These people are actively planning families,” Hatch said. “This was rarely considered or accomplished among those in my generation.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_83-0"><span class="heading-toc" id="toc-how-do-you-prepare-for-retirement"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Prepare for Retirement?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Becoming financially literate is key to preparing for retirement. The sooner you start saving for retirement the better. This will give your nest egg more time to grow. Contribute to an employer-sponsored plan, such as a 401(k), if you have access to one or make contributions to an IRA. If you are part of the LGBTQ+ community, seek out financial professionals and institutions that understand and have experience navigating the unique challenges of the community.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_85-0"><span class="heading-toc" id="toc-where-should-you-retire-as-an-lgbtq-person"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Should You Retire as an LGBTQ+ Person?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Because the LGBTQ+ community continues to face discrimination, it’s important to seek out retirement locations that offer more than a warm climate and affordable healthcare and housing. A sense of community, as well as acceptance and safety, should also be high priorities when deciding where to retire.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_87-0"><span class="heading-toc" id="toc-what-retirement-challenges-do-lgbtq-people-face"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Retirement Challenges Do LGBTQ+ People Face?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Despite some progress, older LGBTQ+ people continue to face various forms of discrimination that can set them back financially. If they earn less, they save less for retirement. In addition, many older LGBTQ+ people may feel isolated from society or lack the support of family members, and need to seek out supportive and safe communities in which to live and retire.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_89-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> Saving for retirement can pose additional challenges for LGBTQ+ people. Despite positive strides in recent decades, discrimination continues to impact the financial wellbeing of many LGBTQ+ adults, who may lag in retirement savings. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> To overcome these challenges, LGBTQ+ people can prioritize financial literacy and seek out professionals who have experience with the unique needs of the community. For those closer to retirement, living in a community that offers support and safety can often be as important as an affordable lifestyle and comfortable climate.<br/> </p></div>

For many adults in the U.S., saving enough for a comfortable retirement isn't easy. If you are part of the LGBTQ+ community, you may face additional challenges. Many LGBTQ+ adults lag behind heterosexual adults in retirement savings, with discrimination sometimes hindering their financial wellbeing. There’s a lot to learn about preparing for retirement, starting when you begin working. ### Key Takeaways * Saving for a comfortable retirement can pose extra challenges for LGBTQ+ people. * Many LGBTQ+ adults lag behind heterosexual adults in retirement savings. * While LGBTQ+ people face the same challenges as everyone else, discrimination continues to hamper financial wellbeing. * LGBTQ+ adults need to seek out professionals with whom they are comfortable for help with financial, retirement, and estate planning. * LGBTQ+ retirees also need to consider community, support, acceptance, and safety for their retirement. If you work for a company that offers a savings plan, then you’ll need to learn how a [401(k) plan](https://www.investopedia.com/terms/1/401kplan.asp) works, as well as some investing basics. All workers should know how an IRA might be an alternative way to save for retirement, whether in addition to a company plan or as their only method for [tax-advantaged saving](https://www.investopedia.com/articles/taxes/11/tax-deferred-tax-exempt.asp).  Accumulating sufficient assets for a comfortable retirement is even more difficult if you get a late start. Earning a lower salary is another headwind. Unfortunately, for older members of the LGBTQ+ communities, both factors play a part in widespread retirement uncertainty. Nearly half of older LGBTQ+ people fear they will outlive the money they saved for retirement, compared with just a quarter of non-LGBTQ+ older people, according to David Vincent, chief program officer at SAGE, an LGBTQ+ advocacy organization in New York. “One in two single LGBT older people believe they will have to work well beyond retirement age, as compared to less than a third of single non-LGBT older people; and more than half of the LGBT older adult population is concerned about not having enough money to survive retirement,” Vincent said. ## Save for Retirement Now LGBTQ+ individuals of most races and ethnicities show higher rates of poverty than their cisgender straight counterparts, Vincent said. “According to the Williams Institute [at UCLA School of Law], 22% of LGBT people in the U.S. live in poverty, compared with 16% of cisgender straight people, and 29% of transgender people and bisexual women live in poverty,” Vincent said. The ability to wed has helped improve the [financial lives of some same-sex couples](https://www.investopedia.com/articles/personal-finance/080415/gay-marriage-and-taxes-everything-you-should-know.asp), but many LGBTQ+ investors still lag behind heterosexual people in terms of retirement savings. Prudential found in a study that LGBTQ+ people are less likely to have a will or estate plan (19% vs. 26%). In addition, they are less likely to have 401(k) savings (35% vs. 40%) and to save less of their paycheck (18% vs. 30%) in retirement accounts. “It is difficult to make generalizations about members of the LGBTQ+ community,” said Jennifer Hatch, president of New York firm Christopher Street Financial, which specializes in the financial issues of LGBTQ+ couples, individuals, and their allies. ### Unique Financial Challenge for LGBTQ+ Community LGBTQ+ people are members in every socioeconomic, demographic and ethnic group, as well as every geographical location. “What we do have in common is social and legal support—or opposition—to our lives,” Hatch said. “That is where we can begin to identify financial benefits and challenges.” People need to set aside preconceived notions and recognize that these inequities stem from a lifetime of systemic discrimination, Vincent said. “You can’t build a nest egg for your later years when you’re not getting the job you deserve, or the raise, or the loan, or the credit line, because you’re being discriminated against. Only sweeping change, such as the [Equality Act](https://www.congress.gov/bill/117th-congress/house-bill/5), and time, can help change these numbers.” Depending on the state where you live, discrimination still impacts the livelihoods of LGBTQ+ people, Hatch said. “Sometimes this is overt and legal, and sometimes it is covert and illegal. Either way, all forms of employment discrimination impact an individual’s career choices, ambitions, expectations, and ultimate financial resources,” Hatch said. “Discrimination is still rampant and has a chilling effect on financial wellness,” Vincent said. “The LGBTQ+ community still has less financial security than the general population due to a lack of federal nondiscrimination protections. That’s why it is vitally important for the Equality Act to become law.” ### 7 million The estimated number of LGBTQ+ adults by 2030 in the U.S., according to SAGE. ## Know Your Financial Needs For single people in the LGBTQ+ community, financial needs are no different from those of a straight person. But those in committed same-sex relationships might well have completely different issues, according to Hatch. For one thing, if you had jointly owned assets and were planning for the future, the picture was entirely different before the U.S. Supreme Court established marriage equality in 2015. “[The benefits of marriage are huge](https://www.investopedia.com/lgbtq-marriage-and-personal-finance-5176477), and no amount of financial or legal planning can substitute for them,” Hatch said. “There are over 1,100 different statutes that provide benefits, rights and responsibilities exclusively to married spouses. Financial planners, estate attorneys and accountants spent a lot of time trying to create work-arounds that did not exist.” Today, with the option of marriage, the tools for protecting families and wealth are immeasurably stronger. But, all the same, there are plenty of people—gay and straight—who choose not to be married, Hatch said. ### Marriage comes with financial benefits, such the ability to file joint tax returns and having access to a spouse’s Social Security benefits or health insurance. ## Why LGBTQ+ Americans May Have a Savings Shortfall Members of the LGBTQ+ community face the same challenges as everyone else, Hatch said—namely, a lack of financial literacy. For anyone to prepare adequately for a comfortable retirement, it helps to arm yourself with a working knowledge of financial basics. [Getting a grip on everyday budgeting](https://www.investopedia.com/budgeting-calculator-5101411), [understanding your paycheck](https://www.investopedia.com/how-to-read-your-paycheck-5094518), [avoiding credit card debt](https://www.investopedia.com/articles/pf/07/cut-credit-debt.asp), and taking advantage of tax-advantaged savings plans are all essential components of creating a solid financial foundation.  Some in the LGBTQ+ community may suffer additional scrutiny and discrimination, said Laura LaTourette, a CFP and independent advisor in Dahlonega, Ga. Someone may lose employment and be afraid to return to work because they’re in a population that faces discrimination. Also, LaTourette noted, some people have underlying health issues, a particular issue for members of the trans community. “Some clients who needed help with money had a really hard time working with the system because they have to divulge everything,” she said. “They are trying to stay under the radar.” When people find it difficult to ask for help, they often wait until the last minute to apply for unemployment benefits, LaTourette said. “They try to stay away from big government [programs] where they will have their identity questioned.” ## How Spending Can Hamper Preparedness People’s top financial goals are generally saving more money and preparing for retirement, according to the Prudential study. Both LGBTQ+ respondents and respondents in the general population say they are keenly interested in financial preparedness, with saving enough for a [comfortable retirement](https://www.investopedia.com/lgbtq-elder-care-in-retirement-5176588) a top financial goal. But LGBTQ+ respondents are more likely to identify themselves as “spenders”, the study found. ### Note LGBTQ+ people tend to spend more (and save less) compared to the general population, according to a Prudential survey. ## Steps to Take Closer to Retirement People who are older but have inadequate savings can take advantage of [catch-up provisions](https://www.investopedia.com/terms/c/catchupcontribution.asp) on tax-advantaged retirement plans that allow you to contribute more money after age 50. It makes sense to scrutinize expenses, especially housing costs, in your 50s, Michael Sangirardi, a financial advisor and CFP with Ameriprise in New York, told Investopedia. Ask yourself if your home is the home that you plan to retire in, and whether it makes sense to downsize or rent. Having more career choices as you get older is important. If you lose your job, then you might be able to leverage more [money from a side hustle](https://www.investopedia.com/financial-edge/0712/how-to-start-a-side-business.aspx). This may start out as a way to explore something interesting that is also profitable if you’ve never had a chance to test a different career, Sangirardi said.   When deciding where you live in retirement, many have priorities such as locations with accessible and affordable healthcare or a warmer climate. People in the LGBTQ+ community often also prioritize community, support, acceptance, and safety, Sangirardi said. “This community historically has suffered tremendously with issues of safety and acceptance, and it comes back to what you need even more as you age,” Sangirardi said. ## Resources for LGBTQ+ Older Adults Connect with professionals with whom you feel comfortable, whether it’s a financial planner, lawyer, or estate planner. Many [banks and credit unions](https://www.investopedia.com/banks-that-support-lgbtq-community-5185262) are welcoming to LGBTQ+ people.  SAGECents is a digital wellness platform made specifically for older LGBTQ+ people to increase financial stability and reduce economic stress. The app was created in partnership with a financial tech firm with support from the Wells Fargo Foundation with a goal of addressing the needs of older LGBTQ+ people. ### SAGECents asks specific questions about sexual orientation and gender identity, to match you to the right resources. “We have heard from users how much they appreciate being able to choose their own pronouns and how helpful particular resources are, like ‘Creating End-of-Life Documents for Trans Individuals,’” said Vincent. “Some people may not ask those questions or get to those resources because thinking about retirement, healthcare proxies, or end-of-life issues is incredibly difficult. Or they might not know who to talk to.” ## How Expectations Are Changing In recent decades, the LGBTQ+ community has welcomed a number of social and legal changes, and the future could bring more change. Marriage equality has a positive impact on retirement income streams, such as Social Security benefits and state pensions, among others, Vincent noted. “These revenue streams did not always recognize same-sex partners, so marriage made it easier for couples to have access,” Vincent said. “In addition, there have also been workplace discrimination cases decided favorably by the Supreme Court, which has helped some.”  Another change in expectations is reflected in the number of young LGBTQ+ people who assume they will be parents, Hatch said. According to Family Equality, 63% of LGBTQ+ millennials expect to become parents. “These people are actively planning families,” Hatch said. “This was rarely considered or accomplished among those in my generation.” ## How Do You Prepare for Retirement? Becoming financially literate is key to preparing for retirement. The sooner you start saving for retirement the better. This will give your nest egg more time to grow. Contribute to an employer-sponsored plan, such as a 401(k), if you have access to one or make contributions to an IRA. If you are part of the LGBTQ+ community, seek out financial professionals and institutions that understand and have experience navigating the unique challenges of the community. ## Where Should You Retire as an LGBTQ+ Person? Because the LGBTQ+ community continues to face discrimination, it’s important to seek out retirement locations that offer more than a warm climate and affordable healthcare and housing. A sense of community, as well as acceptance and safety, should also be high priorities when deciding where to retire. ## What Retirement Challenges Do LGBTQ+ People Face? Despite some progress, older LGBTQ+ people continue to face various forms of discrimination that can set them back financially. If they earn less, they save less for retirement. In addition, many older LGBTQ+ people may feel isolated from society or lack the support of family members, and need to seek out supportive and safe communities in which to live and retire. ## The Bottom Line Saving for retirement can pose additional challenges for LGBTQ+ people. Despite positive strides in recent decades, discrimination continues to impact the financial wellbeing of many LGBTQ+ adults, who may lag in retirement savings. To overcome these challenges, LGBTQ+ people can prioritize financial literacy and seek out professionals who have experience with the unique needs of the community. For those closer to retirement, living in a community that offers support and safety can often be as important as an affordable lifestyle and comfortable climate.

For many adults in the U.S., saving enough for a comfortable retirement isn't easy. If you are part of the LGBTQ+ community, you may face additional challenges. Many LGBTQ+ adults lag behind heterosexual adults in retirement savings, with discrimination sometimes hindering their financial wellbeing. There’s a lot to learn about preparing for retirement, starting when you begin working. Key Takeaways Saving for a comfortable retirement can pose extra challenges for LGBTQ+ people.Many LGBTQ+ adults lag behind heterosexual adults in retirement savings.While LGBTQ+ people face the same challenges as everyone else, discrimination continues to hamper financial wellbeing.LGBTQ+ adults need to seek out professionals with whom they are comfortable for help with financial, retirement, and estate planning.LGBTQ+ retirees also need to consider community, support, acceptance, and safety for their retirement.  If you work for a company that offers a savings plan, then you’ll need to learn how a 401(k) plan works, as well as some investing basics. All workers should know how an IRA might be an alternative way to save for retirement, whether in addition to a company plan or as their only method for tax-advantaged saving.  Accumulating sufficient assets for a comfortable retirement is even more difficult if you get a late start. Earning a lower salary is another headwind. Unfortunately, for older members of the LGBTQ+ communities, both factors play a part in widespread retirement uncertainty. Nearly half of older LGBTQ+ people fear they will outlive the money they saved for retirement, compared with just a quarter of non-LGBTQ+ older people, according to David Vincent, chief program officer at SAGE, an LGBTQ+ advocacy organization in New York. “One in two single LGBT older people believe they will have to work well beyond retirement age, as compared to less than a third of single non-LGBT older people; and more than half of the LGBT older adult population is concerned about not having enough money to survive retirement,” Vincent said. Save for Retirement Now LGBTQ+ individuals of most races and ethnicities show higher rates of poverty than their cisgender straight counterparts, Vincent said. “According to the Williams Institute [at UCLA School of Law], 22% of LGBT people in the U.S. live in poverty, compared with 16% of cisgender straight people, and 29% of transgender people and bisexual women live in poverty,” Vincent said. The ability to wed has helped improve the financial lives of some same-sex couples, but many LGBTQ+ investors still lag behind heterosexual people in terms of retirement savings. Prudential found in a study that LGBTQ+ people are less likely to have a will or estate plan (19% vs. 26%). In addition, they are less likely to have 401(k) savings (35% vs. 40%) and to save less of their paycheck (18% vs. 30%) in retirement accounts. “It is difficult to make generalizations about members of the LGBTQ+ community,” said Jennifer Hatch, president of New York firm Christopher Street Financial, which specializes in the financial issues of LGBTQ+ couples, individuals, and their allies. Unique Financial Challenge for LGBTQ+ Community LGBTQ+ people are members in every socioeconomic, demographic and ethnic group, as well as every geographical location. “What we do have in common is social and legal support—or opposition—to our lives,” Hatch said. “That is where we can begin to identify financial benefits and challenges.” People need to set aside preconceived notions and recognize that these inequities stem from a lifetime of systemic discrimination, Vincent said. “You can’t build a nest egg for your later years when you’re not getting the job you deserve, or the raise, or the loan, or the credit line, because you’re being discriminated against. Only sweeping change, such as the Equality Act, and time, can help change these numbers.” Depending on the state where you live, discrimination still impacts the livelihoods of LGBTQ+ people, Hatch said. “Sometimes this is overt and legal, and sometimes it is covert and illegal. Either way, all forms of employment discrimination impact an individual’s career choices, ambitions, expectations, and ultimate financial resources,” Hatch said. “Discrimination is still rampant and has a chilling effect on financial wellness,” Vincent said. “The LGBTQ+ community still has less financial security than the general population due to a lack of federal nondiscrimination protections. That’s why it is vitally important for the Equality Act to become law.” 7 million The estimated number of LGBTQ+ adults by 2030 in the U.S., according to SAGE. Know Your Financial Needs For single people in the LGBTQ+ community, financial needs are no different from those of a straight person. But those in committed same-sex relationships might well have completely different issues, according to Hatch. For one thing, if you had jointly owned assets and were planning for the future, the picture was entirely different before the U.S. Supreme Court established marriage equality in 2015. “The benefits of marriage are huge, and no amount of financial or legal planning can substitute for them,” Hatch said. “There are over 1,100 different statutes that provide benefits, rights and responsibilities exclusively to married spouses. Financial planners, estate attorneys and accountants spent a lot of time trying to create work-arounds that did not exist.” Today, with the option of marriage, the tools for protecting families and wealth are immeasurably stronger. But, all the same, there are plenty of people—gay and straight—who choose not to be married, Hatch said. Marriage comes with financial benefits, such the ability to file joint tax returns and having access to a spouse’s Social Security benefits or health insurance. Why LGBTQ+ Americans May Have a Savings Shortfall Members of the LGBTQ+ community face the same challenges as everyone else, Hatch said—namely, a lack of financial literacy. For anyone to prepare adequately for a comfortable retirement, it helps to arm yourself with a working knowledge of financial basics. Getting a grip on everyday budgeting, understanding your paycheck, avoiding credit card debt, and taking advantage of tax-advantaged savings plans are all essential components of creating a solid financial foundation.  Some in the LGBTQ+ community may suffer additional scrutiny and discrimination, said Laura LaTourette, a CFP and independent advisor in Dahlonega, Ga. Someone may lose employment and be afraid to return to work because they’re in a population that faces discrimination. Also, LaTourette noted, some people have underlying health issues, a particular issue for members of the trans community. “Some clients who needed help with money had a really hard time working with the system because they have to divulge everything,” she said. “They are trying to stay under the radar.” When people find it difficult to ask for help, they often wait until the last minute to apply for unemployment benefits, LaTourette said. “They try to stay away from big government [programs] where they will have their identity questioned.” How Spending Can Hamper Preparedness People’s top financial goals are generally saving more money and preparing for retirement, according to the Prudential study. Both LGBTQ+ respondents and respondents in the general population say they are keenly interested in financial preparedness, with saving enough for a comfortable retirement a top financial goal. But LGBTQ+ respondents are more likely to identify themselves as “spenders”, the study found. Note LGBTQ+ people tend to spend more (and save less) compared to the general population, according to a Prudential survey. Steps to Take Closer to Retirement  People who are older but have inadequate savings can take advantage of catch-up provisions on tax-advantaged retirement plans that allow you to contribute more money after age 50. It makes sense to scrutinize expenses, especially housing costs, in your 50s, Michael Sangirardi, a financial advisor and CFP with Ameriprise in New York, told Investopedia. Ask yourself if your home is the home that you plan to retire in, and whether it makes sense to downsize or rent. Having more career choices as you get older is important. If you lose your job, then you might be able to leverage more money from a side hustle. This may start out as a way to explore something interesting that is also profitable if you’ve never had a chance to test a different career, Sangirardi said.   When deciding where you live in retirement, many have priorities such as locations with accessible and affordable healthcare or a warmer climate. People in the LGBTQ+ community often also prioritize community, support, acceptance, and safety, Sangirardi said. “This community historically has suffered tremendously with issues of safety and acceptance, and it comes back to what you need even more as you age,” Sangirardi said. Resources for LGBTQ+ Older Adults  Connect with professionals with whom you feel comfortable, whether it’s a financial planner, lawyer, or estate planner. Many banks and credit unions are welcoming to LGBTQ+ people.  SAGECents is a digital wellness platform made specifically for older LGBTQ+ people to increase financial stability and reduce economic stress. The app was created in partnership with a financial tech firm with support from the Wells Fargo Foundation with a goal of addressing the needs of older LGBTQ+ people. SAGECents asks specific questions about sexual orientation and gender identity, to match you to the right resources. “We have heard from users how much they appreciate being able to choose their own pronouns and how helpful particular resources are, like ‘Creating End-of-Life Documents for Trans Individuals,’” said Vincent. “Some people may not ask those questions or get to those resources because thinking about retirement, healthcare proxies, or end-of-life issues is incredibly difficult. Or they might not know who to talk to.” How Expectations Are Changing In recent decades, the LGBTQ+ community has welcomed a number of social and legal changes, and the future could bring more change. Marriage equality has a positive impact on retirement income streams, such as Social Security benefits and state pensions, among others, Vincent noted. “These revenue streams did not always recognize same-sex partners, so marriage made it easier for couples to have access,” Vincent said. “In addition, there have also been workplace discrimination cases decided favorably by the Supreme Court, which has helped some.”  Another change in expectations is reflected in the number of young LGBTQ+ people who assume they will be parents, Hatch said. According to Family Equality, 63% of LGBTQ+ millennials expect to become parents. “These people are actively planning families,” Hatch said. “This was rarely considered or accomplished among those in my generation.” How Do You Prepare for Retirement? Becoming financially literate is key to preparing for retirement. The sooner you start saving for retirement the better. This will give your nest egg more time to grow. Contribute to an employer-sponsored plan, such as a 401(k), if you have access to one or make contributions to an IRA. If you are part of the LGBTQ+ community, seek out financial professionals and institutions that understand and have experience navigating the unique challenges of the community. Where Should You Retire as an LGBTQ+ Person? Because the LGBTQ+ community continues to face discrimination, it’s important to seek out retirement locations that offer more than a warm climate and affordable healthcare and housing. A sense of community, as well as acceptance and safety, should also be high priorities when deciding where to retire. What Retirement Challenges Do LGBTQ+ People Face? Despite some progress, older LGBTQ+ people continue to face various forms of discrimination that can set them back financially. If they earn less, they save less for retirement. In addition, many older LGBTQ+ people may feel isolated from society or lack the support of family members, and need to seek out supportive and safe communities in which to live and retire. The Bottom Line Saving for retirement can pose additional challenges for LGBTQ+ people. Despite positive strides in recent decades, discrimination continues to impact the financial wellbeing of many LGBTQ+ adults, who may lag in retirement savings. To overcome these challenges, LGBTQ+ people can prioritize financial literacy and seek out professionals who have experience with the unique needs of the community. For those closer to retirement, living in a community that offers support and safety can often be as important as an affordable lifestyle and comfortable climate.

https://www.investopedia.com/tech/ross-ulbricht-dark-net-pirate/

Who Is Ross Ulbricht?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Ross Ulbricht (born 1984) is a former <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/darknet-market-cryptomarket.asp">darknet</a> market operator most famous for creating and running the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/silk-road.asp">Silk Road market</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> He was arrested in 2013, and two years later a Manhattan federal jury found him guilty on seven charges including conspiracy to launder money, conspiracy to commit computer hacking, conspiracy to traffic narcotics by the means of the internet, and continuing a criminal enterprise (the so-called kingpin charge).<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Ulbricht, a first-time offender, was not convicted of actually selling illegal drugs and other items himself, but of creating and operating a site where others did. He was sentenced to life in prison. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Ulbricht, who used the pseudonym "Dread Pirate Roberts" online, is sentenced to spend the rest of his life in federal prison. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_9-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_10-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Ross Ulbricht, the "Dread Pirate Roberts" of the internet, founded and operated the darknet marketplace Silk Road in 2011 until it was shut down by the U.S. government in 2013.</li><li>The site was a marketplace that included criminal activity including the drug sales. The site's users paid using cryptocurrency; encryption protected user identities.</li><li>In 2013 Ulbricht was arrested and indicted on seven charges including conspiracy to launder money, conspiracy to commit computer hacking, conspiracy to traffic narcotics by the means of the internet, and continuing a criminal enterprise.</li><li>Ulbricht was found guilty on all counts and was sentenced to two life imprisonment terms plus 40 years, to be served concurrently with no chance of parole.</li><li>He remains in prison today, with his request for appeal denied by the United States Court of Appeals for the Second Circuit.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_11-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Ross Ulbricht" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/e5zDuKJA57dB_OPOUTA09LZPpiE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ross-ulbricht-dark-net-pirate1-fe814082ceb34d84b7943c77b51c1697.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/e5zDuKJA57dB_OPOUTA09LZPpiE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ross-ulbricht-dark-net-pirate1-fe814082ceb34d84b7943c77b51c1697.png" data-srcset="https://www.investopedia.com/thmb/r9FvB9PjLTOBSJCbenSux1T-hm4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ross-ulbricht-dark-net-pirate1-fe814082ceb34d84b7943c77b51c1697.png 750w" data-tracking-container="true" height="4000" id="mntl-sc-block-image_1-0" width="6000"/> <noscript> <img alt="Ross Ulbricht" class="img--noscript universal-image__image" height="4000" sizes="750px" src="https://www.investopedia.com/thmb/e5zDuKJA57dB_OPOUTA09LZPpiE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ross-ulbricht-dark-net-pirate1-fe814082ceb34d84b7943c77b51c1697.png" srcset="https://www.investopedia.com/thmb/r9FvB9PjLTOBSJCbenSux1T-hm4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ross-ulbricht-dark-net-pirate1-fe814082ceb34d84b7943c77b51c1697.png 750w" width="6000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Ellen Lindner</p></span> </figcaption></figure> <span class="heading-toc" id="toc-early-life-and-education"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Early Life and Education </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Ulbricht grew up near Austin, Texas, studying physics at the University of Texas at Dallas and then Pennsylvania State University to pursue a master's program in materials science.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> During this time, Ulbricht developed a keen interest in libertarian views of economic theory. He became a supporter of the political philosopher <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/ludwig-von-mises.asp">Ludwig von Mises</a> and aligned his views with prominent libertarian politicians. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-low-res" id="mntl-sc-block_17-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:65.6%;"> <img class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/Yhx0ZUCH25W8_7tvFy6IhTKRxN4=/500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ross_ulbricht_photo-5bfd713646e0fb0051f8450d" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/14nTfKcxfovz1AS3wPLYNpYOb7c=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ross_ulbricht_photo-5bfd713646e0fb0051f8450d" data-srcset="https://www.investopedia.com/thmb/Hi3ClT4ET25B0CQm5GoJrJt_67c=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ross_ulbricht_photo-5bfd713646e0fb0051f8450d 750w" data-tracking-container="true" height="328" id="mntl-sc-block-image_2-0" width="500"/> <noscript> <img class="img--noscript universal-image__image" height="328" sizes="750px" src="https://www.investopedia.com/thmb/14nTfKcxfovz1AS3wPLYNpYOb7c=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ross_ulbricht_photo-5bfd713646e0fb0051f8450d" srcset="https://www.investopedia.com/thmb/Hi3ClT4ET25B0CQm5GoJrJt_67c=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/ross_ulbricht_photo-5bfd713646e0fb0051f8450d 750w" width="500"/> </noscript> </div> </div> </figure> <span class="heading-toc" id="toc-notable-deeds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Notable Deeds </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Early Career </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> In 2009, upon his graduation from Penn State, Ulbricht returned to Austin to become an entrepreneur. His early attempts were unsuccessful, and he moved between a number of jobs. He tried his hand at day trading and developing video games, as well as founding a company to sell books online. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> It was during this time that Ulbricht first developed the idea of creating an online marketplace utilizing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tor.asp">Tor encryption</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp">bitcoin</a>, which was still in its nascent stages at the time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> By adopting encryption and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrency</a>, Ulbricht believed that his marketplace could provide anonymity and security for its participants, allowing them to avoid government scrutiny. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Tor passes user information through a vast network of encryption procedures, effectively disguising the identity and location of participants on the network, while bitcoin offers a decentralized and anonymous transactional platform.<span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="10"></span> This early idea would eventually develop into the Silk Road marketplace. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-subheading__text"> Silk Road </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Ulbricht founded Silk Road in 2011, calling himself "Dread Pirate Roberts" online, in a nod to the hit 1987 movie <em>The Princess Bride</em>.<span class="ql-inline-citation" data-cite="7"></span> He envisioned Silk Road as a "means to abolish the use of coercion and aggression amongst mankind," according to his LinkedIn page.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> He also said he was "creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force."<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Silk Road became popular over a very short span of time. When numerous media outlets picked up stories on the market in mid-2011, a significant amount of interest developed in the site, and traffic increased exponentially. Of course, as the site became more widely known, authorities also made moves to identify Silk Road users and to shut down the site. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Nonetheless, Silk Road remained a popular, but shrouded marketplace where both legal and highly illegal activity took place through 2013. According to the prosecutors, by the time it was shut down the site had generated almost $213.9 million in sales and $13.2 million in commissions for its owner.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-subheading__text"> Arrest, Trial, and Imprisonment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.dailydot.com/unclick/silk-road-online-drug-marketplace-dealer-guilty/">The Daily Dot</a> in early 2013 reported that an Australian drug dealer was the first individual to be convicted of crimes directly linked to the Silk Road. From this point, the identification of users of Silk Road continued to develop, and eventually, the FBI determined that Ulbricht was the founder and owner of Silk Road. He was arrested on October 2, 2013, in a San Francisco library, and was later indicted on seven charges. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Ulbricht also faced murder-for-hire charges in a separate case in a Baltimore federal court. These charges were ultimately dropped in 2018. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> In the process of shutting down Silk Road, the FBI seized 144,336 bitcoins from a shared digital wallet on Ulbricht's laptop. They were sold in a series of auctions generating proceeds worth $48.2 million.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Ulbricht's trial began in January 2015 in Manhattan, and he was convicted on all seven counts. The trial was a highly publicized and charged event, with the presiding judge reportedly receiving death threats from presumed Silk Road supporters, although that was never proven.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Prior to his sentencing, Ulbricht stated via a letter to the judge that his actions were linked to his libertarian ideals and that "Silk Road was supposed to be about giving people the freedom to make their own choices." On May 29, 2015, Ulbricht was sentenced to two life imprisonment terms plus 40 years to be served concurrently without the possibility of parole.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-subheading__text"> Appeals </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Ulbricht attempted to appeal, and in May 2017, the United States Court of Appeals for the Second Circuit denied his attempt. Also in 2017, Ulbricht appealed to the Supreme Court, with attorneys arguing that his case involves unresolved constitutional questions regarding the Fourth Amendment and the digital age.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> But in June 2018, the court declined to hear Ross’s case. On October 10, 2019, Ulbricht filed a motion with the New York Southern District Court to vacate or set aside his sentence. This motion was also denied. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> In late 2020, national media reported that former President Donald Trump was considering commuting Mr. Ulbricht's sentence, but ultimately he did not.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Since Ulbricht's incarceration, more than 570,000 have signed an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.change.org/p/clemency-for-ross-ulbricht-condemned-to-die-in-prison-for-a-website">online petition</a> created by Lyn Ulbricht, Ross' mother, to commute his double life sentence.<span class="ql-inline-citation" data-cite="5"></span> His supporters have also created an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://freeross.org/">online fact sheet</a> to provide more details about Ross's case. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-how-long-was-ross-ulbrichts-prison-sentence"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long Was Ross Ulbricht's Prison Sentence?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>On May 29, 2015, Ulbricht was sentenced to two life imprisonment terms, plus 40 years, to be served concurrently without the possibility of parole.<span class="ql-inline-citation" data-cite="1"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_59-0"><span class="heading-toc" id="toc-was-ross-ulbricht-involved-in-creating-bitcoin"></span> <h2 class="mntl-sc-block-questionandanswer__question">Was Ross Ulbricht Involved in Creating Bitcoin?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>While darknet sites, and Silk Road in particular, were early adopters of bitcoin, Mr. Ulbricht was in no way involved in developing bitcoin.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_61-0"><span class="heading-toc" id="toc-does-silk-road-marketplace-still-exist"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Silk Road Marketplace Still Exist?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The FBI shut down Silk Road shortly after Ross Ulbricht's arrest, seizing 144,336 bitcoins in the process.<span class="ql-inline-citation" data-cite="3"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> Ross Ulbricht is infamous for creating and running the Silk Road market, and while he claims that his intentions for starting the site were altruistic, a federal jury found him guilty on seven serious charges, including conspiracy to traffic narcotics, and he was sentenced to spend the rest of his life in prison.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Mr. Ulbricht's many supporters decry his sentence as unjust, and almost half a million people have signed a petition for clemency in his case. </p></div>

Ross Ulbricht (born 1984) is a former [darknet](https://www.investopedia.com/terms/d/darknet-market-cryptomarket.asp) market operator most famous for creating and running the [Silk Road market](https://www.investopedia.com/terms/s/silk-road.asp). He was arrested in 2013, and two years later a Manhattan federal jury found him guilty on seven charges including conspiracy to launder money, conspiracy to commit computer hacking, conspiracy to traffic narcotics by the means of the internet, and continuing a criminal enterprise (the so-called kingpin charge). Ulbricht, a first-time offender, was not convicted of actually selling illegal drugs and other items himself, but of creating and operating a site where others did. He was sentenced to life in prison. Ulbricht, who used the pseudonym "Dread Pirate Roberts" online, is sentenced to spend the rest of his life in federal prison. ### Key Takeaways * Ross Ulbricht, the "Dread Pirate Roberts" of the internet, founded and operated the darknet marketplace Silk Road in 2011 until it was shut down by the U.S. government in 2013. * The site was a marketplace that included criminal activity including the drug sales. The site's users paid using cryptocurrency; encryption protected user identities. * In 2013 Ulbricht was arrested and indicted on seven charges including conspiracy to launder money, conspiracy to commit computer hacking, conspiracy to traffic narcotics by the means of the internet, and continuing a criminal enterprise. * Ulbricht was found guilty on all counts and was sentenced to two life imprisonment terms plus 40 years, to be served concurrently with no chance of parole. * He remains in prison today, with his request for appeal denied by the United States Court of Appeals for the Second Circuit. ![Ross Ulbricht]() :max_bytes(150000):strip_icc()/ross-ulbricht-dark-net-pirate1-fe814082ceb34d84b7943c77b51c1697.png) Investopedia / Ellen Lindner ## Early Life and Education Ulbricht grew up near Austin, Texas, studying physics at the University of Texas at Dallas and then Pennsylvania State University to pursue a master's program in materials science. During this time, Ulbricht developed a keen interest in libertarian views of economic theory. He became a supporter of the political philosopher [Ludwig von Mises](https://www.investopedia.com/terms/l/ludwig-von-mises.asp) and aligned his views with prominent libertarian politicians. ![]() :max_bytes(150000):strip_icc()/ross_ulbricht_photo-5bfd713646e0fb0051f8450d) ## Notable Deeds ### Early Career In 2009, upon his graduation from Penn State, Ulbricht returned to Austin to become an entrepreneur. His early attempts were unsuccessful, and he moved between a number of jobs. He tried his hand at day trading and developing video games, as well as founding a company to sell books online. It was during this time that Ulbricht first developed the idea of creating an online marketplace utilizing [Tor encryption](https://www.investopedia.com/terms/t/tor.asp) and [bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp), which was still in its nascent stages at the time. By adopting encryption and [cryptocurrency](https://www.investopedia.com/terms/c/cryptocurrency.asp), Ulbricht believed that his marketplace could provide anonymity and security for its participants, allowing them to avoid government scrutiny. Tor passes user information through a vast network of encryption procedures, effectively disguising the identity and location of participants on the network, while bitcoin offers a decentralized and anonymous transactional platform. This early idea would eventually develop into the Silk Road marketplace. ### Silk Road Ulbricht founded Silk Road in 2011, calling himself "Dread Pirate Roberts" online, in a nod to the hit 1987 movie *The Princess Bride*. He envisioned Silk Road as a "means to abolish the use of coercion and aggression amongst mankind," according to his LinkedIn page. He also said he was "creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force." Silk Road became popular over a very short span of time. When numerous media outlets picked up stories on the market in mid-2011, a significant amount of interest developed in the site, and traffic increased exponentially. Of course, as the site became more widely known, authorities also made moves to identify Silk Road users and to shut down the site. Nonetheless, Silk Road remained a popular, but shrouded marketplace where both legal and highly illegal activity took place through 2013. According to the prosecutors, by the time it was shut down the site had generated almost $213.9 million in sales and $13.2 million in commissions for its owner. ### Arrest, Trial, and Imprisonment [The Daily Dot](https://www.dailydot.com/unclick/silk-road-online-drug-marketplace-dealer-guilty/) in early 2013 reported that an Australian drug dealer was the first individual to be convicted of crimes directly linked to the Silk Road. From this point, the identification of users of Silk Road continued to develop, and eventually, the FBI determined that Ulbricht was the founder and owner of Silk Road. He was arrested on October 2, 2013, in a San Francisco library, and was later indicted on seven charges. Ulbricht also faced murder-for-hire charges in a separate case in a Baltimore federal court. These charges were ultimately dropped in 2018. In the process of shutting down Silk Road, the FBI seized 144,336 bitcoins from a shared digital wallet on Ulbricht's laptop. They were sold in a series of auctions generating proceeds worth $48.2 million. Ulbricht's trial began in January 2015 in Manhattan, and he was convicted on all seven counts. The trial was a highly publicized and charged event, with the presiding judge reportedly receiving death threats from presumed Silk Road supporters, although that was never proven. Prior to his sentencing, Ulbricht stated via a letter to the judge that his actions were linked to his libertarian ideals and that "Silk Road was supposed to be about giving people the freedom to make their own choices." On May 29, 2015, Ulbricht was sentenced to two life imprisonment terms plus 40 years to be served concurrently without the possibility of parole. ### Appeals Ulbricht attempted to appeal, and in May 2017, the United States Court of Appeals for the Second Circuit denied his attempt. Also in 2017, Ulbricht appealed to the Supreme Court, with attorneys arguing that his case involves unresolved constitutional questions regarding the Fourth Amendment and the digital age. But in June 2018, the court declined to hear Ross’s case. On October 10, 2019, Ulbricht filed a motion with the New York Southern District Court to vacate or set aside his sentence. This motion was also denied. In late 2020, national media reported that former President Donald Trump was considering commuting Mr. Ulbricht's sentence, but ultimately he did not. Since Ulbricht's incarceration, more than 570,000 have signed an [online petition](https://www.change.org/p/clemency-for-ross-ulbricht-condemned-to-die-in-prison-for-a-website) created by Lyn Ulbricht, Ross' mother, to commute his double life sentence. His supporters have also created an [online fact sheet](https://freeross.org/) to provide more details about Ross's case. ## How Long Was Ross Ulbricht's Prison Sentence? On May 29, 2015, Ulbricht was sentenced to two life imprisonment terms, plus 40 years, to be served concurrently without the possibility of parole. ## Was Ross Ulbricht Involved in Creating Bitcoin? While darknet sites, and Silk Road in particular, were early adopters of bitcoin, Mr. Ulbricht was in no way involved in developing bitcoin. ## Does Silk Road Marketplace Still Exist? The FBI shut down Silk Road shortly after Ross Ulbricht's arrest, seizing 144,336 bitcoins in the process. ## The Bottom Line Ross Ulbricht is infamous for creating and running the Silk Road market, and while he claims that his intentions for starting the site were altruistic, a federal jury found him guilty on seven serious charges, including conspiracy to traffic narcotics, and he was sentenced to spend the rest of his life in prison.  Mr. Ulbricht's many supporters decry his sentence as unjust, and almost half a million people have signed a petition for clemency in his case.

Ross Ulbricht (born 1984) is a former darknet market operator most famous for creating and running the Silk Road market. He was arrested in 2013, and two years later a Manhattan federal jury found him guilty on seven charges including conspiracy to launder money, conspiracy to commit computer hacking, conspiracy to traffic narcotics by the means of the internet, and continuing a criminal enterprise (the so-called kingpin charge). Ulbricht, a first-time offender, was not convicted of actually selling illegal drugs and other items himself, but of creating and operating a site where others did. He was sentenced to life in prison. Ulbricht, who used the pseudonym "Dread Pirate Roberts" online, is sentenced to spend the rest of his life in federal prison. Key Takeaways Ross Ulbricht, the "Dread Pirate Roberts" of the internet, founded and operated the darknet marketplace Silk Road in 2011 until it was shut down by the U.S. government in 2013.The site was a marketplace that included criminal activity including the drug sales. The site's users paid using cryptocurrency; encryption protected user identities.In 2013 Ulbricht was arrested and indicted on seven charges including conspiracy to launder money, conspiracy to commit computer hacking, conspiracy to traffic narcotics by the means of the internet, and continuing a criminal enterprise.Ulbricht was found guilty on all counts and was sentenced to two life imprisonment terms plus 40 years, to be served concurrently with no chance of parole.He remains in prison today, with his request for appeal denied by the United States Court of Appeals for the Second Circuit. Investopedia / Ellen Lindner Early Life and Education Ulbricht grew up near Austin, Texas, studying physics at the University of Texas at Dallas and then Pennsylvania State University to pursue a master's program in materials science. During this time, Ulbricht developed a keen interest in libertarian views of economic theory. He became a supporter of the political philosopher Ludwig von Mises and aligned his views with prominent libertarian politicians. Notable Deeds Early Career In 2009, upon his graduation from Penn State, Ulbricht returned to Austin to become an entrepreneur. His early attempts were unsuccessful, and he moved between a number of jobs. He tried his hand at day trading and developing video games, as well as founding a company to sell books online. It was during this time that Ulbricht first developed the idea of creating an online marketplace utilizing Tor encryption and bitcoin, which was still in its nascent stages at the time. By adopting encryption and cryptocurrency, Ulbricht believed that his marketplace could provide anonymity and security for its participants, allowing them to avoid government scrutiny. Tor passes user information through a vast network of encryption procedures, effectively disguising the identity and location of participants on the network, while bitcoin offers a decentralized and anonymous transactional platform. This early idea would eventually develop into the Silk Road marketplace. Silk Road Ulbricht founded Silk Road in 2011, calling himself "Dread Pirate Roberts" online, in a nod to the hit 1987 movie The Princess Bride. He envisioned Silk Road as a "means to abolish the use of coercion and aggression amongst mankind," according to his LinkedIn page. He also said he was "creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force." Silk Road became popular over a very short span of time. When numerous media outlets picked up stories on the market in mid-2011, a significant amount of interest developed in the site, and traffic increased exponentially. Of course, as the site became more widely known, authorities also made moves to identify Silk Road users and to shut down the site. Nonetheless, Silk Road remained a popular, but shrouded marketplace where both legal and highly illegal activity took place through 2013. According to the prosecutors, by the time it was shut down the site had generated almost $213.9 million in sales and $13.2 million in commissions for its owner. Arrest, Trial, and Imprisonment The Daily Dot in early 2013 reported that an Australian drug dealer was the first individual to be convicted of crimes directly linked to the Silk Road. From this point, the identification of users of Silk Road continued to develop, and eventually, the FBI determined that Ulbricht was the founder and owner of Silk Road. He was arrested on October 2, 2013, in a San Francisco library, and was later indicted on seven charges. Ulbricht also faced murder-for-hire charges in a separate case in a Baltimore federal court. These charges were ultimately dropped in 2018. In the process of shutting down Silk Road, the FBI seized 144,336 bitcoins from a shared digital wallet on Ulbricht's laptop. They were sold in a series of auctions generating proceeds worth $48.2 million. Ulbricht's trial began in January 2015 in Manhattan, and he was convicted on all seven counts. The trial was a highly publicized and charged event, with the presiding judge reportedly receiving death threats from presumed Silk Road supporters, although that was never proven. Prior to his sentencing, Ulbricht stated via a letter to the judge that his actions were linked to his libertarian ideals and that "Silk Road was supposed to be about giving people the freedom to make their own choices." On May 29, 2015, Ulbricht was sentenced to two life imprisonment terms plus 40 years to be served concurrently without the possibility of parole. Appeals Ulbricht attempted to appeal, and in May 2017, the United States Court of Appeals for the Second Circuit denied his attempt. Also in 2017, Ulbricht appealed to the Supreme Court, with attorneys arguing that his case involves unresolved constitutional questions regarding the Fourth Amendment and the digital age. But in June 2018, the court declined to hear Ross’s case. On October 10, 2019, Ulbricht filed a motion with the New York Southern District Court to vacate or set aside his sentence. This motion was also denied. In late 2020, national media reported that former President Donald Trump was considering commuting Mr. Ulbricht's sentence, but ultimately he did not. Since Ulbricht's incarceration, more than 570,000 have signed an online petition created by Lyn Ulbricht, Ross' mother, to commute his double life sentence. His supporters have also created an online fact sheet to provide more details about Ross's case. How Long Was Ross Ulbricht's Prison Sentence? On May 29, 2015, Ulbricht was sentenced to two life imprisonment terms, plus 40 years, to be served concurrently without the possibility of parole. Was Ross Ulbricht Involved in Creating Bitcoin? While darknet sites, and Silk Road in particular, were early adopters of bitcoin, Mr. Ulbricht was in no way involved in developing bitcoin. Does Silk Road Marketplace Still Exist? The FBI shut down Silk Road shortly after Ross Ulbricht's arrest, seizing 144,336 bitcoins in the process. The Bottom Line Ross Ulbricht is infamous for creating and running the Silk Road market, and while he claims that his intentions for starting the site were altruistic, a federal jury found him guilty on seven serious charges, including conspiracy to traffic narcotics, and he was sentenced to spend the rest of his life in prison.  Mr. Ulbricht's many supporters decry his sentence as unjust, and almost half a million people have signed a petition for clemency in his case.

https://www.investopedia.com/will-cd-rates-fall-in-march-a-preview-of-whats-likely-from-the-fed-next-week-8607996

Will CD Rates Fall in March? A Preview of What's Likely from the Fed Next Week

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>CD rates surged to their highest level in 20-plus years last fall, thanks to the Federal Reserve's historic rate-hike campaign to tame inflation.</li> <li>The Fed has since stepped off the gas on rates, and it's overwhelmingly expected to announce another rate hold next Wednesday.</li> <li>Its "dot plot" forecast on how many rate cuts—if any—Fed members anticipate they'll implement in 2024 will likely be the more significant part of the announcement.</li> <li>Whether <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">today's best CD rates</a> slide in March will depend on how likely it appears that the Fed will reduce rates this year and by how much.</li> </ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-square figure-high-res" id="mntl-sc-block_3-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:96.7%;"> <img alt="Line graph showing how the Fed's 2022-2023 rate-hike campaign pushed the top CD rates to record highs in late 2023, and also showing they remain just slightly lower than the peak today." class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/5ngifJLhyZ4IqOfL8PUdMeHOF7I=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-12-b81537a8607a4798aea7aa45cbac8f49.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/5ngifJLhyZ4IqOfL8PUdMeHOF7I=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-12-b81537a8607a4798aea7aa45cbac8f49.png" data-srcset="https://www.investopedia.com/thmb/_oHiNQorC7Y3ZTx3fISLmA5fk2U=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-12-b81537a8607a4798aea7aa45cbac8f49.png 750w" data-tracking-container="true" height="2400" id="mntl-sc-block-image_1-0" width="2480"/> <noscript> <img alt="Line graph showing how the Fed's 2022-2023 rate-hike campaign pushed the top CD rates to record highs in late 2023, and also showing they remain just slightly lower than the peak today." class="img--noscript universal-image__image" height="2400" sizes="750px" src="https://www.investopedia.com/thmb/5ngifJLhyZ4IqOfL8PUdMeHOF7I=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-12-b81537a8607a4798aea7aa45cbac8f49.png" srcset="https://www.investopedia.com/thmb/_oHiNQorC7Y3ZTx3fISLmA5fk2U=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-12-b81537a8607a4798aea7aa45cbac8f49.png 750w" width="2480"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> The full article continues below these offers from our partners. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_6-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-what-the-fed-will-officially-announce-next-week"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> What the Fed Will Officially Announce Next Week </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve</a> will hold its second 2024 rate-setting meeting next week, and it's virtually certain the central bank will announce Wednesday afternoon that it's holding its benchmark interest rate steady once again. That would be its fifth consecutive rate hold after last raising the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> in late July.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> From March 2022 to July 2023, the Fed hiked the federal funds rate 11 times across 12 meetings in a historically aggressive campaign to combat post-pandemic inflation that had reached a four-decade high.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="2"></span> That meteoric rise in the Fed's benchmark rate—adding 5.25% over 16 months—pushed savings account and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificate of deposit (CD)</a> rates to their highest levels in more than 20 years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Now that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> has cooled somewhat, the Fed has stopped hiking rates. But inflation is still above the Fed's target rate of 2%, and until the central bankers feel confident it will come down far enough—and reliably enough—they're in wait-and-see mode for the time being. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_15-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/MZ1QC/4/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Fed funds rate since 2000"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Next week's announcement is not by itself expected to have a major impact on near-term CD rates, given the Fed's decision has been widely anticipated for weeks. But in deciding how to proceed with CD rates in March and beyond, banks and credit unions will be looking closely at something more useful than the official rate decision. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-the-feds-dot-plot-will-be-the-more-important-part-of-next-weeks-announcement"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> The Fed's "Dot Plot" Will Be the More Important Part of Next Week's Announcement </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Next week's Fed rate decision will be accompanied by some added behind-the-scenes information that's commonly called the Fed's "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dot-plot-4581755">dot plot</a>." Released once per quarter, the dot plot is so called because each Fed committee member is represented by a dot (no name attached) that is placed on a graph to show where that Fed member thinks the federal funds rate will be at the end of this year and the next two calendar years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> In the latest dot plot forecast, released in mid-December, almost 80% of the central bankers had penciled in two to four rate decreases by the end of 2024. The median prediction was three cuts totaling a 0.75% decrease.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> But since December, multiple inflation and employment reports have been released, and inflation is proving more stubborn than the Fed and other economists anticipated. In fact, inflation data released this week showed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/february-2024-cpi-8607820">February's reading was higher than expected</a>, in addition to being higher than January's reading, which itself came in above expectations.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_26-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/jAAwX/2/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Inflation vs. Fed, 2021 to present"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The Fed has made it clear it's looking for evidence that inflationary price pressures are sustainably under control before it will entertain cutting rates. As a result, next week's dot plot report will provide a fresh look at whether Fed committee members still expect to lower rates two or more times this year—or if the graph will show they are softening that December forecast.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_31-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/will-inflation-keep-cd-rates-high-in-2024-8604521" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Will Inflation Keep CD Rates High in 2024?</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <span class="heading-toc" id="toc-what-the-fed-forecast-will-mean-for-cd-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-heading__text"> What the Fed Forecast Will Mean for CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Banks and credit unions will take into account what they hear from the Fed next week as they decide how to proceed with CD rates. In addition to what they read in the Fed's statement and hear in Fed Chair <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/jerome-powell-5210572">Jerome Powell</a>'s post-announcement press conference, they'll especially consider what they see in the dot plot. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The reason is that, unlike a savings account, whose rate can be changed at any time, CDs are a rate promise for the future, which the bank or credit union is obligated to pay for the life of the certificate. So in deciding how much to pay for different CD terms, banks and credit unions must balance offering a rate that will successfully attract deposits while minimizing their risk of paying too much in the future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> If next week's dot plot shows that Fed members are forecasting fewer rate cuts in 2024 than they previously predicted, this is likely to keep today's CD rates somewhat stabilized, as it means the fed funds rates will likely stay at its current level for several more months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> But if the dot plot shows the Fed still expects to cut rates three times before the year's out, that could cause banks and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditunion.asp">credit unions</a> to continue lowering their CD rates, as it suggests the first rate cut may not be that far off. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_42-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_43-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>In the end, any downward movement in CD rates is not likely to be dramatic during this rate hold period. The real slide in rates is expected to be a bit further down the road, when a rate cut from the Fed becomes truly imminent.</p></div></div></div> <span class="heading-toc" id="toc-smart-strategies-for-cd-shoppers"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-heading__text"> Smart Strategies for CD Shoppers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Whatever the Fed's statement and dot plot tell us next week, the odds of CD rates <em>increasing </em>are quite slim. Though another rate hike from the central bank is not impossible—since every Fed rate decision is made based on the freshest economic data, which can't be reliably predicted—the probability is high that the fed funds rates will either remain where it is or, more likely, come down in 2024. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> That means even though you <em>may</em> have some time to shop around and still score a rate similar to today's top yields, you run the risk that rates could fall, causing you to miss your window of opportunity to score as high a rate as possible. Dozens of options are available in our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">daily rankings of the best nationwide CDs</a> to earn in the 4% to 5% range, which makes locking in as soon as possible a smart move. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_49-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/HWgWd/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Top 15 CD rates by term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> If you feel compelled to wait a bit longer, one potential strategy is splitting the deposit you intend for a CD into two or three smaller amounts. You could then lock in some of your savings now and then make another one or two CD deposits later. Not only does this hedge your bets on where rates will go in the coming months, but it also lets you stagger your CD terms, allowing you to access your CD funds over a period of time instead of waiting to access the full amount all on one <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturity.asp">maturity</a> date. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_54-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-cd-rates-4770214" id="mntl-sc-block-featuredlink__link_2-0" rel="nocaes"><span class="link__wrapper">Best CD Rates for May 2024: Up to 5.51%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_56-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633" id="mntl-sc-block-featuredlink__link_3-0" rel="nocaes"><span class="link__wrapper">Best High-Yield Savings Accounts for May 2024—Up to 5.55%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_58-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-money-market-accounts-5096917" id="mntl-sc-block-featuredlink__link_4-0" rel="nocaes"><span class="link__wrapper">Best Money Market Account Rates for May 2024—Up to 5.35%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <span class="heading-toc" id="toc-how-we-find-the-best-savings-and-cd-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_60-0"> <span class="mntl-sc-block-heading__text"> How We Find the Best Savings and CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">FDIC</a> for banks, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua-insured-institution.asp">NCUA</a> for credit unions), and the account's minimum initial deposit must not exceed $25,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>. </p></div>

### Key Takeaways * CD rates surged to their highest level in 20-plus years last fall, thanks to the Federal Reserve's historic rate-hike campaign to tame inflation. * The Fed has since stepped off the gas on rates, and it's overwhelmingly expected to announce another rate hold next Wednesday. * Its "dot plot" forecast on how many rate cuts—if any—Fed members anticipate they'll implement in 2024 will likely be the more significant part of the announcement. * Whether [today's best CD rates](https://www.investopedia.com/best-money-market-accounts-5096917) slide in March will depend on how likely it appears that the Fed will reduce rates this year and by how much. ![Line graph showing how the Fed's 2022-2023 rate-hike campaign pushed the top CD rates to record highs in late 2023, and also showing they remain just slightly lower than the peak today.]() :max_bytes(150000):strip_icc()/3-12-b81537a8607a4798aea7aa45cbac8f49.png) The full article continues below these offers from our partners. ## What the Fed Will Officially Announce Next Week The [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) will hold its second 2024 rate-setting meeting next week, and it's virtually certain the central bank will announce Wednesday afternoon that it's holding its benchmark interest rate steady once again. That would be its fifth consecutive rate hold after last raising the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) in late July. From March 2022 to July 2023, the Fed hiked the federal funds rate 11 times across 12 meetings in a historically aggressive campaign to combat post-pandemic inflation that had reached a four-decade high. That meteoric rise in the Fed's benchmark rate—adding 5.25% over 16 months—pushed savings account and [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp) rates to their highest levels in more than 20 years. Now that [inflation](https://www.investopedia.com/terms/i/inflation.asp) has cooled somewhat, the Fed has stopped hiking rates. But inflation is still above the Fed's target rate of 2%, and until the central bankers feel confident it will come down far enough—and reliably enough—they're in wait-and-see mode for the time being. Next week's announcement is not by itself expected to have a major impact on near-term CD rates, given the Fed's decision has been widely anticipated for weeks. But in deciding how to proceed with CD rates in March and beyond, banks and credit unions will be looking closely at something more useful than the official rate decision. ## The Fed's "Dot Plot" Will Be the More Important Part of Next Week's Announcement Next week's Fed rate decision will be accompanied by some added behind-the-scenes information that's commonly called the Fed's "[dot plot](https://www.investopedia.com/dot-plot-4581755)." Released once per quarter, the dot plot is so called because each Fed committee member is represented by a dot (no name attached) that is placed on a graph to show where that Fed member thinks the federal funds rate will be at the end of this year and the next two calendar years. In the latest dot plot forecast, released in mid-December, almost 80% of the central bankers had penciled in two to four rate decreases by the end of 2024. The median prediction was three cuts totaling a 0.75% decrease. But since December, multiple inflation and employment reports have been released, and inflation is proving more stubborn than the Fed and other economists anticipated. In fact, inflation data released this week showed [February's reading was higher than expected](https://www.investopedia.com/february-2024-cpi-8607820), in addition to being higher than January's reading, which itself came in above expectations. The Fed has made it clear it's looking for evidence that inflationary price pressures are sustainably under control before it will entertain cutting rates. As a result, next week's dot plot report will provide a fresh look at whether Fed committee members still expect to lower rates two or more times this year—or if the graph will show they are softening that December forecast. [Will Inflation Keep CD Rates High in 2024?](https://www.investopedia.com/will-inflation-keep-cd-rates-high-in-2024-8604521) ## What the Fed Forecast Will Mean for CD Rates Banks and credit unions will take into account what they hear from the Fed next week as they decide how to proceed with CD rates. In addition to what they read in the Fed's statement and hear in Fed Chair [Jerome Powell](https://www.investopedia.com/jerome-powell-5210572)'s post-announcement press conference, they'll especially consider what they see in the dot plot. The reason is that, unlike a savings account, whose rate can be changed at any time, CDs are a rate promise for the future, which the bank or credit union is obligated to pay for the life of the certificate. So in deciding how much to pay for different CD terms, banks and credit unions must balance offering a rate that will successfully attract deposits while minimizing their risk of paying too much in the future. If next week's dot plot shows that Fed members are forecasting fewer rate cuts in 2024 than they previously predicted, this is likely to keep today's CD rates somewhat stabilized, as it means the fed funds rates will likely stay at its current level for several more months. But if the dot plot shows the Fed still expects to cut rates three times before the year's out, that could cause banks and [credit unions](https://www.investopedia.com/terms/c/creditunion.asp) to continue lowering their CD rates, as it suggests the first rate cut may not be that far off. ### In the end, any downward movement in CD rates is not likely to be dramatic during this rate hold period. The real slide in rates is expected to be a bit further down the road, when a rate cut from the Fed becomes truly imminent. ## Smart Strategies for CD Shoppers Whatever the Fed's statement and dot plot tell us next week, the odds of CD rates *increasing* are quite slim. Though another rate hike from the central bank is not impossible—since every Fed rate decision is made based on the freshest economic data, which can't be reliably predicted—the probability is high that the fed funds rates will either remain where it is or, more likely, come down in 2024. That means even though you *may* have some time to shop around and still score a rate similar to today's top yields, you run the risk that rates could fall, causing you to miss your window of opportunity to score as high a rate as possible. Dozens of options are available in our [daily rankings of the best nationwide CDs](https://www.investopedia.com/best-cd-rates-4770214) to earn in the 4% to 5% range, which makes locking in as soon as possible a smart move. If you feel compelled to wait a bit longer, one potential strategy is splitting the deposit you intend for a CD into two or three smaller amounts. You could then lock in some of your savings now and then make another one or two CD deposits later. Not only does this hedge your bets on where rates will go in the coming months, but it also lets you stagger your CD terms, allowing you to access your CD funds over a period of time instead of waiting to access the full amount all on one [maturity](https://www.investopedia.com/terms/m/maturity.asp) date. [Best CD Rates for May 2024: Up to 5.51%](https://www.investopedia.com/best-cd-rates-4770214) [Best High-Yield Savings Accounts for May 2024—Up to 5.55%](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) [Best Money Market Account Rates for May 2024—Up to 5.35%](https://www.investopedia.com/best-money-market-accounts-5096917) ## How We Find the Best Savings and CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured ([FDIC](https://www.investopedia.com/terms/f/fdic-insured-account.asp) for banks, [NCUA](https://www.investopedia.com/terms/n/ncua-insured-institution.asp) for credit unions), and the account's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, [read our full methodology](https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816).

Key Takeaways CD rates surged to their highest level in 20-plus years last fall, thanks to the Federal Reserve's historic rate-hike campaign to tame inflation. The Fed has since stepped off the gas on rates, and it's overwhelmingly expected to announce another rate hold next Wednesday. Its "dot plot" forecast on how many rate cuts—if any—Fed members anticipate they'll implement in 2024 will likely be the more significant part of the announcement. Whether today's best CD rates slide in March will depend on how likely it appears that the Fed will reduce rates this year and by how much. The full article continues below these offers from our partners. What the Fed Will Officially Announce Next Week The Federal Reserve will hold its second 2024 rate-setting meeting next week, and it's virtually certain the central bank will announce Wednesday afternoon that it's holding its benchmark interest rate steady once again. That would be its fifth consecutive rate hold after last raising the federal funds rate in late July. From March 2022 to July 2023, the Fed hiked the federal funds rate 11 times across 12 meetings in a historically aggressive campaign to combat post-pandemic inflation that had reached a four-decade high. That meteoric rise in the Fed's benchmark rate—adding 5.25% over 16 months—pushed savings account and certificate of deposit (CD) rates to their highest levels in more than 20 years. Now that inflation has cooled somewhat, the Fed has stopped hiking rates. But inflation is still above the Fed's target rate of 2%, and until the central bankers feel confident it will come down far enough—and reliably enough—they're in wait-and-see mode for the time being. Next week's announcement is not by itself expected to have a major impact on near-term CD rates, given the Fed's decision has been widely anticipated for weeks. But in deciding how to proceed with CD rates in March and beyond, banks and credit unions will be looking closely at something more useful than the official rate decision. The Fed's "Dot Plot" Will Be the More Important Part of Next Week's Announcement Next week's Fed rate decision will be accompanied by some added behind-the-scenes information that's commonly called the Fed's "dot plot." Released once per quarter, the dot plot is so called because each Fed committee member is represented by a dot (no name attached) that is placed on a graph to show where that Fed member thinks the federal funds rate will be at the end of this year and the next two calendar years. In the latest dot plot forecast, released in mid-December, almost 80% of the central bankers had penciled in two to four rate decreases by the end of 2024. The median prediction was three cuts totaling a 0.75% decrease. But since December, multiple inflation and employment reports have been released, and inflation is proving more stubborn than the Fed and other economists anticipated. In fact, inflation data released this week showed February's reading was higher than expected, in addition to being higher than January's reading, which itself came in above expectations. The Fed has made it clear it's looking for evidence that inflationary price pressures are sustainably under control before it will entertain cutting rates. As a result, next week's dot plot report will provide a fresh look at whether Fed committee members still expect to lower rates two or more times this year—or if the graph will show they are softening that December forecast. Will Inflation Keep CD Rates High in 2024? What the Fed Forecast Will Mean for CD Rates Banks and credit unions will take into account what they hear from the Fed next week as they decide how to proceed with CD rates. In addition to what they read in the Fed's statement and hear in Fed Chair Jerome Powell's post-announcement press conference, they'll especially consider what they see in the dot plot. The reason is that, unlike a savings account, whose rate can be changed at any time, CDs are a rate promise for the future, which the bank or credit union is obligated to pay for the life of the certificate. So in deciding how much to pay for different CD terms, banks and credit unions must balance offering a rate that will successfully attract deposits while minimizing their risk of paying too much in the future. If next week's dot plot shows that Fed members are forecasting fewer rate cuts in 2024 than they previously predicted, this is likely to keep today's CD rates somewhat stabilized, as it means the fed funds rates will likely stay at its current level for several more months. But if the dot plot shows the Fed still expects to cut rates three times before the year's out, that could cause banks and credit unions to continue lowering their CD rates, as it suggests the first rate cut may not be that far off. In the end, any downward movement in CD rates is not likely to be dramatic during this rate hold period. The real slide in rates is expected to be a bit further down the road, when a rate cut from the Fed becomes truly imminent. Smart Strategies for CD Shoppers Whatever the Fed's statement and dot plot tell us next week, the odds of CD rates increasing are quite slim. Though another rate hike from the central bank is not impossible—since every Fed rate decision is made based on the freshest economic data, which can't be reliably predicted—the probability is high that the fed funds rates will either remain where it is or, more likely, come down in 2024. That means even though you may have some time to shop around and still score a rate similar to today's top yields, you run the risk that rates could fall, causing you to miss your window of opportunity to score as high a rate as possible. Dozens of options are available in our daily rankings of the best nationwide CDs to earn in the 4% to 5% range, which makes locking in as soon as possible a smart move. If you feel compelled to wait a bit longer, one potential strategy is splitting the deposit you intend for a CD into two or three smaller amounts. You could then lock in some of your savings now and then make another one or two CD deposits later. Not only does this hedge your bets on where rates will go in the coming months, but it also lets you stagger your CD terms, allowing you to access your CD funds over a period of time instead of waiting to access the full amount all on one maturity date. Best CD Rates for May 2024: Up to 5.51% Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best Money Market Account Rates for May 2024—Up to 5.35% How We Find the Best Savings and CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

https://www.investopedia.com/articles/personal-finance/082914/rules-having-health-savings-account-hsa.asp

Health Savings Account (HSA) Rules and Limits

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Does your health insurance come with deductibles in the four figures? If so, you're probably eligible to establish a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hsa.asp">Health Savings Account</a> (HSA). Used in combination with a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hdhp.asp">High-Deductible Health Plan</a> (HDHP), funds deposited in an HSA can go towards paying medical bills until the plan's deductible is met and your healthcare coverage kicks in.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> HSAs were established in 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act. These savings accounts have become an increasingly popular option for consumers seeking to manage their healthcare costs. They also work as a tax-advantaged savings tool as well.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>An HSA lets you set aside pre-tax income to cover healthcare costs that your insurance doesn't pay.</li><li>You can open an HSA if you have a qualifying high-deductible health plan.</li><li>For the 2022 tax year, the maximum contribution amounts are $3,650 for individuals and $7,300 for family coverage.<span class="ql-inline-citation" data-cite="1"></span> For 2023, the maximum amounts are $3,850 for individuals and $7,750 for families.<span class="ql-inline-citation" data-cite="14"></span></li><li>If you are 55 or older, you can add up to $1,000 more as a catch-up contribution.<span class="ql-inline-citation" data-cite="5"></span></li><li>HSAs have no use-it-or-lose-it provision. Any funds still in the plan at the end of the year can be rolled over indefinitely.<span class="ql-inline-citation" data-cite="4"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-who-can-open-a-health-savings-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Who Can Open a Health Savings Account? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> According to the federal guidelines, you can open and contribute to an HSA if you:<span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <li>Are covered under a qualifying high-deductible health plan which meets the minimum deductible and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outofpocket-limit.asp">maximum out of pocket</a> threshold for the year</li> <li>Are not covered by any other medical plan, such as a spouse's plan</li> <li>Are not enrolled in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicare.asp">Medicare</a></li> <li>Are not enrolled in TRICARE or TRICARE for Life</li> <li>Are not claimed as a dependent on someone else's tax return</li> <li>Have not used Veterans Administration medical benefits in the past three months (exceptions apply to veterans enrolled in a high-deductible health plan who either have a service-connected disability or have only accessed disregarded coverage and preventive services in the past three months).<span class="ql-inline-citation" data-cite="22"></span><span class="ql-inline-citation" data-cite="15"></span></li> <li>Do not have any disqualifying alternative medical savings accounts, like a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/flexiblespendingaccount.asp">Flexible Spending Account</a> or Health Reimbursement Account</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-what-qualifies-as-a-high-deductible-health-plan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> What Qualifies as a High-Deductible Health Plan? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> As its name implies, an HDHP is a healthcare plan that trades relatively low monthly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/premium.asp">premiums</a> for relatively high deductibles. To qualify for an HSA that can be opened in combination with an HDHP, the HDHP must meet certain criteria. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The Internal Revenue Service (IRS) establishes guidelines ever year, adjusting the figures for inflation. Here are the qualifying criteria for tax years 2022 and 2023:<span class="ql-inline-citation" data-cite="18"></span><span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_17-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">2022 High-Deductible Health Plan Rules</th> </tr> </thead> <tbody data-check="-1"> <tr> <td> </td> <td>Individuals</td> <td>Families</td> </tr> <tr> <td>Minimum Deductible</td> <td>$1,400</td> <td>$2,800</td> </tr> <tr> <td>Out-of-Pocket Maximum* (includes deductibles, co-payments, co-insurance)</td> <td>$7,050</td> <td>$14,100</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_19-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">2023 High-Deductible Health Plan Rules</th> </tr> </thead> <tbody data-check="-1"> <tr> <td> </td> <td>Individuals</td> <td>Families</td> </tr> <tr> <td>Minimum Deductible</td> <td>$1,500</td> <td>$3,000</td> </tr> <tr> <td>Out-of-Pocket Maximum* (includes deductibles, co-payments, co-insurance)</td> <td>$7,500</td> <td>$15,000</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> *Note that the out-of-pocket maximum is also designated by the plan. It can include deductibles, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/copay.asp">co-payments</a>, and co-insurance. It does not include insurance premiums. The out-of-pocket maximum will usually not include out-of-network services.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <span class="heading-toc" id="toc-how-does-a-health-savings-account-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> How Does a Health Savings Account Work? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Contributions to an HSA are tax-deductible.<span class="ql-inline-citation" data-cite="19"></span> For employer-sponsored plans, the contributions are deducted from paychecks. If you're self-employed, the deductions can be taken when your annual taxes are prepared. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Withdrawals from an HSA are tax-free provided the money is used to pay for qualified <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medical-expenses.asp">medical expenses</a>.<span class="ql-inline-citation" data-cite="4"></span> These expenses can include payments for dental and vision care, which some medical health insurance plans do not cover.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Most HSAs issue a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp">debit card</a> that can be used to pay for prescription medications and other eligible expenses. If you wait for a bill to come in the mail, you can make a payment over the phone using your debit card.<span class="ql-inline-citation" data-cite="19"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-subheading__text"> No Use-It-or-Lose-It Worries </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Any money that is in your account at the end of the year remains in your account to pay for future qualified medical expenses. End-of-year balances are carried over indefinitely.<span class="ql-inline-citation" data-cite="19"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The account and its funds belong to you, and you retain ownership even if you change health insurance plans, change jobs, or retire. While it's in the account, the money grows tax-free.<span class="ql-inline-citation" data-cite="19"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-how-much-can-i-contribute-to-a-hsa"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> How Much Can I Contribute to a HSA? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> The IRS sets limits that determine the combined amount that you, your employer, and any other person can contribute to your HSA each year: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <li>For 2022,the maximum contribution amounts are $3,650 for individual coverage and $7,300 for family coverage.<span class="ql-inline-citation" data-cite="1"></span></li><li>For 2023, the maximum amounts are $3,850 for individuals and $7,750 for family coverage.<span class="ql-inline-citation" data-cite="14"></span></li><li>You can add up to $1,000 more as a "catch-up" contribution if you are age 55 or older.<span class="ql-inline-citation" data-cite="19"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-how-can-i-use-hsa-money"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> How Can I Use HSA Money? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The money in your HSA can be used to pay for qualified medical expenses incurred by you, your spouse, and your dependents. The IRS establishes what is and what is not a qualified medical expense, detailed in IRS Publication 502, Medical and Dental Expenses.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Qualified expenses include nearly any medical cost you may incur, including payments for diagnostics, cures, mitigations, treatments, and prescribed preventative medications.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> One of the great benefits of the HSA is that it can be used to make payments that count toward your deductible. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Moreover, the HSA is a tax shelter, meaning you won’t pay income taxes on the money you contribute. This saves you the taxable amount while allowing you to put those funds towards medical expenses that you would probably have otherwise paid with after-tax dollars. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_49-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="What Can Be Paid With HSA Money?" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/lglnAm9Lt4LdLu065oIqSc6am74=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/rules-having-health-savings-account-hsa_final-58180fce30aa4fe8b278b4137e8ccb48.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/lglnAm9Lt4LdLu065oIqSc6am74=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/rules-having-health-savings-account-hsa_final-58180fce30aa4fe8b278b4137e8ccb48.png" data-srcset="https://www.investopedia.com/thmb/nNqN0UEHJzlrpQW7Tq688dZBfL0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/rules-having-health-savings-account-hsa_final-58180fce30aa4fe8b278b4137e8ccb48.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="What Can Be Paid With HSA Money?" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/lglnAm9Lt4LdLu065oIqSc6am74=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/rules-having-health-savings-account-hsa_final-58180fce30aa4fe8b278b4137e8ccb48.png" srcset="https://www.investopedia.com/thmb/nNqN0UEHJzlrpQW7Tq688dZBfL0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/rules-having-health-savings-account-hsa_final-58180fce30aa4fe8b278b4137e8ccb48.png 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Ellen Lindner</p></span> </figcaption></figure> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-subheading__text"> Filling Gaps in Health Plans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Remember that you can also use the account for expenses that aren't covered by your health insurance plan. For example, if your medical plan doesn't cover <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-are-vision-and-dental-insurance-separate-8548493">dental or vision care</a>, HSA funds can still be used for those bills.<span class="ql-inline-citation" data-cite="19"></span><span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> There are a few things that an HSA cannot be used for. You can't use it to pay <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance-premium.asp">insurance premiums</a>. Other ineligible expenses include over-the-counter items like toothpaste, toiletries, and cosmetics, as well as most cosmetic surgeries. A vacation to a healthier climate would also not qualify.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_55-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_56-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Starting on Jan. 1, 2020, and due to the passage of the CARES Act, more items are HSA eligible and reimbursable, including menstrual care products, over-the-counter drugs without a prescription, and smoking cessation drugs (nicotine patches and gum). <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.cigna.com/individuals-families/member-guide/eligible-expenses#M-O" rel="sponsored nofollow">Cigna</a> provides a complete list of covered and not covered items.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> If you're 64 or younger and withdraw funds for a non-qualified expense, you'll owe income taxes on the money, plus a 20% penalty. If you're 65 or over or are disabled, you'll still owe taxes on the amount but will be spared the penalty.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> So, frankly, after age 65, you can essentially withdraw HSA funds for anything. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-how-can-i-set-up-a-hsa"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> How Can I Set Up a HSA? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> You first need to enroll for an HDHP. If you take that step through your employer's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/humanresources.asp">human resources</a> department, it should be able to advise you on creating your HSA. Most employer-sponsored HDHPs have an associated HSA provider for you to work with.<span class="ql-inline-citation" data-cite="19"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> If an HSA does not come with your HDHP, you can set up the account on your own.<span class="ql-inline-citation" data-cite="4"></span> Banks, credit unions, and brokerages all offer HSAs. Each <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-health-savings-account-providers-5079652">HSA provider</a> can create its own terms. HSAs through a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-company.asp">brokerage</a> even allow you to invest your contributions in stocks, bonds, or funds. Bank HSAs will usually offer an optimal interest rate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Once you select a provider, the enrollment process is fairly straightforward: You will be required to complete an application with information on your HDHP. Once your account is approved you can fund the account and begin using it for qualified expenses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <span class="heading-toc" id="toc-hsas-as-savingsinvesting-tools"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-heading__text"> HSAs As Savings/Investing Tools </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> An HSA can be used as a tax-sheltered investment vehicle. For savvy investors, they create an opportunity to accumulate capital gains that can be withdrawn tax-free for medical expenses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Most HSA account holders will want to be somewhat conservative in investing this money since it is intended for necessary medical costs. This can limit the types of investments an account holder may want to make with their HSA contributions to mostly low-risk products like highly-rated bonds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> The type of account opened will dictate the type of investments that may be available. Plans provided through banks usually offer only high-yield savings deposits. Brokerages offer much more. Some of the top HSA investment platforms include Vanguard, HSA Bank/TD Ameritrade, Lively, Optum Bank, and HealthSavings Administrators. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <span class="heading-toc" id="toc-who-benefits-most-from-a-hsa"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-heading__text"> Who Benefits Most From a HSA? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> High-deductible health plans make the most sense for people who are relatively healthy with minimal expectations for their annual healthcare needs. HDHPs offer lower premiums in return for higher deductibles that would need to be paid if an emergency arises. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> This is what makes the combination of an HDHP and HSA very beneficial. Plan owners can potentially save indefinitely through an HSA for emergencies that may require a high deductible payment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> HSAs and HDHPs can also appeal to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/120715/why-hsas-appeal-more-highincome-earners.asp">high-income earners</a> as well as people nearing retirement age. High earners choosing an HDHP can use an HSA to save up to $7,300 per year in a tax-sheltered account.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_82-0"> <span class="mntl-sc-block-subheading__text"> The HSA as a Retirement Savings Vehicle </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> For both high-income earners and those approaching retirement, the HSA can be a worthwhile vehicle for building a medical emergency fund while also saving in a type of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/091615/how-use-your-hsa-retirement.asp">alternative retirement vehicle</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> On the other hand, keep in mind that if you incur substantial health costs for standard medical care, the high-deductible health plan required to open an HSA might not be the right choice for you. Even though you will pay less in premiums with the HDHP, it could be difficult—even with money in an HSA—to come up with the cash to meet the deductible for a costly medical procedure.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_87-0"><span class="heading-toc" id="toc-can-i-get-an-hsa-if-i-have-a-low-deductible-plan"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Get an HSA If I Have a Low-Deductible Plan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. Only people who have high-deductible health insurance plans are eligible to open a Health Savings Account. Some employers offer a similar plan called a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/flexiblespendingaccount.asp">flexible spending account</a> (FSA). That is, employees can choose to divert up to a certain annual limit, tax-free, into an account that can be used to pay medical expenses that the company health plan doesn't cover. The FSA is also a "tax-favored plan" but it is relatively limited in its usefulness. For one thing, the money in your account doesn't roll over from year to year. You use it or lose it.<span class="ql-inline-citation" data-cite="21"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_89-0"><span class="heading-toc" id="toc-what-are-the-benefits-of-a-health-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Benefits of a Health Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Health Savings Account was created to help people pay for expenses, expected or unexpected, that aren't covered by their high-deductible health insurance plans. That's no small benefit if you or someone in your family requires expensive health treatment.</p><p>Moreover, the money you pay into the account is tax-sheltered. It works somewhat like a 401(k) plan or IRA. The money accumulates from year to year without taxes being owed on it.</p><p>If you don't use all of the money in your account, it can turn into a retirement nest egg.</p><p><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_91-0"><span class="heading-toc" id="toc-what-are-the-downsides-of-a-health-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Downsides of a Health Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The money deducted from your paycheck and paid into a Health Savings Account can only be used for medical expenses. If you take the money out for any other reason, no matter how necessary, you'll owe income taxes plus a 20% penalty. (Unless you're over age 65. In that case, there's no penalty.)<span class="ql-inline-citation" data-cite="9"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_92-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_93-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> If you have a high-deductible health insurance plan, having a Health Savings Account can give you some peace of mind regarding unexpected (and uncovered) medical expenses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_95-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> Better yet, any money in your account that you don't have to use will continue to accumulate tax-free over time. In the long run, your HSA can turn into a separate stream of retirement income. </p></div>

Does your health insurance come with deductibles in the four figures? If so, you're probably eligible to establish a [Health Savings Account](https://www.investopedia.com/terms/h/hsa.asp) (HSA). Used in combination with a [High-Deductible Health Plan](https://www.investopedia.com/terms/h/hdhp.asp) (HDHP), funds deposited in an HSA can go towards paying medical bills until the plan's deductible is met and your healthcare coverage kicks in. HSAs were established in 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act. These savings accounts have become an increasingly popular option for consumers seeking to manage their healthcare costs. They also work as a tax-advantaged savings tool as well. ### Key Takeaways * An HSA lets you set aside pre-tax income to cover healthcare costs that your insurance doesn't pay. * You can open an HSA if you have a qualifying high-deductible health plan. * For the 2022 tax year, the maximum contribution amounts are $3,650 for individuals and $7,300 for family coverage. For 2023, the maximum amounts are $3,850 for individuals and $7,750 for families. * If you are 55 or older, you can add up to $1,000 more as a catch-up contribution. * HSAs have no use-it-or-lose-it provision. Any funds still in the plan at the end of the year can be rolled over indefinitely. ## Who Can Open a Health Savings Account? According to the federal guidelines, you can open and contribute to an HSA if you: * Are covered under a qualifying high-deductible health plan which meets the minimum deductible and the [maximum out of pocket](https://www.investopedia.com/terms/o/outofpocket-limit.asp) threshold for the year * Are not covered by any other medical plan, such as a spouse's plan * Are not enrolled in [Medicare](https://www.investopedia.com/terms/m/medicare.asp) * Are not enrolled in TRICARE or TRICARE for Life * Are not claimed as a dependent on someone else's tax return * Have not used Veterans Administration medical benefits in the past three months (exceptions apply to veterans enrolled in a high-deductible health plan who either have a service-connected disability or have only accessed disregarded coverage and preventive services in the past three months). * Do not have any disqualifying alternative medical savings accounts, like a [Flexible Spending Account](https://www.investopedia.com/terms/f/flexiblespendingaccount.asp) or Health Reimbursement Account ## What Qualifies as a High-Deductible Health Plan? As its name implies, an HDHP is a healthcare plan that trades relatively low monthly [premiums](https://www.investopedia.com/terms/p/premium.asp) for relatively high deductibles. To qualify for an HSA that can be opened in combination with an HDHP, the HDHP must meet certain criteria. The Internal Revenue Service (IRS) establishes guidelines ever year, adjusting the figures for inflation. Here are the qualifying criteria for tax years 2022 and 2023: | 2022 High-Deductible Health Plan Rules | | | | --- | --- | --- | | | Individuals | Families | | Minimum Deductible | $1,400 | $2,800 | | Out-of-Pocket Maximum\* (includes deductibles, co-payments, co-insurance) | $7,050 | $14,100 | | 2023 High-Deductible Health Plan Rules | | | | --- | --- | --- | | | Individuals | Families | | Minimum Deductible | $1,500 | $3,000 | | Out-of-Pocket Maximum\* (includes deductibles, co-payments, co-insurance) | $7,500 | $15,000 | \*Note that the out-of-pocket maximum is also designated by the plan. It can include deductibles, [co-payments](https://www.investopedia.com/terms/c/copay.asp), and co-insurance. It does not include insurance premiums. The out-of-pocket maximum will usually not include out-of-network services. ## How Does a Health Savings Account Work? Contributions to an HSA are tax-deductible. For employer-sponsored plans, the contributions are deducted from paychecks. If you're self-employed, the deductions can be taken when your annual taxes are prepared. Withdrawals from an HSA are tax-free provided the money is used to pay for qualified [medical expenses](https://www.investopedia.com/terms/m/medical-expenses.asp). These expenses can include payments for dental and vision care, which some medical health insurance plans do not cover. Most HSAs issue a [debit card](https://www.investopedia.com/terms/d/debitcard.asp) that can be used to pay for prescription medications and other eligible expenses. If you wait for a bill to come in the mail, you can make a payment over the phone using your debit card. ### No Use-It-or-Lose-It Worries Any money that is in your account at the end of the year remains in your account to pay for future qualified medical expenses. End-of-year balances are carried over indefinitely. The account and its funds belong to you, and you retain ownership even if you change health insurance plans, change jobs, or retire. While it's in the account, the money grows tax-free. ## How Much Can I Contribute to a HSA? The IRS sets limits that determine the combined amount that you, your employer, and any other person can contribute to your HSA each year: * For 2022,the maximum contribution amounts are $3,650 for individual coverage and $7,300 for family coverage. * For 2023, the maximum amounts are $3,850 for individuals and $7,750 for family coverage. * You can add up to $1,000 more as a "catch-up" contribution if you are age 55 or older. ## How Can I Use HSA Money? The money in your HSA can be used to pay for qualified medical expenses incurred by you, your spouse, and your dependents. The IRS establishes what is and what is not a qualified medical expense, detailed in IRS Publication 502, Medical and Dental Expenses. Qualified expenses include nearly any medical cost you may incur, including payments for diagnostics, cures, mitigations, treatments, and prescribed preventative medications. One of the great benefits of the HSA is that it can be used to make payments that count toward your deductible. Moreover, the HSA is a tax shelter, meaning you won’t pay income taxes on the money you contribute. This saves you the taxable amount while allowing you to put those funds towards medical expenses that you would probably have otherwise paid with after-tax dollars. ![What Can Be Paid With HSA Money?]() :max_bytes(150000):strip_icc()/rules-having-health-savings-account-hsa_final-58180fce30aa4fe8b278b4137e8ccb48.png) Investopedia / Ellen Lindner ### Filling Gaps in Health Plans Remember that you can also use the account for expenses that aren't covered by your health insurance plan. For example, if your medical plan doesn't cover [dental or vision care](https://www.investopedia.com/why-are-vision-and-dental-insurance-separate-8548493), HSA funds can still be used for those bills. There are a few things that an HSA cannot be used for. You can't use it to pay [insurance premiums](https://www.investopedia.com/terms/i/insurance-premium.asp). Other ineligible expenses include over-the-counter items like toothpaste, toiletries, and cosmetics, as well as most cosmetic surgeries. A vacation to a healthier climate would also not qualify. ### Starting on Jan. 1, 2020, and due to the passage of the CARES Act, more items are HSA eligible and reimbursable, including menstrual care products, over-the-counter drugs without a prescription, and smoking cessation drugs (nicotine patches and gum). [Cigna](https://www.cigna.com/individuals-families/member-guide/eligible-expenses#M-O) provides a complete list of covered and not covered items. If you're 64 or younger and withdraw funds for a non-qualified expense, you'll owe income taxes on the money, plus a 20% penalty. If you're 65 or over or are disabled, you'll still owe taxes on the amount but will be spared the penalty. So, frankly, after age 65, you can essentially withdraw HSA funds for anything. ## How Can I Set Up a HSA? You first need to enroll for an HDHP. If you take that step through your employer's [human resources](https://www.investopedia.com/terms/h/humanresources.asp) department, it should be able to advise you on creating your HSA. Most employer-sponsored HDHPs have an associated HSA provider for you to work with. If an HSA does not come with your HDHP, you can set up the account on your own. Banks, credit unions, and brokerages all offer HSAs. Each [HSA provider](https://www.investopedia.com/best-health-savings-account-providers-5079652) can create its own terms. HSAs through a [brokerage](https://www.investopedia.com/terms/b/brokerage-company.asp) even allow you to invest your contributions in stocks, bonds, or funds. Bank HSAs will usually offer an optimal interest rate. Once you select a provider, the enrollment process is fairly straightforward: You will be required to complete an application with information on your HDHP. Once your account is approved you can fund the account and begin using it for qualified expenses. ## HSAs As Savings/Investing Tools An HSA can be used as a tax-sheltered investment vehicle. For savvy investors, they create an opportunity to accumulate capital gains that can be withdrawn tax-free for medical expenses. Most HSA account holders will want to be somewhat conservative in investing this money since it is intended for necessary medical costs. This can limit the types of investments an account holder may want to make with their HSA contributions to mostly low-risk products like highly-rated bonds. The type of account opened will dictate the type of investments that may be available. Plans provided through banks usually offer only high-yield savings deposits. Brokerages offer much more. Some of the top HSA investment platforms include Vanguard, HSA Bank/TD Ameritrade, Lively, Optum Bank, and HealthSavings Administrators. ## Who Benefits Most From a HSA? High-deductible health plans make the most sense for people who are relatively healthy with minimal expectations for their annual healthcare needs. HDHPs offer lower premiums in return for higher deductibles that would need to be paid if an emergency arises. This is what makes the combination of an HDHP and HSA very beneficial. Plan owners can potentially save indefinitely through an HSA for emergencies that may require a high deductible payment. HSAs and HDHPs can also appeal to [high-income earners](https://www.investopedia.com/articles/personal-finance/120715/why-hsas-appeal-more-highincome-earners.asp) as well as people nearing retirement age. High earners choosing an HDHP can use an HSA to save up to $7,300 per year in a tax-sheltered account. ### The HSA as a Retirement Savings Vehicle For both high-income earners and those approaching retirement, the HSA can be a worthwhile vehicle for building a medical emergency fund while also saving in a type of [alternative retirement vehicle](https://www.investopedia.com/articles/personal-finance/091615/how-use-your-hsa-retirement.asp). On the other hand, keep in mind that if you incur substantial health costs for standard medical care, the high-deductible health plan required to open an HSA might not be the right choice for you. Even though you will pay less in premiums with the HDHP, it could be difficult—even with money in an HSA—to come up with the cash to meet the deductible for a costly medical procedure. ## Can I Get an HSA If I Have a Low-Deductible Plan? No. Only people who have high-deductible health insurance plans are eligible to open a Health Savings Account. Some employers offer a similar plan called a [flexible spending account](https://www.investopedia.com/terms/f/flexiblespendingaccount.asp) (FSA). That is, employees can choose to divert up to a certain annual limit, tax-free, into an account that can be used to pay medical expenses that the company health plan doesn't cover. The FSA is also a "tax-favored plan" but it is relatively limited in its usefulness. For one thing, the money in your account doesn't roll over from year to year. You use it or lose it. ## What Are the Benefits of a Health Savings Account? The Health Savings Account was created to help people pay for expenses, expected or unexpected, that aren't covered by their high-deductible health insurance plans. That's no small benefit if you or someone in your family requires expensive health treatment. Moreover, the money you pay into the account is tax-sheltered. It works somewhat like a 401(k) plan or IRA. The money accumulates from year to year without taxes being owed on it. If you don't use all of the money in your account, it can turn into a retirement nest egg. ## What Are the Downsides of a Health Savings Account? The money deducted from your paycheck and paid into a Health Savings Account can only be used for medical expenses. If you take the money out for any other reason, no matter how necessary, you'll owe income taxes plus a 20% penalty. (Unless you're over age 65. In that case, there's no penalty.) ## The Bottom Line If you have a high-deductible health insurance plan, having a Health Savings Account can give you some peace of mind regarding unexpected (and uncovered) medical expenses. Better yet, any money in your account that you don't have to use will continue to accumulate tax-free over time. In the long run, your HSA can turn into a separate stream of retirement income.

Does your health insurance come with deductibles in the four figures? If so, you're probably eligible to establish a Health Savings Account (HSA). Used in combination with a High-Deductible Health Plan (HDHP), funds deposited in an HSA can go towards paying medical bills until the plan's deductible is met and your healthcare coverage kicks in. HSAs were established in 2003 as part of the Medicare Prescription Drug, Improvement, and Modernization Act. These savings accounts have become an increasingly popular option for consumers seeking to manage their healthcare costs. They also work as a tax-advantaged savings tool as well. Key Takeaways An HSA lets you set aside pre-tax income to cover healthcare costs that your insurance doesn't pay.You can open an HSA if you have a qualifying high-deductible health plan.For the 2022 tax year, the maximum contribution amounts are $3,650 for individuals and $7,300 for family coverage. For 2023, the maximum amounts are $3,850 for individuals and $7,750 for families.If you are 55 or older, you can add up to $1,000 more as a catch-up contribution.HSAs have no use-it-or-lose-it provision. Any funds still in the plan at the end of the year can be rolled over indefinitely. Who Can Open a Health Savings Account? According to the federal guidelines, you can open and contribute to an HSA if you: Are covered under a qualifying high-deductible health plan which meets the minimum deductible and the maximum out of pocket threshold for the year Are not covered by any other medical plan, such as a spouse's plan Are not enrolled in Medicare Are not enrolled in TRICARE or TRICARE for Life Are not claimed as a dependent on someone else's tax return Have not used Veterans Administration medical benefits in the past three months (exceptions apply to veterans enrolled in a high-deductible health plan who either have a service-connected disability or have only accessed disregarded coverage and preventive services in the past three months). Do not have any disqualifying alternative medical savings accounts, like a Flexible Spending Account or Health Reimbursement Account What Qualifies as a High-Deductible Health Plan? As its name implies, an HDHP is a healthcare plan that trades relatively low monthly premiums for relatively high deductibles. To qualify for an HSA that can be opened in combination with an HDHP, the HDHP must meet certain criteria. The Internal Revenue Service (IRS) establishes guidelines ever year, adjusting the figures for inflation. Here are the qualifying criteria for tax years 2022 and 2023: 2022 High-Deductible Health Plan Rules   Individuals Families Minimum Deductible $1,400 $2,800 Out-of-Pocket Maximum* (includes deductibles, co-payments, co-insurance) $7,050 $14,100 2023 High-Deductible Health Plan Rules   Individuals Families Minimum Deductible $1,500 $3,000 Out-of-Pocket Maximum* (includes deductibles, co-payments, co-insurance) $7,500 $15,000 *Note that the out-of-pocket maximum is also designated by the plan. It can include deductibles, co-payments, and co-insurance. It does not include insurance premiums. The out-of-pocket maximum will usually not include out-of-network services. How Does a Health Savings Account Work? Contributions to an HSA are tax-deductible. For employer-sponsored plans, the contributions are deducted from paychecks. If you're self-employed, the deductions can be taken when your annual taxes are prepared. Withdrawals from an HSA are tax-free provided the money is used to pay for qualified medical expenses. These expenses can include payments for dental and vision care, which some medical health insurance plans do not cover. Most HSAs issue a debit card that can be used to pay for prescription medications and other eligible expenses. If you wait for a bill to come in the mail, you can make a payment over the phone using your debit card. No Use-It-or-Lose-It Worries Any money that is in your account at the end of the year remains in your account to pay for future qualified medical expenses. End-of-year balances are carried over indefinitely. The account and its funds belong to you, and you retain ownership even if you change health insurance plans, change jobs, or retire. While it's in the account, the money grows tax-free. How Much Can I Contribute to a HSA? The IRS sets limits that determine the combined amount that you, your employer, and any other person can contribute to your HSA each year: For 2022,the maximum contribution amounts are $3,650 for individual coverage and $7,300 for family coverage.For 2023, the maximum amounts are $3,850 for individuals and $7,750 for family coverage.You can add up to $1,000 more as a "catch-up" contribution if you are age 55 or older. How Can I Use HSA Money? The money in your HSA can be used to pay for qualified medical expenses incurred by you, your spouse, and your dependents. The IRS establishes what is and what is not a qualified medical expense, detailed in IRS Publication 502, Medical and Dental Expenses. Qualified expenses include nearly any medical cost you may incur, including payments for diagnostics, cures, mitigations, treatments, and prescribed preventative medications. One of the great benefits of the HSA is that it can be used to make payments that count toward your deductible. Moreover, the HSA is a tax shelter, meaning you won’t pay income taxes on the money you contribute. This saves you the taxable amount while allowing you to put those funds towards medical expenses that you would probably have otherwise paid with after-tax dollars. Investopedia / Ellen Lindner Filling Gaps in Health Plans Remember that you can also use the account for expenses that aren't covered by your health insurance plan. For example, if your medical plan doesn't cover dental or vision care, HSA funds can still be used for those bills. There are a few things that an HSA cannot be used for. You can't use it to pay insurance premiums. Other ineligible expenses include over-the-counter items like toothpaste, toiletries, and cosmetics, as well as most cosmetic surgeries. A vacation to a healthier climate would also not qualify. Starting on Jan. 1, 2020, and due to the passage of the CARES Act, more items are HSA eligible and reimbursable, including menstrual care products, over-the-counter drugs without a prescription, and smoking cessation drugs (nicotine patches and gum). Cigna provides a complete list of covered and not covered items. If you're 64 or younger and withdraw funds for a non-qualified expense, you'll owe income taxes on the money, plus a 20% penalty. If you're 65 or over or are disabled, you'll still owe taxes on the amount but will be spared the penalty. So, frankly, after age 65, you can essentially withdraw HSA funds for anything. How Can I Set Up a HSA? You first need to enroll for an HDHP. If you take that step through your employer's human resources department, it should be able to advise you on creating your HSA. Most employer-sponsored HDHPs have an associated HSA provider for you to work with. If an HSA does not come with your HDHP, you can set up the account on your own. Banks, credit unions, and brokerages all offer HSAs. Each HSA provider can create its own terms. HSAs through a brokerage even allow you to invest your contributions in stocks, bonds, or funds. Bank HSAs will usually offer an optimal interest rate. Once you select a provider, the enrollment process is fairly straightforward: You will be required to complete an application with information on your HDHP. Once your account is approved you can fund the account and begin using it for qualified expenses. HSAs As Savings/Investing Tools An HSA can be used as a tax-sheltered investment vehicle. For savvy investors, they create an opportunity to accumulate capital gains that can be withdrawn tax-free for medical expenses. Most HSA account holders will want to be somewhat conservative in investing this money since it is intended for necessary medical costs. This can limit the types of investments an account holder may want to make with their HSA contributions to mostly low-risk products like highly-rated bonds. The type of account opened will dictate the type of investments that may be available. Plans provided through banks usually offer only high-yield savings deposits. Brokerages offer much more. Some of the top HSA investment platforms include Vanguard, HSA Bank/TD Ameritrade, Lively, Optum Bank, and HealthSavings Administrators. Who Benefits Most From a HSA? High-deductible health plans make the most sense for people who are relatively healthy with minimal expectations for their annual healthcare needs. HDHPs offer lower premiums in return for higher deductibles that would need to be paid if an emergency arises. This is what makes the combination of an HDHP and HSA very beneficial. Plan owners can potentially save indefinitely through an HSA for emergencies that may require a high deductible payment. HSAs and HDHPs can also appeal to high-income earners as well as people nearing retirement age. High earners choosing an HDHP can use an HSA to save up to $7,300 per year in a tax-sheltered account. The HSA as a Retirement Savings Vehicle For both high-income earners and those approaching retirement, the HSA can be a worthwhile vehicle for building a medical emergency fund while also saving in a type of alternative retirement vehicle. On the other hand, keep in mind that if you incur substantial health costs for standard medical care, the high-deductible health plan required to open an HSA might not be the right choice for you. Even though you will pay less in premiums with the HDHP, it could be difficult—even with money in an HSA—to come up with the cash to meet the deductible for a costly medical procedure. Can I Get an HSA If I Have a Low-Deductible Plan? No. Only people who have high-deductible health insurance plans are eligible to open a Health Savings Account. Some employers offer a similar plan called a flexible spending account (FSA). That is, employees can choose to divert up to a certain annual limit, tax-free, into an account that can be used to pay medical expenses that the company health plan doesn't cover. The FSA is also a "tax-favored plan" but it is relatively limited in its usefulness. For one thing, the money in your account doesn't roll over from year to year. You use it or lose it. What Are the Benefits of a Health Savings Account? The Health Savings Account was created to help people pay for expenses, expected or unexpected, that aren't covered by their high-deductible health insurance plans. That's no small benefit if you or someone in your family requires expensive health treatment.Moreover, the money you pay into the account is tax-sheltered. It works somewhat like a 401(k) plan or IRA. The money accumulates from year to year without taxes being owed on it.If you don't use all of the money in your account, it can turn into a retirement nest egg. What Are the Downsides of a Health Savings Account? The money deducted from your paycheck and paid into a Health Savings Account can only be used for medical expenses. If you take the money out for any other reason, no matter how necessary, you'll owe income taxes plus a 20% penalty. (Unless you're over age 65. In that case, there's no penalty.) The Bottom Line If you have a high-deductible health insurance plan, having a Health Savings Account can give you some peace of mind regarding unexpected (and uncovered) medical expenses. Better yet, any money in your account that you don't have to use will continue to accumulate tax-free over time. In the long run, your HSA can turn into a separate stream of retirement income.

https://www.investopedia.com/the-express-podcast-episode-137-7498183

Inside the Most Important Charts in the World as the Debt Ceiling Deadline Looms

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block megaphone" id="mntl-sc-block_1-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://playlist.megaphone.fm/?e=MERE1465994839" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Inside the Most Important Charts in the World as the Debt Ceiling Deadline Looms"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <strong>Subscribe Now</strong>: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197" rel="nofollow">Apple Podcasts</a> / <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9" rel="nofollow">Spotify</a> / <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver">Google Podcasts</a> / <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://player.fm/series/2836180">PlayerFM</a> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://twitter.com/allstarcharts">JC Parets</a> of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://get.allstarcharts.com/">AllStarCharts</a> rejoins The Express to help us find where the bulls are running across the entire global stock market, and shares his favorite wines for the spring season. Plus, the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt-ceiling.asp">debt ceiling</a> deadline is approaching quickly, and the consequences of political inaction could send global markets into an unknown spiral if the U.S. gets hit with a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrating.asp">credit rating</a> downgrade. Will the lessons learned in <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/2011-debt-ceiling-crisis.asp">2011</a> help break the standoff in Washington D.C.?<br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

**Subscribe Now**: [Apple Podcasts](https://podcasts.apple.com/us/podcast/the-investopedia-express-with-caleb-silver/id1529322197) / [Spotify](https://open.spotify.com/show/1TwnoxxgCIGK8mF7szI6j9) / [Google Podcasts](https://podcasts.google.com/search/The%20Investopedia%20Express%20with%20Caleb%20Silver) / [PlayerFM](https://player.fm/series/2836180) [JC Parets](https://twitter.com/allstarcharts) of [AllStarCharts](https://get.allstarcharts.com/) rejoins The Express to help us find where the bulls are running across the entire global stock market, and shares his favorite wines for the spring season. Plus, the [debt ceiling](https://www.investopedia.com/terms/d/debt-ceiling.asp) deadline is approaching quickly, and the consequences of political inaction could send global markets into an unknown spiral if the U.S. gets hit with a [credit rating](https://www.investopedia.com/terms/c/creditrating.asp) downgrade. Will the lessons learned in [2011](https://www.investopedia.com/terms/1/2011-debt-ceiling-crisis.asp) help break the standoff in Washington D.C.? Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Subscribe Now: Apple Podcasts / Spotify / Google Podcasts / PlayerFM JC Parets of AllStarCharts rejoins The Express to help us find where the bulls are running across the entire global stock market, and shares his favorite wines for the spring season. Plus, the debt ceiling deadline is approaching quickly, and the consequences of political inaction could send global markets into an unknown spiral if the U.S. gets hit with a credit rating downgrade. Will the lessons learned in 2011 help break the standoff in Washington D.C.? Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/terms/n/natural-gas-etf.asp

What Are Natural Gas ETFs, and How Do they Work?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-natural-gas-etf"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Natural Gas ETF? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A natural gas <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded fund (ETF)</a> is a type of pooled investment product that provides investors with exposure to natural gas prices. These funds are often overseen by a professional manager, who invests on behalf of the investors, and tend to invest in a basket of natural gas <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futurescontract.asp">futures contracts</a> rather than hold stocks of natural gas companies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Natural gas ETFs are investment vehicles that provide exposure to natural gas prices.</li><li>They are structured as commodity pools that hold natural gas futures contracts.</li><li>Natural gas ETFs can also employ various strategies, such as holding physical natural gas, investing in futures contracts, or equities of companies involved in the natural gas sector.</li><li>ETFs (not just natural gas ETFs) generally provide liquidity as they trade on stock exchanges, but investors should be aware of management fees and expenses associated with these funds.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-natural-gas-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Natural Gas ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Natural gas is a commodity that serves many purposes. It is used as a source of energy for heating, cooking, fuel, and electricity generation as well as to manufacture plastics and other organic chemicals. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> It is important for investors to understand the difference between natural gas ETFs and other popular types of ETFs. Many ETFs own their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underlying.asp">underlying assets</a> directly, such as gold ETFs that own physical bullion or industry-sector ETFs that own the shares of companies operating in their industry. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Natural gas ETFs, however, do not usually own any physical natural gas. Instead, they own natural gas indirectly by purchasing natural gas futures contracts that trade on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/commodities-trading-overview/">commodities exchange</a>. The profitability of a natural gas ETF is, therefore, dependent on the overall price direction of natural gas, based on the trading that takes place on the commodities exchange.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The price of natural gas rises and falls according to fluctuations in supply and demand.<span class="ql-inline-citation" data-cite="6"></span></p></div></div></div> <span class="heading-toc" id="toc-diversity-of-natural-gas-etf-holdings"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Diversity of Natural Gas ETF Holdings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Natural gas ETFs offer investors a range of strategies to gain exposure to the natural gas market. Most hold futures contracts, though there are other opportunities (listed below) that also expose investors to the industry.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Some natural gas ETFs hold physical natural gas in storage facilities. These funds purchase and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/natural-gas-storage-indicator-eia-report.asp">store actual natural gas</a>, typically in the form of futures contracts, and aim to track the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spotprice.asp">spot price</a> of the commodity. Investing in physical natural gas can provide a more direct and straightforward exposure to the commodity's price movements, though there are obvious and significant carrying costs to this type of investment vehicle.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Instead of holding physical natural gas, many natural gas ETFs use futures contracts to track the price of natural gas. These funds invest in natural gas futures which are agreements to buy or sell the commodity at a predetermined price at a specified future date. Futures-based ETFs can provide exposure to short-term price movements and can be more liquid than physical natural gas ETFs.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Some natural gas ETFs invest in the equities of companies involved in the natural gas sector. These companies can include natural gas producers, exploration and production companies, pipeline operators, and utilities. By investing in equities, these ETFs provide exposure to the broader natural gas industry and can be influenced by factors beyond just the price of natural gas. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Last, there are leveraged and inverse natural gas ETFs. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leveraged-etf.asp">Leveraged ETFs</a> aim to amplify the returns of the underlying asset, typically on a daily basis. Inverse ETFs, on the other hand, seek to provide returns that are the opposite of the underlying asset's performance. These ETFs are more complex and are generally used for short-term trading or hedging strategies.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-natural-gas-etfs-and-forward-contracts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> Natural Gas ETFs and Forward Contracts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> As mentioned several times above, natural gas ETFs may use forward contracts as part of their investment strategy to gain exposure to the natural gas market. Unlike futures contracts which have standardized terms, forward contracts are individually tailored to meet the specific needs and objectives of the parties involved. Forward contracts offer more flexibility in terms of settlement dates and contract terms. This flexibility allows ETFs to better match their exposure to the desired investment horizon. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Forward contracts are also typically traded in the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/otc.asp">over-the-counter (OTC) market</a>, meaning they are not as liquid or regulated as futures contracts traded on exchanges. This can provide ETFs with alternative ways to gain exposure to natural gas, but it also introduces counterparty risk as they are directly dealing with another party with very specific risks.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> To manage counterparty risk, ETFs using forward contracts often require the posting of collateral by the counterparty. This collateral can serve as a security against potential default, ensuring that the terms of the contract are fulfilled. Also, ETFs using forward contracts may need to roll over their positions as contracts approach their expiration dates. This involves closing out the existing contract and entering into a new one with updated terms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <span class="heading-toc" id="toc-limitations-of-natural-gas-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-heading__text"> Limitations of Natural Gas ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Because natural gas ETFs hold futures contracts, they are exposed to a special type of risk called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/contango.asp">contango</a>. Each month, the manager of the natural gas ETF has to purchase new futures contracts to replace the old contracts that expire. The new contracts tend to have slightly higher prices than the old ones, meaning that each time contracts are replaced, extra costs are incurred by the fund manager. Over time, these small costs can add up to create a large drag on the fund’s overall performance.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> For this reason, investors will generally avoid relying on natural gas ETFs as a type of long-term investment vehicle. Because of contango risk, an investor could incur significant costs from the ongoing roll-over of futures contracts, meaning that even if natural gas prices do rise over their investment period, they might not rise enough to make the overall investment profitable. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Most investors seeking exposure, therefore, use natural gas ETFs mainly as a short-term trading vehicle, so that the costs of contango do not accumulate enough to have a meaningful impact. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_40-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_41-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>There are two natural gas ETFs that trade in the U.S., excluding inverse and leveraged ETFs, as of Dec. 2023.<span class="ql-inline-citation" data-cite="8"></span></p></div></div></div> <span class="heading-toc" id="toc-example-of-a-natural-gas-etf"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_42-0"> <span class="mntl-sc-block-heading__text"> Example of a Natural Gas ETF </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> One example of a widely traded natural gas ETF is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/ung.asp">United States Natural Gas Fund</a>. This fund is primarily composed of natural gas futures contracts that are set to expire within the next month and trades on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nymex.asp">New York Mercantile Exchange (NYMEX)</a> as UNG. Its goal is to reflect the daily changes in percentage terms of the price of natural gas delivered at the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/henry_hub.asp">Henry Hub</a>, Louisiana, a natural gas pipeline that serves as the official delivery location for futures contracts on the NYMEX.<span class="ql-inline-citation" data-cite="2"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> The United States Natural Gas Fund is very sensitive to fluctuations in natural gas prices, so investors need to watch market prices closely to try to yield a profit. Over the past 20 years, natural gas prices have ranged between a high of $22, reached in the Fall of 2005, to just under $2, reached in September of 2020.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> UNG offers exposure to commodities without the need for a dedicated commodity futures account, providing features like intraday pricing, as well as the ability to place market, limit, and stop orders. Additionally, UNG maintains transparency by regularly updating its website with information on portfolio holdings, market price, Net Asset Value (NAV), and Total Net Assets (TNA). As of Sept. 2023, the management fee is 0.60%, the total expense ratio is 1.06%, and the 1-month net asset value was -4.08%.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-what-is-the-objective-of-investing-in-a-natural-gas-etf"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Objective of Investing in a Natural Gas ETF?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The objective of investing in a natural gas ETF is to gain exposure to the natural gas market. Investors may seek to profit from price movements, hedge against natural gas price changes, or diversify their investment portfolios.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-how-do-natural-gas-etfs-track-the-price-of-natural-gas"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Natural Gas ETFs Track the Price of Natural Gas?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Natural gas ETFs employ various mechanisms to track the price of natural gas. One common approach involves investing in natural gas futures contracts, which are financial agreements specifying the purchase or sale of natural gas at a future date. These contracts closely mirror the movements in natural gas prices, allowing the ETFs to track these price changes over time. By rolling over expiring contracts, these ETFs can maintain their exposure to the commodity.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-do-natural-gas-etfs-physically-hold-natural-gas"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Natural Gas ETFs Physically Hold Natural Gas?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some natural gas ETFs may directly hold physical natural gas in storage facilities, aiming to replicate the spot price of the commodity.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Natural gas ETFs are investment vehicles that provide exposure to the natural gas market. They utilize various strategies, though many invest via futures contracts. The purpose of a natural gas ETF is to allow investors an opportunity to profit from or hedge against natural gas price movements. While they offer a convenient way to access the energy commodity, these ETFs come with inherent risks including price volatility and tracking errors, similar to the risks of other ETFs. </p></div>

## What Is a Natural Gas ETF? A natural gas [exchange-traded fund (ETF)](https://www.investopedia.com/terms/e/etf.asp) is a type of pooled investment product that provides investors with exposure to natural gas prices. These funds are often overseen by a professional manager, who invests on behalf of the investors, and tend to invest in a basket of natural gas [futures contracts](https://www.investopedia.com/terms/f/futurescontract.asp) rather than hold stocks of natural gas companies. ### Key Takeaways * Natural gas ETFs are investment vehicles that provide exposure to natural gas prices. * They are structured as commodity pools that hold natural gas futures contracts. * Natural gas ETFs can also employ various strategies, such as holding physical natural gas, investing in futures contracts, or equities of companies involved in the natural gas sector. * ETFs (not just natural gas ETFs) generally provide liquidity as they trade on stock exchanges, but investors should be aware of management fees and expenses associated with these funds. ## Understanding Natural Gas ETFs Natural gas is a commodity that serves many purposes. It is used as a source of energy for heating, cooking, fuel, and electricity generation as well as to manufacture plastics and other organic chemicals. It is important for investors to understand the difference between natural gas ETFs and other popular types of ETFs. Many ETFs own their [underlying assets](https://www.investopedia.com/terms/u/underlying.asp) directly, such as gold ETFs that own physical bullion or industry-sector ETFs that own the shares of companies operating in their industry. Natural gas ETFs, however, do not usually own any physical natural gas. Instead, they own natural gas indirectly by purchasing natural gas futures contracts that trade on a [commodities exchange](https://www.investopedia.com/investing/commodities-trading-overview/). The profitability of a natural gas ETF is, therefore, dependent on the overall price direction of natural gas, based on the trading that takes place on the commodities exchange. ### The price of natural gas rises and falls according to fluctuations in supply and demand. ## Diversity of Natural Gas ETF Holdings Natural gas ETFs offer investors a range of strategies to gain exposure to the natural gas market. Most hold futures contracts, though there are other opportunities (listed below) that also expose investors to the industry.  Some natural gas ETFs hold physical natural gas in storage facilities. These funds purchase and [store actual natural gas](https://www.investopedia.com/terms/n/natural-gas-storage-indicator-eia-report.asp), typically in the form of futures contracts, and aim to track the [spot price](https://www.investopedia.com/terms/s/spotprice.asp) of the commodity. Investing in physical natural gas can provide a more direct and straightforward exposure to the commodity's price movements, though there are obvious and significant carrying costs to this type of investment vehicle.  Instead of holding physical natural gas, many natural gas ETFs use futures contracts to track the price of natural gas. These funds invest in natural gas futures which are agreements to buy or sell the commodity at a predetermined price at a specified future date. Futures-based ETFs can provide exposure to short-term price movements and can be more liquid than physical natural gas ETFs.  Some natural gas ETFs invest in the equities of companies involved in the natural gas sector. These companies can include natural gas producers, exploration and production companies, pipeline operators, and utilities. By investing in equities, these ETFs provide exposure to the broader natural gas industry and can be influenced by factors beyond just the price of natural gas. Last, there are leveraged and inverse natural gas ETFs. [Leveraged ETFs](https://www.investopedia.com/terms/l/leveraged-etf.asp) aim to amplify the returns of the underlying asset, typically on a daily basis. Inverse ETFs, on the other hand, seek to provide returns that are the opposite of the underlying asset's performance. These ETFs are more complex and are generally used for short-term trading or hedging strategies. ## Natural Gas ETFs and Forward Contracts As mentioned several times above, natural gas ETFs may use forward contracts as part of their investment strategy to gain exposure to the natural gas market. Unlike futures contracts which have standardized terms, forward contracts are individually tailored to meet the specific needs and objectives of the parties involved. Forward contracts offer more flexibility in terms of settlement dates and contract terms. This flexibility allows ETFs to better match their exposure to the desired investment horizon. Forward contracts are also typically traded in the [over-the-counter (OTC) market](https://www.investopedia.com/terms/o/otc.asp), meaning they are not as liquid or regulated as futures contracts traded on exchanges. This can provide ETFs with alternative ways to gain exposure to natural gas, but it also introduces counterparty risk as they are directly dealing with another party with very specific risks. To manage counterparty risk, ETFs using forward contracts often require the posting of collateral by the counterparty. This collateral can serve as a security against potential default, ensuring that the terms of the contract are fulfilled. Also, ETFs using forward contracts may need to roll over their positions as contracts approach their expiration dates. This involves closing out the existing contract and entering into a new one with updated terms. ## Limitations of Natural Gas ETFs Because natural gas ETFs hold futures contracts, they are exposed to a special type of risk called [contango](https://www.investopedia.com/terms/c/contango.asp). Each month, the manager of the natural gas ETF has to purchase new futures contracts to replace the old contracts that expire. The new contracts tend to have slightly higher prices than the old ones, meaning that each time contracts are replaced, extra costs are incurred by the fund manager. Over time, these small costs can add up to create a large drag on the fund’s overall performance. For this reason, investors will generally avoid relying on natural gas ETFs as a type of long-term investment vehicle. Because of contango risk, an investor could incur significant costs from the ongoing roll-over of futures contracts, meaning that even if natural gas prices do rise over their investment period, they might not rise enough to make the overall investment profitable. Most investors seeking exposure, therefore, use natural gas ETFs mainly as a short-term trading vehicle, so that the costs of contango do not accumulate enough to have a meaningful impact. ### There are two natural gas ETFs that trade in the U.S., excluding inverse and leveraged ETFs, as of Dec. 2023. ## Example of a Natural Gas ETF One example of a widely traded natural gas ETF is the [United States Natural Gas Fund](https://www.investopedia.com/terms/u/ung.asp). This fund is primarily composed of natural gas futures contracts that are set to expire within the next month and trades on the [New York Mercantile Exchange (NYMEX)](https://www.investopedia.com/terms/n/nymex.asp) as UNG. Its goal is to reflect the daily changes in percentage terms of the price of natural gas delivered at the [Henry Hub](https://www.investopedia.com/terms/h/henry_hub.asp), Louisiana, a natural gas pipeline that serves as the official delivery location for futures contracts on the NYMEX.  The United States Natural Gas Fund is very sensitive to fluctuations in natural gas prices, so investors need to watch market prices closely to try to yield a profit. Over the past 20 years, natural gas prices have ranged between a high of $22, reached in the Fall of 2005, to just under $2, reached in September of 2020. UNG offers exposure to commodities without the need for a dedicated commodity futures account, providing features like intraday pricing, as well as the ability to place market, limit, and stop orders. Additionally, UNG maintains transparency by regularly updating its website with information on portfolio holdings, market price, Net Asset Value (NAV), and Total Net Assets (TNA). As of Sept. 2023, the management fee is 0.60%, the total expense ratio is 1.06%, and the 1-month net asset value was -4.08%. ## What Is the Objective of Investing in a Natural Gas ETF? The objective of investing in a natural gas ETF is to gain exposure to the natural gas market. Investors may seek to profit from price movements, hedge against natural gas price changes, or diversify their investment portfolios. ## How Do Natural Gas ETFs Track the Price of Natural Gas? Natural gas ETFs employ various mechanisms to track the price of natural gas. One common approach involves investing in natural gas futures contracts, which are financial agreements specifying the purchase or sale of natural gas at a future date. These contracts closely mirror the movements in natural gas prices, allowing the ETFs to track these price changes over time. By rolling over expiring contracts, these ETFs can maintain their exposure to the commodity. ## Do Natural Gas ETFs Physically Hold Natural Gas? Some natural gas ETFs may directly hold physical natural gas in storage facilities, aiming to replicate the spot price of the commodity. ## The Bottom Line Natural gas ETFs are investment vehicles that provide exposure to the natural gas market. They utilize various strategies, though many invest via futures contracts. The purpose of a natural gas ETF is to allow investors an opportunity to profit from or hedge against natural gas price movements. While they offer a convenient way to access the energy commodity, these ETFs come with inherent risks including price volatility and tracking errors, similar to the risks of other ETFs.

What Is a Natural Gas ETF? A natural gas exchange-traded fund (ETF) is a type of pooled investment product that provides investors with exposure to natural gas prices. These funds are often overseen by a professional manager, who invests on behalf of the investors, and tend to invest in a basket of natural gas futures contracts rather than hold stocks of natural gas companies. Key Takeaways Natural gas ETFs are investment vehicles that provide exposure to natural gas prices.They are structured as commodity pools that hold natural gas futures contracts.Natural gas ETFs can also employ various strategies, such as holding physical natural gas, investing in futures contracts, or equities of companies involved in the natural gas sector.ETFs (not just natural gas ETFs) generally provide liquidity as they trade on stock exchanges, but investors should be aware of management fees and expenses associated with these funds. Understanding Natural Gas ETFs Natural gas is a commodity that serves many purposes. It is used as a source of energy for heating, cooking, fuel, and electricity generation as well as to manufacture plastics and other organic chemicals. It is important for investors to understand the difference between natural gas ETFs and other popular types of ETFs. Many ETFs own their underlying assets directly, such as gold ETFs that own physical bullion or industry-sector ETFs that own the shares of companies operating in their industry. Natural gas ETFs, however, do not usually own any physical natural gas. Instead, they own natural gas indirectly by purchasing natural gas futures contracts that trade on a commodities exchange. The profitability of a natural gas ETF is, therefore, dependent on the overall price direction of natural gas, based on the trading that takes place on the commodities exchange. The price of natural gas rises and falls according to fluctuations in supply and demand. Diversity of Natural Gas ETF Holdings Natural gas ETFs offer investors a range of strategies to gain exposure to the natural gas market. Most hold futures contracts, though there are other opportunities (listed below) that also expose investors to the industry.  Some natural gas ETFs hold physical natural gas in storage facilities. These funds purchase and store actual natural gas, typically in the form of futures contracts, and aim to track the spot price of the commodity. Investing in physical natural gas can provide a more direct and straightforward exposure to the commodity's price movements, though there are obvious and significant carrying costs to this type of investment vehicle.  Instead of holding physical natural gas, many natural gas ETFs use futures contracts to track the price of natural gas. These funds invest in natural gas futures which are agreements to buy or sell the commodity at a predetermined price at a specified future date. Futures-based ETFs can provide exposure to short-term price movements and can be more liquid than physical natural gas ETFs.  Some natural gas ETFs invest in the equities of companies involved in the natural gas sector. These companies can include natural gas producers, exploration and production companies, pipeline operators, and utilities. By investing in equities, these ETFs provide exposure to the broader natural gas industry and can be influenced by factors beyond just the price of natural gas. Last, there are leveraged and inverse natural gas ETFs. Leveraged ETFs aim to amplify the returns of the underlying asset, typically on a daily basis. Inverse ETFs, on the other hand, seek to provide returns that are the opposite of the underlying asset's performance. These ETFs are more complex and are generally used for short-term trading or hedging strategies. Natural Gas ETFs and Forward Contracts As mentioned several times above, natural gas ETFs may use forward contracts as part of their investment strategy to gain exposure to the natural gas market. Unlike futures contracts which have standardized terms, forward contracts are individually tailored to meet the specific needs and objectives of the parties involved. Forward contracts offer more flexibility in terms of settlement dates and contract terms. This flexibility allows ETFs to better match their exposure to the desired investment horizon. Forward contracts are also typically traded in the over-the-counter (OTC) market, meaning they are not as liquid or regulated as futures contracts traded on exchanges. This can provide ETFs with alternative ways to gain exposure to natural gas, but it also introduces counterparty risk as they are directly dealing with another party with very specific risks. To manage counterparty risk, ETFs using forward contracts often require the posting of collateral by the counterparty. This collateral can serve as a security against potential default, ensuring that the terms of the contract are fulfilled. Also, ETFs using forward contracts may need to roll over their positions as contracts approach their expiration dates. This involves closing out the existing contract and entering into a new one with updated terms. Limitations of Natural Gas ETFs Because natural gas ETFs hold futures contracts, they are exposed to a special type of risk called contango. Each month, the manager of the natural gas ETF has to purchase new futures contracts to replace the old contracts that expire. The new contracts tend to have slightly higher prices than the old ones, meaning that each time contracts are replaced, extra costs are incurred by the fund manager. Over time, these small costs can add up to create a large drag on the fund’s overall performance. For this reason, investors will generally avoid relying on natural gas ETFs as a type of long-term investment vehicle. Because of contango risk, an investor could incur significant costs from the ongoing roll-over of futures contracts, meaning that even if natural gas prices do rise over their investment period, they might not rise enough to make the overall investment profitable. Most investors seeking exposure, therefore, use natural gas ETFs mainly as a short-term trading vehicle, so that the costs of contango do not accumulate enough to have a meaningful impact. There are two natural gas ETFs that trade in the U.S., excluding inverse and leveraged ETFs, as of Dec. 2023. Example of a Natural Gas ETF One example of a widely traded natural gas ETF is the United States Natural Gas Fund. This fund is primarily composed of natural gas futures contracts that are set to expire within the next month and trades on the New York Mercantile Exchange (NYMEX) as UNG. Its goal is to reflect the daily changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana, a natural gas pipeline that serves as the official delivery location for futures contracts on the NYMEX.  The United States Natural Gas Fund is very sensitive to fluctuations in natural gas prices, so investors need to watch market prices closely to try to yield a profit. Over the past 20 years, natural gas prices have ranged between a high of $22, reached in the Fall of 2005, to just under $2, reached in September of 2020. UNG offers exposure to commodities without the need for a dedicated commodity futures account, providing features like intraday pricing, as well as the ability to place market, limit, and stop orders. Additionally, UNG maintains transparency by regularly updating its website with information on portfolio holdings, market price, Net Asset Value (NAV), and Total Net Assets (TNA). As of Sept. 2023, the management fee is 0.60%, the total expense ratio is 1.06%, and the 1-month net asset value was -4.08%. What Is the Objective of Investing in a Natural Gas ETF? The objective of investing in a natural gas ETF is to gain exposure to the natural gas market. Investors may seek to profit from price movements, hedge against natural gas price changes, or diversify their investment portfolios. How Do Natural Gas ETFs Track the Price of Natural Gas? Natural gas ETFs employ various mechanisms to track the price of natural gas. One common approach involves investing in natural gas futures contracts, which are financial agreements specifying the purchase or sale of natural gas at a future date. These contracts closely mirror the movements in natural gas prices, allowing the ETFs to track these price changes over time. By rolling over expiring contracts, these ETFs can maintain their exposure to the commodity. Do Natural Gas ETFs Physically Hold Natural Gas? Some natural gas ETFs may directly hold physical natural gas in storage facilities, aiming to replicate the spot price of the commodity. The Bottom Line Natural gas ETFs are investment vehicles that provide exposure to the natural gas market. They utilize various strategies, though many invest via futures contracts. The purpose of a natural gas ETF is to allow investors an opportunity to profit from or hedge against natural gas price movements. While they offer a convenient way to access the energy commodity, these ETFs come with inherent risks including price volatility and tracking errors, similar to the risks of other ETFs.

https://www.investopedia.com/building-better-retirement-strategies-for-women-8367558

Building Better Retirement Strategies for Women

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Much of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/05/061305.asp">retirement savings</a> advice offered online, and even by financial professionals, is intended for a wide audience. Unfortunately, it often doesn’t take into account the needs that specific groups may have—including women. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Because of factors like the wage gap between men and women and differences in financial literacy, women can benefit from retirement advice specifically tailored to their unique experiences. Steps like self-advocacy, financial education, and establishing financial building blocks can help them better prepare for retirement. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Women have longer life spans, on average, so long-term savings and retirement planning need to take life expectancy into consideration.</li><li>The gender wage gap puts women at a disadvantage when planning for retirement, and the disparity exists across industries and education levels—even more so for older individuals and people of color.</li><li>Taking steps such as self-advocacy, financial education, and establishing financial building blocks can help women better prepare for retirement.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-state-of-womens-retirement-savings"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> The State of Women’s Retirement Savings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Data consistently show that women are less prepared for retirement than men. The U.S. Census Bureau’s Survey of Income and Program Participation (SIPP) found, for instance, that women ages 55 to 66 are more likely than men to have no retirement savings. And of those who do have retirement savings, women in that same age bracket are less likely than men to have saved $100,000 or more.<span class="ql-inline-citation" data-cite="1"></span> Less preparation also means women are at greater risk of running out of money during retirement. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> A variety of factors contribute to these trends—and to the overall need for retirement savings advice that is more tailored to women—including longer life spans, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wage-gaps-by-gender-5082675">gender wage gap</a> (in 2022, women made only 82% of what men did), the time women may spend outside of the workforce caring for family and other loved ones, and even a lack of financial knowledge and confidence.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Here’s a look at how each of these factors contributes to women’s lack of retirement preparation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-women-live-longer"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-heading__text"> Women Live Longer  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> According to data from the National Vital Statistics System for 2021 (the last year for which data is available), life expectancy in the United States is 76.4 years. But there’s a considerable divergence between women’s and men’s life expectancies—women have a life expectancy of 79.1 years, while men have a life expectancy of just 73.2 years.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The nearly six-year difference between men’s and women’s expected life spans plays an important role in retirement planning for both sexes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> “One risk that threatens women’s retirement security is the unexpected, premature death of a partner,” says <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://everthrivefinancial.com/meet-the-team/" rel="nofollow">Valerie Leonard</a>, a financial advisor and CEO of EverThrive Financial Group in Alabama. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Imagine a married, heterosexual couple who has retired without savings and only their two monthly Social Security checks to support them. If the husband passes away, the wife has suddenly lost a considerable portion of her household income (even though Social Security will pay her the higher of the two benefits following the death of a spouse). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Because of women’s longer life spans, it’s critical to approach <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retirement-planning.asp">retirement planning</a> from a different perspective. Women not only must calculate the savings they will need and appropriate withdrawal rates during retirement based on their own life expectancies, but they also must put financial safeguards in place to prepare for the passing of their partners. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_25-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_26-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Order your copy of the print edition of the <a data-component="amazon" data-ordinal="1" data-source="affiliate" data-type="externalLink" href="https://www.amazon.com/dp/B0CKKSVGP6" rel="sponsored nofollow">Investopedia Retirement Guide</a> for more assistance in building the best plan for your retirement.</p></div></div></div> <span class="heading-toc" id="toc-work-experiences-put-women-at-a-disadvantage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> Work Experiences Put Women at a Disadvantage  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Women’s experience with the workforce significantly impacts their ability to save for retirement. First and foremost, women are generally paid less than men. According to the latest data from the U.S. Bureau of Labor Statistics, full-time working women are paid 83.7% of what their male counterparts are paid. That disparity exists across all different educational levels and industries.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> And not all women experience the wage gap evenly. The disparity is even greater for older women and women of color. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The wage gap, “coupled with being out of the workforce to family obligations, translates to a more than 1-million-dollar lifetime gap at retirement,” says <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://acmwealth.com/teammember/cary-carbonaro-cfp/" rel="nofollow">Cary Carbonaro</a>, a certified financial planner as well as a senior vice president and director of Woman and Wealth Services at ACM Wealth in New Jersey. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> A woman’s lower wages affect her ability to save for retirement in more ways than just having less money to budget each month. First, people often set a specific percentage to save for retirement. If both a man and a woman designate a 15% savings rate but the man makes more money, he will also save more. And with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compoundinterest.asp">compound interest</a>, his savings will grow faster and larger than hers will. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> A second important factor: Employer contributions to employee retirement accounts like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k)s</a> are often based on a percentage of wages. For example, an employer might agree to contribute up to 3% of each worker’s salary to their retirement plans. That means the higher a worker’s wages, the more retirement contributions they can receive from their employer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Finally, Social Security earnings are based on a worker’s earnings during their lifetime. Because women tend to get paid less during their working years, they also receive, on average, only 80% of what men receive in Social Security benefits.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-time-away-from-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> Time Away from Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> In addition to a woman’s lower wages, we must also consider how traditional familial responsibilities can impact the ability to save. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> According to the Bureau of Labor Statistics, in 2022, 72.9% of mothers and 92.9% of fathers with children under age 18 were either working or looking for work. The discrepancy in these statistics between women and men makes it clear that mothers are far more likely than fathers to exit the workforce while they have children.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> During those years when women aren’t working, they also aren’t contributing to their own retirement accounts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Even women who have rejoined the workforce—or never left it to begin with—may see their retirement savings impacted by their family duties. Mothers are more likely than fathers to work part-time and, even when working, are more than 10 times more likely to leave work to care for sick children.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Women’s familial responsibilities often extend past just their children, too. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> “Women ages 40 to 50 are considered the ‘sandwich generation’ and, many times, are forced to care for both children and adult parents at the same time,” EverThrive Financial Group’s Leonard says. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Adult daughters spend more than twice as much time as adult sons caring for elderly parents.<span class="ql-inline-citation" data-cite="9"></span> And like women who leave work—either temporarily or permanently—to care for children, devoting time to family instead of working can affect women’s standing at work, their wages, and ultimately, their retirement savings. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <span class="heading-toc" id="toc-many-women-lack-financial-confidence"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-heading__text"> Many Women Lack Financial Confidence  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> A final factor that may impact a woman’s ability to save for retirement is her financial literacy and confidence—or lack thereof.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-literacy-survey-5223919">2022 Investopedia Financial Literacy Study</a> found that women are less confident than men when it comes to their perceived financial knowledge. While most women (63%) said they feel that they have advanced knowledge of practical know-how when it comes to finances, only one in three feel that they understand traditional financial products like insurance, investments, and savings—which are key components of retirement planning. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> In 2023, a Morgan Stanley study found 36% of women aren’t confident they’ll be able to retire comfortably, compared with just 21% of men.<span class="ql-inline-citation" data-cite="10"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Similarly, U.S. Bank found 46% of baby boomer women, 53% of Gen X women, and 71% of millennial and Gen Z women felt confident in their ability to manage their finances, vs. 49%, 63%, and 75% of men in the respective generations.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> This faltering confidence can lead women to shy away from managing their own finances and perhaps handing it—and even their retirement planning—to male partners. Carbonaro has seen this effect up close, even among teens. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> “I did a presentation at a wealthy high school and asked the girls, ‘How many of you will be taking care of your future finances?’” says Carbonaro. “Less than 5% of the hands went up. These were girls aged 14 to 18. Fear is a big reason.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> Girls and young women may be taught primarily through a lens of “be careful with money” with lessons about how to budget, save money, and overcome impulsive shopping habits, while men are encouraged to earn and invest. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> “To me, it’s clear that we are not doing enough between elementary school and high school to equip these young girls and build their confidence so that they feel they can take control of their financial future,” Leonard says. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <span class="heading-toc" id="toc-what-women-can-do"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_72-0"> <span class="mntl-sc-block-heading__text"> What Women Can Do  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Much of the information we’ve shared so far can paint a bleak picture of women’s prospects of a comfortable retirement. The good news is there are plenty of steps that women can take to improve their financial literacy and their retirement savings plans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-subheading__text"> Advocate for Yourself in the Workplace  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> One of the most important things women can do to improve their retirement prospects is to advocate for themselves at work. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> “Advocacy is extremely important in the workplace, and it starts with helping women understand their own worth and weaknesses that can be strengthened,” Leonard says. “Building confidence, resiliency, and negotiating skills in women is critical to success in the workplace.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> Some of the things women can advocate and negotiate for include higher wages, higher retirement contributions, and better family leave policies. Of course, male partners and colleagues can and should also lobby employers to improve pay and benefits for women. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> “Getting male counterparts and other women involved in the conversation can help promote women’s disparity issues,” Leonard says. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> Advocacy also doesn’t have to end at women’s own workplaces. Eleven states and the District of Columbia have enacted paid family leave programs. Similarly, 16 states and the District of Columbia require paid sick leave for private-sector employees.<span class="ql-inline-citation" data-cite="12"></span> These policies can make it easier for women to remain in the workforce while also tending to family duties. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_86-0"> <span class="mntl-sc-block-subheading__text"> Seek Educational Resources </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> In addition to Investopedia, reputable sources for financial education such as the following can help close the knowledge gap for women: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> <li>The Consumer Financial Protection Bureau’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/consumer-tools/educator-tools/adult-financial-education/">financial education for adults</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.consumerfinance.gov/consumer-tools/educator-tools/youth-financial-education/">financial education for youths</a> homepages</li> <li>The Federal Deposit Insurance Corp.’s <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.fdic.gov/resources/consumers/money-smart/index.html">Money Smart</a> program</li> <li>The Financial Literacy and Education Commission’s educational website, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://www.mymoney.gov/">MyMoney.gov</a></li> <li>The Office of the Comptroller of the Currency’s <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="externalLink" href="https://www.occ.gov/topics/consumers-and-communities/community-affairs/resource-directories/financial-literacy/index-financial-literacy-resource-directory.html">Financial Literacy Resource Directory</a></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_91-0"> Additionally, many banks and credit unions offer financial literacy and education programs that may be free for current account holders. These programs can help you learn everything from balancing a bank account to investing for retirement. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_92-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_93-0"> <span class="mntl-sc-block-subheading__text"> Make a Plan for Retirement </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> The earlier and more diligently you start saving for the day you leave the workforce, the more prepared and comfortable you’ll be when that day comes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_95-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> First, designate a certain percentage that you’ll set aside for retirement each month. Experts generally recommend saving 15% of your income, but you can choose a number that fits within your budget. And if you’re unsure of how much you can save, start low and commit to increasing your savings by a certain percentage each year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_97-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_98-0"> Also, make sure to plan for how you’ll stay committed to your retirement plan if you take breaks from the workforce. While you won’t be earning employer retirement contributions or accruing working years toward your Social Security earnings, you can still save. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_99-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_100-0"> “Don’t forget that stay-at-home parents may still be eligible to contribute to an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">IRA</a>. If you’re married, file a joint federal income tax return, and earn less than your spouse, an IRA contribution can still help keep you on track for retirement,” Leonard says.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_101-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_102-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_103-0"> Women may be at a disadvantage when it comes to retirement savings because of their longer life spans, lower lifetime wages, and lack of financial literacy. But by starting with the building blocks—self-advocacy, education, and budgeting—women can take steps to improve their retirement prospects and level the playing field. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_104-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_105-0"> “We have to teach women how to organize their finances so that they’re prepared for their journey, we need to help them understand the basics of managing cash flow so they can put one foot in front of the other, and we need to demonstrate how to put emergency and retirement savings on autopilot,” Leonard says. </p></div>

Much of the [retirement savings](https://www.investopedia.com/articles/retirement/05/061305.asp) advice offered online, and even by financial professionals, is intended for a wide audience. Unfortunately, it often doesn’t take into account the needs that specific groups may have—including women. Because of factors like the wage gap between men and women and differences in financial literacy, women can benefit from retirement advice specifically tailored to their unique experiences. Steps like self-advocacy, financial education, and establishing financial building blocks can help them better prepare for retirement. ### Key Takeaways * Women have longer life spans, on average, so long-term savings and retirement planning need to take life expectancy into consideration. * The gender wage gap puts women at a disadvantage when planning for retirement, and the disparity exists across industries and education levels—even more so for older individuals and people of color. * Taking steps such as self-advocacy, financial education, and establishing financial building blocks can help women better prepare for retirement. ## The State of Women’s Retirement Savings Data consistently show that women are less prepared for retirement than men. The U.S. Census Bureau’s Survey of Income and Program Participation (SIPP) found, for instance, that women ages 55 to 66 are more likely than men to have no retirement savings. And of those who do have retirement savings, women in that same age bracket are less likely than men to have saved $100,000 or more. Less preparation also means women are at greater risk of running out of money during retirement. A variety of factors contribute to these trends—and to the overall need for retirement savings advice that is more tailored to women—including longer life spans, the [gender wage gap](https://www.investopedia.com/wage-gaps-by-gender-5082675) (in 2022, women made only 82% of what men did), the time women may spend outside of the workforce caring for family and other loved ones, and even a lack of financial knowledge and confidence. Here’s a look at how each of these factors contributes to women’s lack of retirement preparation. ## Women Live Longer According to data from the National Vital Statistics System for 2021 (the last year for which data is available), life expectancy in the United States is 76.4 years. But there’s a considerable divergence between women’s and men’s life expectancies—women have a life expectancy of 79.1 years, while men have a life expectancy of just 73.2 years. The nearly six-year difference between men’s and women’s expected life spans plays an important role in retirement planning for both sexes. “One risk that threatens women’s retirement security is the unexpected, premature death of a partner,” says [Valerie Leonard](https://everthrivefinancial.com/meet-the-team/), a financial advisor and CEO of EverThrive Financial Group in Alabama. Imagine a married, heterosexual couple who has retired without savings and only their two monthly Social Security checks to support them. If the husband passes away, the wife has suddenly lost a considerable portion of her household income (even though Social Security will pay her the higher of the two benefits following the death of a spouse). Because of women’s longer life spans, it’s critical to approach [retirement planning](https://www.investopedia.com/terms/r/retirement-planning.asp) from a different perspective. Women not only must calculate the savings they will need and appropriate withdrawal rates during retirement based on their own life expectancies, but they also must put financial safeguards in place to prepare for the passing of their partners. ### Order your copy of the print edition of the [Investopedia Retirement Guide](https://www.amazon.com/dp/B0CKKSVGP6) for more assistance in building the best plan for your retirement. ## Work Experiences Put Women at a Disadvantage Women’s experience with the workforce significantly impacts their ability to save for retirement. First and foremost, women are generally paid less than men. According to the latest data from the U.S. Bureau of Labor Statistics, full-time working women are paid 83.7% of what their male counterparts are paid. That disparity exists across all different educational levels and industries. And not all women experience the wage gap evenly. The disparity is even greater for older women and women of color. The wage gap, “coupled with being out of the workforce to family obligations, translates to a more than 1-million-dollar lifetime gap at retirement,” says [Cary Carbonaro](https://acmwealth.com/teammember/cary-carbonaro-cfp/), a certified financial planner as well as a senior vice president and director of Woman and Wealth Services at ACM Wealth in New Jersey. A woman’s lower wages affect her ability to save for retirement in more ways than just having less money to budget each month. First, people often set a specific percentage to save for retirement. If both a man and a woman designate a 15% savings rate but the man makes more money, he will also save more. And with [compound interest](https://www.investopedia.com/terms/c/compoundinterest.asp), his savings will grow faster and larger than hers will. A second important factor: Employer contributions to employee retirement accounts like [401(k)s](https://www.investopedia.com/terms/1/401kplan.asp) are often based on a percentage of wages. For example, an employer might agree to contribute up to 3% of each worker’s salary to their retirement plans. That means the higher a worker’s wages, the more retirement contributions they can receive from their employer. Finally, Social Security earnings are based on a worker’s earnings during their lifetime. Because women tend to get paid less during their working years, they also receive, on average, only 80% of what men receive in Social Security benefits. ## Time Away from Work In addition to a woman’s lower wages, we must also consider how traditional familial responsibilities can impact the ability to save. According to the Bureau of Labor Statistics, in 2022, 72.9% of mothers and 92.9% of fathers with children under age 18 were either working or looking for work. The discrepancy in these statistics between women and men makes it clear that mothers are far more likely than fathers to exit the workforce while they have children. During those years when women aren’t working, they also aren’t contributing to their own retirement accounts. Even women who have rejoined the workforce—or never left it to begin with—may see their retirement savings impacted by their family duties. Mothers are more likely than fathers to work part-time and, even when working, are more than 10 times more likely to leave work to care for sick children. Women’s familial responsibilities often extend past just their children, too. “Women ages 40 to 50 are considered the ‘sandwich generation’ and, many times, are forced to care for both children and adult parents at the same time,” EverThrive Financial Group’s Leonard says. Adult daughters spend more than twice as much time as adult sons caring for elderly parents. And like women who leave work—either temporarily or permanently—to care for children, devoting time to family instead of working can affect women’s standing at work, their wages, and ultimately, their retirement savings. ## Many Women Lack Financial Confidence A final factor that may impact a woman’s ability to save for retirement is her financial literacy and confidence—or lack thereof.  The [2022 Investopedia Financial Literacy Study](https://www.investopedia.com/financial-literacy-survey-5223919) found that women are less confident than men when it comes to their perceived financial knowledge. While most women (63%) said they feel that they have advanced knowledge of practical know-how when it comes to finances, only one in three feel that they understand traditional financial products like insurance, investments, and savings—which are key components of retirement planning. In 2023, a Morgan Stanley study found 36% of women aren’t confident they’ll be able to retire comfortably, compared with just 21% of men.  Similarly, U.S. Bank found 46% of baby boomer women, 53% of Gen X women, and 71% of millennial and Gen Z women felt confident in their ability to manage their finances, vs. 49%, 63%, and 75% of men in the respective generations. This faltering confidence can lead women to shy away from managing their own finances and perhaps handing it—and even their retirement planning—to male partners. Carbonaro has seen this effect up close, even among teens. “I did a presentation at a wealthy high school and asked the girls, ‘How many of you will be taking care of your future finances?’” says Carbonaro. “Less than 5% of the hands went up. These were girls aged 14 to 18. Fear is a big reason.” Girls and young women may be taught primarily through a lens of “be careful with money” with lessons about how to budget, save money, and overcome impulsive shopping habits, while men are encouraged to earn and invest. “To me, it’s clear that we are not doing enough between elementary school and high school to equip these young girls and build their confidence so that they feel they can take control of their financial future,” Leonard says. ## What Women Can Do Much of the information we’ve shared so far can paint a bleak picture of women’s prospects of a comfortable retirement. The good news is there are plenty of steps that women can take to improve their financial literacy and their retirement savings plans. ### Advocate for Yourself in the Workplace One of the most important things women can do to improve their retirement prospects is to advocate for themselves at work. “Advocacy is extremely important in the workplace, and it starts with helping women understand their own worth and weaknesses that can be strengthened,” Leonard says. “Building confidence, resiliency, and negotiating skills in women is critical to success in the workplace.” Some of the things women can advocate and negotiate for include higher wages, higher retirement contributions, and better family leave policies. Of course, male partners and colleagues can and should also lobby employers to improve pay and benefits for women. “Getting male counterparts and other women involved in the conversation can help promote women’s disparity issues,” Leonard says. Advocacy also doesn’t have to end at women’s own workplaces. Eleven states and the District of Columbia have enacted paid family leave programs. Similarly, 16 states and the District of Columbia require paid sick leave for private-sector employees. These policies can make it easier for women to remain in the workforce while also tending to family duties. ### Seek Educational Resources In addition to Investopedia, reputable sources for financial education such as the following can help close the knowledge gap for women: * The Consumer Financial Protection Bureau’s [financial education for adults](https://www.consumerfinance.gov/consumer-tools/educator-tools/adult-financial-education/) and [financial education for youths](https://www.consumerfinance.gov/consumer-tools/educator-tools/youth-financial-education/) homepages * The Federal Deposit Insurance Corp.’s [Money Smart](https://www.fdic.gov/resources/consumers/money-smart/index.html) program * The Financial Literacy and Education Commission’s educational website, [MyMoney.gov](https://www.mymoney.gov/) * The Office of the Comptroller of the Currency’s [Financial Literacy Resource Directory](https://www.occ.gov/topics/consumers-and-communities/community-affairs/resource-directories/financial-literacy/index-financial-literacy-resource-directory.html) Additionally, many banks and credit unions offer financial literacy and education programs that may be free for current account holders. These programs can help you learn everything from balancing a bank account to investing for retirement. ### Make a Plan for Retirement The earlier and more diligently you start saving for the day you leave the workforce, the more prepared and comfortable you’ll be when that day comes. First, designate a certain percentage that you’ll set aside for retirement each month. Experts generally recommend saving 15% of your income, but you can choose a number that fits within your budget. And if you’re unsure of how much you can save, start low and commit to increasing your savings by a certain percentage each year. Also, make sure to plan for how you’ll stay committed to your retirement plan if you take breaks from the workforce. While you won’t be earning employer retirement contributions or accruing working years toward your Social Security earnings, you can still save. “Don’t forget that stay-at-home parents may still be eligible to contribute to an [IRA](https://www.investopedia.com/terms/i/ira.asp). If you’re married, file a joint federal income tax return, and earn less than your spouse, an IRA contribution can still help keep you on track for retirement,” Leonard says. ## The Bottom Line Women may be at a disadvantage when it comes to retirement savings because of their longer life spans, lower lifetime wages, and lack of financial literacy. But by starting with the building blocks—self-advocacy, education, and budgeting—women can take steps to improve their retirement prospects and level the playing field. “We have to teach women how to organize their finances so that they’re prepared for their journey, we need to help them understand the basics of managing cash flow so they can put one foot in front of the other, and we need to demonstrate how to put emergency and retirement savings on autopilot,” Leonard says.

Much of the retirement savings advice offered online, and even by financial professionals, is intended for a wide audience. Unfortunately, it often doesn’t take into account the needs that specific groups may have—including women. Because of factors like the wage gap between men and women and differences in financial literacy, women can benefit from retirement advice specifically tailored to their unique experiences. Steps like self-advocacy, financial education, and establishing financial building blocks can help them better prepare for retirement. Key Takeaways Women have longer life spans, on average, so long-term savings and retirement planning need to take life expectancy into consideration.The gender wage gap puts women at a disadvantage when planning for retirement, and the disparity exists across industries and education levels—even more so for older individuals and people of color.Taking steps such as self-advocacy, financial education, and establishing financial building blocks can help women better prepare for retirement. The State of Women’s Retirement Savings Data consistently show that women are less prepared for retirement than men. The U.S. Census Bureau’s Survey of Income and Program Participation (SIPP) found, for instance, that women ages 55 to 66 are more likely than men to have no retirement savings. And of those who do have retirement savings, women in that same age bracket are less likely than men to have saved $100,000 or more. Less preparation also means women are at greater risk of running out of money during retirement. A variety of factors contribute to these trends—and to the overall need for retirement savings advice that is more tailored to women—including longer life spans, the gender wage gap (in 2022, women made only 82% of what men did), the time women may spend outside of the workforce caring for family and other loved ones, and even a lack of financial knowledge and confidence. Here’s a look at how each of these factors contributes to women’s lack of retirement preparation. Women Live Longer  According to data from the National Vital Statistics System for 2021 (the last year for which data is available), life expectancy in the United States is 76.4 years. But there’s a considerable divergence between women’s and men’s life expectancies—women have a life expectancy of 79.1 years, while men have a life expectancy of just 73.2 years. The nearly six-year difference between men’s and women’s expected life spans plays an important role in retirement planning for both sexes. “One risk that threatens women’s retirement security is the unexpected, premature death of a partner,” says Valerie Leonard, a financial advisor and CEO of EverThrive Financial Group in Alabama. Imagine a married, heterosexual couple who has retired without savings and only their two monthly Social Security checks to support them. If the husband passes away, the wife has suddenly lost a considerable portion of her household income (even though Social Security will pay her the higher of the two benefits following the death of a spouse). Because of women’s longer life spans, it’s critical to approach retirement planning from a different perspective. Women not only must calculate the savings they will need and appropriate withdrawal rates during retirement based on their own life expectancies, but they also must put financial safeguards in place to prepare for the passing of their partners. Order your copy of the print edition of the Investopedia Retirement Guide for more assistance in building the best plan for your retirement. Work Experiences Put Women at a Disadvantage  Women’s experience with the workforce significantly impacts their ability to save for retirement. First and foremost, women are generally paid less than men. According to the latest data from the U.S. Bureau of Labor Statistics, full-time working women are paid 83.7% of what their male counterparts are paid. That disparity exists across all different educational levels and industries. And not all women experience the wage gap evenly. The disparity is even greater for older women and women of color. The wage gap, “coupled with being out of the workforce to family obligations, translates to a more than 1-million-dollar lifetime gap at retirement,” says Cary Carbonaro, a certified financial planner as well as a senior vice president and director of Woman and Wealth Services at ACM Wealth in New Jersey. A woman’s lower wages affect her ability to save for retirement in more ways than just having less money to budget each month. First, people often set a specific percentage to save for retirement. If both a man and a woman designate a 15% savings rate but the man makes more money, he will also save more. And with compound interest, his savings will grow faster and larger than hers will. A second important factor: Employer contributions to employee retirement accounts like 401(k)s are often based on a percentage of wages. For example, an employer might agree to contribute up to 3% of each worker’s salary to their retirement plans. That means the higher a worker’s wages, the more retirement contributions they can receive from their employer. Finally, Social Security earnings are based on a worker’s earnings during their lifetime. Because women tend to get paid less during their working years, they also receive, on average, only 80% of what men receive in Social Security benefits. Time Away from Work In addition to a woman’s lower wages, we must also consider how traditional familial responsibilities can impact the ability to save. According to the Bureau of Labor Statistics, in 2022, 72.9% of mothers and 92.9% of fathers with children under age 18 were either working or looking for work. The discrepancy in these statistics between women and men makes it clear that mothers are far more likely than fathers to exit the workforce while they have children. During those years when women aren’t working, they also aren’t contributing to their own retirement accounts. Even women who have rejoined the workforce—or never left it to begin with—may see their retirement savings impacted by their family duties. Mothers are more likely than fathers to work part-time and, even when working, are more than 10 times more likely to leave work to care for sick children. Women’s familial responsibilities often extend past just their children, too. “Women ages 40 to 50 are considered the ‘sandwich generation’ and, many times, are forced to care for both children and adult parents at the same time,” EverThrive Financial Group’s Leonard says. Adult daughters spend more than twice as much time as adult sons caring for elderly parents. And like women who leave work—either temporarily or permanently—to care for children, devoting time to family instead of working can affect women’s standing at work, their wages, and ultimately, their retirement savings. Many Women Lack Financial Confidence  A final factor that may impact a woman’s ability to save for retirement is her financial literacy and confidence—or lack thereof.  The 2022 Investopedia Financial Literacy Study found that women are less confident than men when it comes to their perceived financial knowledge. While most women (63%) said they feel that they have advanced knowledge of practical know-how when it comes to finances, only one in three feel that they understand traditional financial products like insurance, investments, and savings—which are key components of retirement planning. In 2023, a Morgan Stanley study found 36% of women aren’t confident they’ll be able to retire comfortably, compared with just 21% of men.  Similarly, U.S. Bank found 46% of baby boomer women, 53% of Gen X women, and 71% of millennial and Gen Z women felt confident in their ability to manage their finances, vs. 49%, 63%, and 75% of men in the respective generations. This faltering confidence can lead women to shy away from managing their own finances and perhaps handing it—and even their retirement planning—to male partners. Carbonaro has seen this effect up close, even among teens. “I did a presentation at a wealthy high school and asked the girls, ‘How many of you will be taking care of your future finances?’” says Carbonaro. “Less than 5% of the hands went up. These were girls aged 14 to 18. Fear is a big reason.” Girls and young women may be taught primarily through a lens of “be careful with money” with lessons about how to budget, save money, and overcome impulsive shopping habits, while men are encouraged to earn and invest. “To me, it’s clear that we are not doing enough between elementary school and high school to equip these young girls and build their confidence so that they feel they can take control of their financial future,” Leonard says. What Women Can Do  Much of the information we’ve shared so far can paint a bleak picture of women’s prospects of a comfortable retirement. The good news is there are plenty of steps that women can take to improve their financial literacy and their retirement savings plans. Advocate for Yourself in the Workplace  One of the most important things women can do to improve their retirement prospects is to advocate for themselves at work. “Advocacy is extremely important in the workplace, and it starts with helping women understand their own worth and weaknesses that can be strengthened,” Leonard says. “Building confidence, resiliency, and negotiating skills in women is critical to success in the workplace.” Some of the things women can advocate and negotiate for include higher wages, higher retirement contributions, and better family leave policies. Of course, male partners and colleagues can and should also lobby employers to improve pay and benefits for women. “Getting male counterparts and other women involved in the conversation can help promote women’s disparity issues,” Leonard says. Advocacy also doesn’t have to end at women’s own workplaces. Eleven states and the District of Columbia have enacted paid family leave programs. Similarly, 16 states and the District of Columbia require paid sick leave for private-sector employees. These policies can make it easier for women to remain in the workforce while also tending to family duties. Seek Educational Resources In addition to Investopedia, reputable sources for financial education such as the following can help close the knowledge gap for women: The Consumer Financial Protection Bureau’s financial education for adults and financial education for youths homepages The Federal Deposit Insurance Corp.’s Money Smart program The Financial Literacy and Education Commission’s educational website, MyMoney.gov The Office of the Comptroller of the Currency’s Financial Literacy Resource Directory Additionally, many banks and credit unions offer financial literacy and education programs that may be free for current account holders. These programs can help you learn everything from balancing a bank account to investing for retirement. Make a Plan for Retirement The earlier and more diligently you start saving for the day you leave the workforce, the more prepared and comfortable you’ll be when that day comes. First, designate a certain percentage that you’ll set aside for retirement each month. Experts generally recommend saving 15% of your income, but you can choose a number that fits within your budget. And if you’re unsure of how much you can save, start low and commit to increasing your savings by a certain percentage each year. Also, make sure to plan for how you’ll stay committed to your retirement plan if you take breaks from the workforce. While you won’t be earning employer retirement contributions or accruing working years toward your Social Security earnings, you can still save. “Don’t forget that stay-at-home parents may still be eligible to contribute to an IRA. If you’re married, file a joint federal income tax return, and earn less than your spouse, an IRA contribution can still help keep you on track for retirement,” Leonard says. The Bottom Line Women may be at a disadvantage when it comes to retirement savings because of their longer life spans, lower lifetime wages, and lack of financial literacy. But by starting with the building blocks—self-advocacy, education, and budgeting—women can take steps to improve their retirement prospects and level the playing field. “We have to teach women how to organize their finances so that they’re prepared for their journey, we need to help them understand the basics of managing cash flow so they can put one foot in front of the other, and we need to demonstrate how to put emergency and retirement savings on autopilot,” Leonard says.

https://www.investopedia.com/the-costs-of-lgbtq-family-planning-5180217

The Costs of LGBTQ+ Family Planning

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Deciding to start a family is as much a financial decision as an emotional one. This is especially true for lesbian, gay, bisexual, transgender, and queer (LGBTQ+) people, who often rely on alternative paths, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-pay-for-adoption-5409336">such as adoption</a> and surrogacy, to have children. Despite the challenges, parenthood is on the rise in the LGBTQ+ community. According to a survey from the Family Equality Council, 77% of LGBTQ+ millennials are already parents or are considering having children.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Family planning can be a complex and costly process for LGBTQ+ people. Understanding your options is important so that you will be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/guide-to-finance-for-lgbtq-americans-5118290">financially prepared</a> for the future ahead.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Despite high costs and other obstacles, the number of LGBTQ+ parents and prospective parents is on the rise.<span class="ql-inline-citation" data-cite="1"></span></li><li>Costs of adoption, surrogacy, and legal fees can sometimes add up to well over $100,000.<span class="ql-inline-citation" data-cite="2"></span></li><li>LGBTQ+ families can prepare for the financial impact of starting a family by understanding the costs and sticking to a budget.</li><li>Learning about your employer's family leave time policies and if any paid leave is available is helpful when planning for the arrival of a newborn.</li><li>The Family Medical Leave Act allows a parent to take off 12 weeks of unpaid leave from their jobs.<span class="ql-inline-citation" data-cite="11"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-the-price-of-lgbtq-parenthood"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> The Price of LGBTQ+ Parenthood </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> In recent years, increasing public acceptance and advancements in reproductive technology have opened doors for LGBTQ+ people who want to become parents. However, starting a family through nontraditional methods can be challenging and expensive. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Many LGBTQ+ couples and individuals who want to have a child have to adopt or find a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-much-does-a-surrogate-cost-6752258">surrogate</a>. Both of these options can be costly, and there are sometimes legal barriers to overcome. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-subheading__text"> Adoption Costs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> One of the most common ways to start a family nonbiologically is through adoption. Overall, adoption is the least expensive way to bring a child into a family, depending on the route that you take. For example, it may not cost anything to adopt a foster child, but you could spend up to $70,000 if you adopt a child from a foreign country.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_15-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Potential Costs of Adoption </th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Type of Adoption</b></td> <td><b> Estimated Cost</b></td> </tr> <tr> <td>Foster Care Adoption</td> <td> $0–$2,600</td> </tr> <tr> <td>Domestic Adoption</td> <td> $20,000–$45,000</td> </tr> <tr> <td>International Adoption</td> <td> $25,000–$70,000</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Source: Family Equality Council<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Surrogacy Costs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Having a child through surrogacy is another option for LGBTQ+ people who want to start a family. There are two types of surrogacy arrangements: traditional surrogacy and gestational surrogacy. Traditional surrogacy is when the birth mother carries a child who she has conceived from donor sperm. Gestational surrogacy is when a third person gives birth to a baby conceived outside the womb from donor egg and sperm through in vitro fertilization. Both options provide ways for an LGBTQ+ person to have biological children. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Surrogacy is generally more expensive than adoption, and there are many factors to consider when determining the overall cost. Important considerations to make include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <li>Who will be the surrogate?</li> <li>Will you use an agency or a matching service to find one?</li> <li>Is the surrogate a close friend or family member?</li> <li>Gestational surrogacy is typically the most expensive option, but one in which the surrogate has no genetic connection to the baby. One of the most significant expenses that potential parents face during this process is surrogate compensation. In addition to paying a surrogate a base compensation, other additional costs may include legal fees, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/negotiate-costs-pregnancy-childbirth-6504408">medical expenses</a>, travel expenses, counseling, and a monthly allowance for pregnancy-related expenses.<span class="ql-inline-citation" data-cite="6"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-subheading__text"> Intrauterine Insemination (IUI) Costs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> If one or both of the partners is able to conceive children, then <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-much-does-iui-cost-6503322">intrauterine insemination (IUI)</a> may be a less costly option.<span class="ql-inline-citation" data-cite="2"></span> Some families arrange to have extra vials of sperm frozen and stored to have more than one child from the same donor, making their children born from the same mother full siblings. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_29-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Potential Costs of Surrogacy/Insemination</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Option</b></td> <td><b> Estimated Cost</b></td> </tr> <tr> <td>Sperm — Known Donor</td> <td>$25–$300 for optional testing</td> </tr> <tr> <td>Sperm — Anonymous Donor</td> <td>$300–$1,500 per vial</td> </tr> <tr> <td>Sperm Freezing</td> <td>$250–$1,500</td> </tr> <tr> <td>Sperm Storage Fees</td> <td>$175–$750 per year</td> </tr> <tr> <td>Egg Freezing</td> <td>$7,000–$12,000</td> </tr> <tr> <td>Egg Storage Fees</td> <td>$350–$700 per year</td> </tr> <tr> <td>Intrauterine Insemination (IUI)</td> <td>$250–$4,000</td> </tr> <tr> <td>In Vitro Fertilization (IVF)</td> <td>$13,500–$21,000+</td> </tr> <tr> <td>Reciprocal In Vitro Fertilization (R-IVF)</td> <td>$15,000–$23,000</td> </tr> <tr> <td>Gestational Surrogacy</td> <td>$60,000–$150,000+</td> </tr> <tr> <td>Traditional Surrogacy</td> <td>Varies</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Source: Family Equality Council<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-subheading__text"> Legal Fees </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Adoption and surrogacy aren’t always easy for LGBTQ+ people. Only 29 states plus Washington D.C. have laws in place that prohibit discrimination against prospective adoptive parents based on their sexual orientation or gender identity. In 12 states, state-licensed child welfare agencies can legally refuse to place children with same sex-couples and LGBTQ+ individuals if they say it is against their religious beliefs.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Like adoption, states have their own laws when it comes to surrogacy. In some states, surrogacy is not permitted, and surrogacy contracts are not legally valid. In Michigan, surrogacy contracts for compensation are illegal and subject to criminal penalties.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Becoming a legal parent can be another obstacle. A birth certificate alone is sometimes not substantial proof of parentage in court dealings or medical emergencies. Legal fees to establish parentage range from $100 to $3,000. This includes situations in which the donor’s parental rights are terminated or rights are secured for a nonbiological parent. If an LGBTQ+ couple seeks a stepparent or second-parent adoption, they can expect to pay $250 to $3,000.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-how-to-prepare-financially"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> How to Prepare Financially </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Whether you are adopting a child or using a surrogate or IUI, the cost of bringing a child into your home is only the beginning of your family’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lgbtq-credit-barriers-7510340">financial journey</a>. The U.S. Department of Agriculture (USDA) reported that the cost of raising a child born in 2015 is approximately $233,610 for middle-income married couples.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> This figure includes basic costs that a middle-income family would incur from the child’s birth through age 18, such as food, shelter, transportation, healthcare, clothing, childcare, and education (not including college).<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> This might seem overwhelming to prospective parents, particularly those who also have to plan for costs such as adoption or fertility treatments. Having a plan in place will give you peace of mind and help you ensure financial security for the future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Here are some budgeting tips that can help LGBTQ+ families start off on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/banks-that-support-lgbtq-community-5185262">right financial foot</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-subheading__text"> Plan for Family Leave Time </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> It’s important to understand which benefits your employer offers for new parents, such as pay, length of time off, benefits for fathers compared to mothers, etc. According to a 2020 report from the Society for Human Resource Management, 55% percent of U.S. employers offer paid maternity leave, and 45% offer paid paternity leave.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Your company may not offer paid time off, but you may qualify for benefits under the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/family-and-medical-leave-act.asp">Family and Medical Leave Act</a> (FMLA) for 12 weeks of unpaid leave.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_54-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_55-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>FMLA leave is unpaid time away from your job but some employers offer paid leave as well depending on the company.<span class="ql-inline-citation" data-cite="11"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-subheading__text"> Explore LGBTQ+ Family-Building Grants </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Some organizations will provide <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-assistance-for-family-planning-6537614">financial assistance</a> to LGBTQ+ families who want to start a family. For example, HelpUsAdopt.org offers adoption grants up to $20,000 for couples and individuals looking to adopt a child. It is free to apply for grants, and the program supports all types of families.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> LGBTQ+ families can also receive financial assistance for reproductive technology. One example is the Baby Quest Foundation, which provides grants to individuals and couples who can’t afford in vitro fertilization, sperm and egg donation, egg freezing, and surrogacy costs.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> There is also a federal tax credit for up to $15,950 in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/qae.asp">qualified adoption expenses</a> per child in 2023, up from the $14,890 in 2022.<span class="ql-inline-citation" data-cite="18"></span> The credit is nonrefundable, but you can carry over any remaining credits to future tax years for up to five years.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-subheading__text"> Create and Stick to a Budget </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> Whether you are adjusting your budget for your growing family or starting from scratch, the most important thing is to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/120315/how-create-budget-your-spouse.asp">make sure the budget works for you</a>. Start by adding up your monthly household net income. Next, list all of your fixed and variable monthly expenses, including things like: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> <li>Mortgage or rent</li><li>Groceries</li><li>Car payment</li><li>Wireless bill</li><li>Streaming services</li><li>Childcare</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_68-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_69-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Given the unique circumstances of LGBTQ+ family planning, it may be best to consult a professional who is familiar in family law.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_70-0"> <span class="mntl-sc-block-subheading__text"> Debt, Savings, and Fun </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Monthly debt obligations also should be included with your expenses. For example, if you used a loan or credit card to pay for fertility treatments, you’ll want to make sure that you allocate enough for the payment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Next, determine your savings goals. This should include long-term savings, such as a retirement fund, and three to six months’ worth of expenses saved in an emergency fund. You may also want to consider a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/102915/life-insurance-vs-529.asp">college savings plan</a>, such as a 529 plan, for your child(ren). Calculate the amount you need to save each month to meet your goals, and include this amount in your budget. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Don’t forget about “fun money.” Having children means that you’ll likely spend more money on birthday celebrations and holidays. Be sure you have enough set aside so that your family can enjoy these moments. You can link your bank account to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-budgeting-apps-5085405">budgeting app</a> or software to help you stay on track. Or, if you prefer, keeping track of your budget in a good old-fashioned spreadsheet works, too. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_77-0"> <span class="mntl-sc-block-subheading__text"> Review Insurance and Estate-Planning Documents </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> Now that you are responsible for another human being, it’s essential to ensure that you have adequate health and life insurance for your family. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/termlife.asp">Term life insurance</a>, which pays out a death benefit if the beneficiary dies during a stated term, is usually a good option for parents. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> Parents should also have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/last-will-and-testament.asp">last will and testament</a> that specifies who would get custody of their children if something happens to both parents. You can create a will by using a free service online or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-find-an-lgbtq-friendly-financial-planner-5186139">hiring a financial planner</a> specializing in estate planning. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_82-0"><span class="heading-toc" id="toc-can-lgbtq-couples-legally-adopt-a-child"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can LGBTQ+ Couples Legally Adopt a Child?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, same-sex couples can adopt. Ruling by the Supreme Court has allowed that same-sex couples can adopt in all 50 states.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_84-0"><span class="heading-toc" id="toc-can-lgbtq-couples-adopt-from-all-countries"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can LGBTQ+ Couples Adopt From all Countries?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, not all countries have the social standards and legislation that the United States does in allowing same-sex couples from adopting a child. Full joint adoption by LGBTQ+ couples is not legal in all countries.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_86-0"><span class="heading-toc" id="toc-why-is-adoption-so-expensive"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is Adoption So Expensive?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Adoption is expensive because of the wide assortment of professionals involved in ensuring the process is performed legally. This includes the time of lawyers, social workers, doctors, government administrators, counselors, and more.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_88-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> Today, LGBTQ+ families and individuals have significantly more options when it comes to starting a family than earlier generations did. However, these options can come with a hefty price tag. It’s important not to take these steps without thinking through the financial aspects and planning in advance. </p></div>

Deciding to start a family is as much a financial decision as an emotional one. This is especially true for lesbian, gay, bisexual, transgender, and queer (LGBTQ+) people, who often rely on alternative paths, [such as adoption](https://www.investopedia.com/how-to-pay-for-adoption-5409336) and surrogacy, to have children. Despite the challenges, parenthood is on the rise in the LGBTQ+ community. According to a survey from the Family Equality Council, 77% of LGBTQ+ millennials are already parents or are considering having children. Family planning can be a complex and costly process for LGBTQ+ people. Understanding your options is important so that you will be [financially prepared](https://www.investopedia.com/guide-to-finance-for-lgbtq-americans-5118290) for the future ahead.   ### Key Takeaways * Despite high costs and other obstacles, the number of LGBTQ+ parents and prospective parents is on the rise. * Costs of adoption, surrogacy, and legal fees can sometimes add up to well over $100,000. * LGBTQ+ families can prepare for the financial impact of starting a family by understanding the costs and sticking to a budget. * Learning about your employer's family leave time policies and if any paid leave is available is helpful when planning for the arrival of a newborn. * The Family Medical Leave Act allows a parent to take off 12 weeks of unpaid leave from their jobs. ## The Price of LGBTQ+ Parenthood In recent years, increasing public acceptance and advancements in reproductive technology have opened doors for LGBTQ+ people who want to become parents. However, starting a family through nontraditional methods can be challenging and expensive. Many LGBTQ+ couples and individuals who want to have a child have to adopt or find a [surrogate](https://www.investopedia.com/how-much-does-a-surrogate-cost-6752258). Both of these options can be costly, and there are sometimes legal barriers to overcome. ### Adoption Costs One of the most common ways to start a family nonbiologically is through adoption. Overall, adoption is the least expensive way to bring a child into a family, depending on the route that you take. For example, it may not cost anything to adopt a foster child, but you could spend up to $70,000 if you adopt a child from a foreign country. | Potential Costs of Adoption | | | --- | --- | | **Type of Adoption** | **Estimated Cost** | | Foster Care Adoption | $0–$2,600 | | Domestic Adoption | $20,000–$45,000 | | International Adoption | $25,000–$70,000 | Source: Family Equality Council ### Surrogacy Costs Having a child through surrogacy is another option for LGBTQ+ people who want to start a family. There are two types of surrogacy arrangements: traditional surrogacy and gestational surrogacy. Traditional surrogacy is when the birth mother carries a child who she has conceived from donor sperm. Gestational surrogacy is when a third person gives birth to a baby conceived outside the womb from donor egg and sperm through in vitro fertilization. Both options provide ways for an LGBTQ+ person to have biological children. Surrogacy is generally more expensive than adoption, and there are many factors to consider when determining the overall cost. Important considerations to make include: * Who will be the surrogate? * Will you use an agency or a matching service to find one? * Is the surrogate a close friend or family member? * Gestational surrogacy is typically the most expensive option, but one in which the surrogate has no genetic connection to the baby. One of the most significant expenses that potential parents face during this process is surrogate compensation. In addition to paying a surrogate a base compensation, other additional costs may include legal fees, [medical expenses](https://www.investopedia.com/negotiate-costs-pregnancy-childbirth-6504408), travel expenses, counseling, and a monthly allowance for pregnancy-related expenses. ### Intrauterine Insemination (IUI) Costs If one or both of the partners is able to conceive children, then [intrauterine insemination (IUI)](https://www.investopedia.com/how-much-does-iui-cost-6503322) may be a less costly option. Some families arrange to have extra vials of sperm frozen and stored to have more than one child from the same donor, making their children born from the same mother full siblings. | Potential Costs of Surrogacy/Insemination | | | --- | --- | | **Option** | **Estimated Cost** | | Sperm — Known Donor | $25–$300 for optional testing | | Sperm — Anonymous Donor | $300–$1,500 per vial | | Sperm Freezing | $250–$1,500 | | Sperm Storage Fees | $175–$750 per year | | Egg Freezing | $7,000–$12,000 | | Egg Storage Fees | $350–$700 per year | | Intrauterine Insemination (IUI) | $250–$4,000 | | In Vitro Fertilization (IVF) | $13,500–$21,000+ | | Reciprocal In Vitro Fertilization (R-IVF) | $15,000–$23,000 | | Gestational Surrogacy | $60,000–$150,000+ | | Traditional Surrogacy | Varies | Source: Family Equality Council ### Legal Fees Adoption and surrogacy aren’t always easy for LGBTQ+ people. Only 29 states plus Washington D.C. have laws in place that prohibit discrimination against prospective adoptive parents based on their sexual orientation or gender identity. In 12 states, state-licensed child welfare agencies can legally refuse to place children with same sex-couples and LGBTQ+ individuals if they say it is against their religious beliefs. Like adoption, states have their own laws when it comes to surrogacy. In some states, surrogacy is not permitted, and surrogacy contracts are not legally valid. In Michigan, surrogacy contracts for compensation are illegal and subject to criminal penalties. Becoming a legal parent can be another obstacle. A birth certificate alone is sometimes not substantial proof of parentage in court dealings or medical emergencies. Legal fees to establish parentage range from $100 to $3,000. This includes situations in which the donor’s parental rights are terminated or rights are secured for a nonbiological parent. If an LGBTQ+ couple seeks a stepparent or second-parent adoption, they can expect to pay $250 to $3,000. ## How to Prepare Financially Whether you are adopting a child or using a surrogate or IUI, the cost of bringing a child into your home is only the beginning of your family’s [financial journey](https://www.investopedia.com/lgbtq-credit-barriers-7510340). The U.S. Department of Agriculture (USDA) reported that the cost of raising a child born in 2015 is approximately $233,610 for middle-income married couples. This figure includes basic costs that a middle-income family would incur from the child’s birth through age 18, such as food, shelter, transportation, healthcare, clothing, childcare, and education (not including college). This might seem overwhelming to prospective parents, particularly those who also have to plan for costs such as adoption or fertility treatments. Having a plan in place will give you peace of mind and help you ensure financial security for the future. Here are some budgeting tips that can help LGBTQ+ families start off on the [right financial foot](https://www.investopedia.com/banks-that-support-lgbtq-community-5185262). ### Plan for Family Leave Time It’s important to understand which benefits your employer offers for new parents, such as pay, length of time off, benefits for fathers compared to mothers, etc. According to a 2020 report from the Society for Human Resource Management, 55% percent of U.S. employers offer paid maternity leave, and 45% offer paid paternity leave. Your company may not offer paid time off, but you may qualify for benefits under the [Family and Medical Leave Act](https://www.investopedia.com/terms/f/family-and-medical-leave-act.asp) (FMLA) for 12 weeks of unpaid leave. ### FMLA leave is unpaid time away from your job but some employers offer paid leave as well depending on the company. ### Explore LGBTQ+ Family-Building Grants Some organizations will provide [financial assistance](https://www.investopedia.com/financial-assistance-for-family-planning-6537614) to LGBTQ+ families who want to start a family. For example, HelpUsAdopt.org offers adoption grants up to $20,000 for couples and individuals looking to adopt a child. It is free to apply for grants, and the program supports all types of families. LGBTQ+ families can also receive financial assistance for reproductive technology. One example is the Baby Quest Foundation, which provides grants to individuals and couples who can’t afford in vitro fertilization, sperm and egg donation, egg freezing, and surrogacy costs. There is also a federal tax credit for up to $15,950 in [qualified adoption expenses](https://www.investopedia.com/terms/q/qae.asp) per child in 2023, up from the $14,890 in 2022. The credit is nonrefundable, but you can carry over any remaining credits to future tax years for up to five years. ### Create and Stick to a Budget Whether you are adjusting your budget for your growing family or starting from scratch, the most important thing is to [make sure the budget works for you](https://www.investopedia.com/articles/personal-finance/120315/how-create-budget-your-spouse.asp). Start by adding up your monthly household net income. Next, list all of your fixed and variable monthly expenses, including things like: * Mortgage or rent * Groceries * Car payment * Wireless bill * Streaming services * Childcare ### Given the unique circumstances of LGBTQ+ family planning, it may be best to consult a professional who is familiar in family law. ### Debt, Savings, and Fun Monthly debt obligations also should be included with your expenses. For example, if you used a loan or credit card to pay for fertility treatments, you’ll want to make sure that you allocate enough for the payment. Next, determine your savings goals. This should include long-term savings, such as a retirement fund, and three to six months’ worth of expenses saved in an emergency fund. You may also want to consider a [college savings plan](https://www.investopedia.com/articles/personal-finance/102915/life-insurance-vs-529.asp), such as a 529 plan, for your child(ren). Calculate the amount you need to save each month to meet your goals, and include this amount in your budget. Don’t forget about “fun money.” Having children means that you’ll likely spend more money on birthday celebrations and holidays. Be sure you have enough set aside so that your family can enjoy these moments. You can link your bank account to a [budgeting app](https://www.investopedia.com/best-budgeting-apps-5085405) or software to help you stay on track. Or, if you prefer, keeping track of your budget in a good old-fashioned spreadsheet works, too. ### Review Insurance and Estate-Planning Documents Now that you are responsible for another human being, it’s essential to ensure that you have adequate health and life insurance for your family. [Term life insurance](https://www.investopedia.com/terms/t/termlife.asp), which pays out a death benefit if the beneficiary dies during a stated term, is usually a good option for parents. Parents should also have a [last will and testament](https://www.investopedia.com/terms/l/last-will-and-testament.asp) that specifies who would get custody of their children if something happens to both parents. You can create a will by using a free service online or [hiring a financial planner](https://www.investopedia.com/how-to-find-an-lgbtq-friendly-financial-planner-5186139) specializing in estate planning. ## Can LGBTQ+ Couples Legally Adopt a Child? Yes, same-sex couples can adopt. Ruling by the Supreme Court has allowed that same-sex couples can adopt in all 50 states. ## Can LGBTQ+ Couples Adopt From all Countries? No, not all countries have the social standards and legislation that the United States does in allowing same-sex couples from adopting a child. Full joint adoption by LGBTQ+ couples is not legal in all countries. ## Why Is Adoption So Expensive? Adoption is expensive because of the wide assortment of professionals involved in ensuring the process is performed legally. This includes the time of lawyers, social workers, doctors, government administrators, counselors, and more. ## The Bottom Line Today, LGBTQ+ families and individuals have significantly more options when it comes to starting a family than earlier generations did. However, these options can come with a hefty price tag. It’s important not to take these steps without thinking through the financial aspects and planning in advance.

Deciding to start a family is as much a financial decision as an emotional one. This is especially true for lesbian, gay, bisexual, transgender, and queer (LGBTQ+) people, who often rely on alternative paths, such as adoption and surrogacy, to have children. Despite the challenges, parenthood is on the rise in the LGBTQ+ community. According to a survey from the Family Equality Council, 77% of LGBTQ+ millennials are already parents or are considering having children. Family planning can be a complex and costly process for LGBTQ+ people. Understanding your options is important so that you will be financially prepared for the future ahead.   Key Takeaways Despite high costs and other obstacles, the number of LGBTQ+ parents and prospective parents is on the rise.Costs of adoption, surrogacy, and legal fees can sometimes add up to well over $100,000.LGBTQ+ families can prepare for the financial impact of starting a family by understanding the costs and sticking to a budget.Learning about your employer's family leave time policies and if any paid leave is available is helpful when planning for the arrival of a newborn.The Family Medical Leave Act allows a parent to take off 12 weeks of unpaid leave from their jobs. The Price of LGBTQ+ Parenthood In recent years, increasing public acceptance and advancements in reproductive technology have opened doors for LGBTQ+ people who want to become parents. However, starting a family through nontraditional methods can be challenging and expensive. Many LGBTQ+ couples and individuals who want to have a child have to adopt or find a surrogate. Both of these options can be costly, and there are sometimes legal barriers to overcome. Adoption Costs One of the most common ways to start a family nonbiologically is through adoption. Overall, adoption is the least expensive way to bring a child into a family, depending on the route that you take. For example, it may not cost anything to adopt a foster child, but you could spend up to $70,000 if you adopt a child from a foreign country. Potential Costs of Adoption Type of Adoption  Estimated Cost Foster Care Adoption  $0–$2,600 Domestic Adoption  $20,000–$45,000 International Adoption  $25,000–$70,000 Source: Family Equality Council Surrogacy Costs Having a child through surrogacy is another option for LGBTQ+ people who want to start a family. There are two types of surrogacy arrangements: traditional surrogacy and gestational surrogacy. Traditional surrogacy is when the birth mother carries a child who she has conceived from donor sperm. Gestational surrogacy is when a third person gives birth to a baby conceived outside the womb from donor egg and sperm through in vitro fertilization. Both options provide ways for an LGBTQ+ person to have biological children. Surrogacy is generally more expensive than adoption, and there are many factors to consider when determining the overall cost. Important considerations to make include: Who will be the surrogate? Will you use an agency or a matching service to find one? Is the surrogate a close friend or family member? Gestational surrogacy is typically the most expensive option, but one in which the surrogate has no genetic connection to the baby. One of the most significant expenses that potential parents face during this process is surrogate compensation. In addition to paying a surrogate a base compensation, other additional costs may include legal fees, medical expenses, travel expenses, counseling, and a monthly allowance for pregnancy-related expenses. Intrauterine Insemination (IUI) Costs If one or both of the partners is able to conceive children, then intrauterine insemination (IUI) may be a less costly option. Some families arrange to have extra vials of sperm frozen and stored to have more than one child from the same donor, making their children born from the same mother full siblings. Potential Costs of Surrogacy/Insemination Option  Estimated Cost Sperm — Known Donor $25–$300 for optional testing Sperm — Anonymous Donor $300–$1,500 per vial Sperm Freezing $250–$1,500 Sperm Storage Fees $175–$750 per year Egg Freezing $7,000–$12,000 Egg Storage Fees $350–$700 per year Intrauterine Insemination (IUI) $250–$4,000 In Vitro Fertilization (IVF) $13,500–$21,000+ Reciprocal In Vitro Fertilization (R-IVF) $15,000–$23,000 Gestational Surrogacy $60,000–$150,000+ Traditional Surrogacy Varies Source: Family Equality Council Legal Fees Adoption and surrogacy aren’t always easy for LGBTQ+ people. Only 29 states plus Washington D.C. have laws in place that prohibit discrimination against prospective adoptive parents based on their sexual orientation or gender identity. In 12 states, state-licensed child welfare agencies can legally refuse to place children with same sex-couples and LGBTQ+ individuals if they say it is against their religious beliefs. Like adoption, states have their own laws when it comes to surrogacy. In some states, surrogacy is not permitted, and surrogacy contracts are not legally valid. In Michigan, surrogacy contracts for compensation are illegal and subject to criminal penalties. Becoming a legal parent can be another obstacle. A birth certificate alone is sometimes not substantial proof of parentage in court dealings or medical emergencies. Legal fees to establish parentage range from $100 to $3,000. This includes situations in which the donor’s parental rights are terminated or rights are secured for a nonbiological parent. If an LGBTQ+ couple seeks a stepparent or second-parent adoption, they can expect to pay $250 to $3,000. How to Prepare Financially Whether you are adopting a child or using a surrogate or IUI, the cost of bringing a child into your home is only the beginning of your family’s financial journey. The U.S. Department of Agriculture (USDA) reported that the cost of raising a child born in 2015 is approximately $233,610 for middle-income married couples. This figure includes basic costs that a middle-income family would incur from the child’s birth through age 18, such as food, shelter, transportation, healthcare, clothing, childcare, and education (not including college). This might seem overwhelming to prospective parents, particularly those who also have to plan for costs such as adoption or fertility treatments. Having a plan in place will give you peace of mind and help you ensure financial security for the future. Here are some budgeting tips that can help LGBTQ+ families start off on the right financial foot. Plan for Family Leave Time It’s important to understand which benefits your employer offers for new parents, such as pay, length of time off, benefits for fathers compared to mothers, etc. According to a 2020 report from the Society for Human Resource Management, 55% percent of U.S. employers offer paid maternity leave, and 45% offer paid paternity leave. Your company may not offer paid time off, but you may qualify for benefits under the Family and Medical Leave Act (FMLA) for 12 weeks of unpaid leave. FMLA leave is unpaid time away from your job but some employers offer paid leave as well depending on the company. Explore LGBTQ+ Family-Building Grants Some organizations will provide financial assistance to LGBTQ+ families who want to start a family. For example, HelpUsAdopt.org offers adoption grants up to $20,000 for couples and individuals looking to adopt a child. It is free to apply for grants, and the program supports all types of families. LGBTQ+ families can also receive financial assistance for reproductive technology. One example is the Baby Quest Foundation, which provides grants to individuals and couples who can’t afford in vitro fertilization, sperm and egg donation, egg freezing, and surrogacy costs. There is also a federal tax credit for up to $15,950 in qualified adoption expenses per child in 2023, up from the $14,890 in 2022. The credit is nonrefundable, but you can carry over any remaining credits to future tax years for up to five years. Create and Stick to a Budget Whether you are adjusting your budget for your growing family or starting from scratch, the most important thing is to make sure the budget works for you. Start by adding up your monthly household net income. Next, list all of your fixed and variable monthly expenses, including things like: Mortgage or rentGroceriesCar paymentWireless billStreaming servicesChildcare Given the unique circumstances of LGBTQ+ family planning, it may be best to consult a professional who is familiar in family law. Debt, Savings, and Fun Monthly debt obligations also should be included with your expenses. For example, if you used a loan or credit card to pay for fertility treatments, you’ll want to make sure that you allocate enough for the payment. Next, determine your savings goals. This should include long-term savings, such as a retirement fund, and three to six months’ worth of expenses saved in an emergency fund. You may also want to consider a college savings plan, such as a 529 plan, for your child(ren). Calculate the amount you need to save each month to meet your goals, and include this amount in your budget. Don’t forget about “fun money.” Having children means that you’ll likely spend more money on birthday celebrations and holidays. Be sure you have enough set aside so that your family can enjoy these moments. You can link your bank account to a budgeting app or software to help you stay on track. Or, if you prefer, keeping track of your budget in a good old-fashioned spreadsheet works, too. Review Insurance and Estate-Planning Documents Now that you are responsible for another human being, it’s essential to ensure that you have adequate health and life insurance for your family. Term life insurance, which pays out a death benefit if the beneficiary dies during a stated term, is usually a good option for parents. Parents should also have a last will and testament that specifies who would get custody of their children if something happens to both parents. You can create a will by using a free service online or hiring a financial planner specializing in estate planning. Can LGBTQ+ Couples Legally Adopt a Child? Yes, same-sex couples can adopt. Ruling by the Supreme Court has allowed that same-sex couples can adopt in all 50 states. Can LGBTQ+ Couples Adopt From all Countries? No, not all countries have the social standards and legislation that the United States does in allowing same-sex couples from adopting a child. Full joint adoption by LGBTQ+ couples is not legal in all countries. Why Is Adoption So Expensive? Adoption is expensive because of the wide assortment of professionals involved in ensuring the process is performed legally. This includes the time of lawyers, social workers, doctors, government administrators, counselors, and more. The Bottom Line Today, LGBTQ+ families and individuals have significantly more options when it comes to starting a family than earlier generations did. However, these options can come with a hefty price tag. It’s important not to take these steps without thinking through the financial aspects and planning in advance.

https://www.investopedia.com/terms/p/physicaldelivery.asp

What Is Physical Delivery? Definition and How It Works in Trading

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Physical delivery is a term in an options or futures contract which requires the actual underlying asset to be delivered upon the specified delivery date, rather than being traded out with offsetting contracts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <span class="heading-toc" id="toc-understanding-physical-delivery"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> Understanding Physical Delivery </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp">Derivatives</a> contracts are either <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashsettlement.asp">cash-settled</a> or physically delivered on the expiry date of the contract. When a contract is cash-settled, the net cash position of the contract on the expiry date is transferred between the buyer and the seller. For example, assume two parties enter into an E-mini S&amp;P 500 futures contract to be settled in six months for $2,770 (the <a class="pseudoStyle" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/settlementprice.asp">futures price</a>). If the value of the index on the day the contract expires is higher than the futures price, the buyer gains; otherwise, the seller profits. The difference between the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spotprice.asp">spot price</a> of the contract as of the settlement date and the futures price agreed on will be credited or debited from the accounts of both parties. Say, the closing value of the index six months from now is $2,900, the long futures holder’s account will be credited ($2,900 - $2,770) x $50 = 130 x 50 = $6,500. This amount will be debited from the account of the party shorting the position. [Note that <em>$50 x S&amp;P 500 index</em> represents 1 contract unit for E-mini S&amp;P 500 futures contract]. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> With a physical delivery, the underlying asset of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp">option</a> or derivatives contract is physically delivered on a predetermined delivery date. Let’s look at an example of physical delivery. Assume two parties enter into a one-year (March 2019) <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wti.asp">Crude Oil futures</a> contract at a futures price of $58.40. Regardless of the commodity’s spot price on the settlement date, the buyer is obligated to purchase 1,000 barrels of crude oil (unit for 1 crude oil futures contract) from the seller. If the spot price on the agreed settlement day sometime in March is below $58.40, the long contract holder loses and the short position gains. If the spot price is above the futures price of $58.40, the long position profits, and the seller records a loss. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Exchanges specify the conditions of delivery for the contracts they cover. The exchange designates warehouse and delivery locations for many commodities. When delivery takes place, a warrant or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/depositaryreceipt.asp">bearer receipt</a> that represents a certain quantity and quality of a commodity in a specific location changes hands from the seller to the buyer who then makes full payment. The buyer has the right to remove the commodity from the warehouse or has the option of leaving the commodity at the storage facility for a periodic fee. The buyer could also arrange with the warehouse to transport the commodity to another location of their choice, including their home, and pays any transportation fees. In addition to delivery specifications stipulated by the exchanges, the quality, grade, or nature of the underlying asset to be delivered are also regulated by the exchanges. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Most derivatives are not exercised but are traded out before their delivery date. However, physical delivery still occurs with some trades—it is most common with commodities and bonds but can also occur with other financial instruments. Settlement by physical delivery is carried out by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/clearingbroker.asp">clearing brokers</a> or their agents. Promptly after the last day of trading, the regulated exchange's clearing organization will report a purchase and sale of the underlying asset at the previous day's settlement price. Traders who hold a short position in a physically settled security futures contract to expiration are required to make delivery of the underlying asset. Those who already own the assets may tender them to the appropriate clearing organization. Traders who do not own assets are obligated to purchase them at the current price. </p></div>

Physical delivery is a term in an options or futures contract which requires the actual underlying asset to be delivered upon the specified delivery date, rather than being traded out with offsetting contracts. ## Understanding Physical Delivery [Derivatives](https://www.investopedia.com/terms/d/derivative.asp) contracts are either [cash-settled](https://www.investopedia.com/terms/c/cashsettlement.asp) or physically delivered on the expiry date of the contract. When a contract is cash-settled, the net cash position of the contract on the expiry date is transferred between the buyer and the seller. For example, assume two parties enter into an E-mini S&P 500 futures contract to be settled in six months for $2,770 (the [futures price](https://www.investopedia.com/terms/s/settlementprice.asp)). If the value of the index on the day the contract expires is higher than the futures price, the buyer gains; otherwise, the seller profits. The difference between the [spot price](https://www.investopedia.com/terms/s/spotprice.asp) of the contract as of the settlement date and the futures price agreed on will be credited or debited from the accounts of both parties. Say, the closing value of the index six months from now is $2,900, the long futures holder’s account will be credited ($2,900 - $2,770) x $50 = 130 x 50 = $6,500. This amount will be debited from the account of the party shorting the position. [Note that *$50 x S&P 500 index* represents 1 contract unit for E-mini S&P 500 futures contract]. With a physical delivery, the underlying asset of the [option](https://www.investopedia.com/terms/o/option.asp) or derivatives contract is physically delivered on a predetermined delivery date. Let’s look at an example of physical delivery. Assume two parties enter into a one-year (March 2019) [Crude Oil futures](https://www.investopedia.com/terms/w/wti.asp) contract at a futures price of $58.40. Regardless of the commodity’s spot price on the settlement date, the buyer is obligated to purchase 1,000 barrels of crude oil (unit for 1 crude oil futures contract) from the seller. If the spot price on the agreed settlement day sometime in March is below $58.40, the long contract holder loses and the short position gains. If the spot price is above the futures price of $58.40, the long position profits, and the seller records a loss. Exchanges specify the conditions of delivery for the contracts they cover. The exchange designates warehouse and delivery locations for many commodities. When delivery takes place, a warrant or [bearer receipt](https://www.investopedia.com/terms/d/depositaryreceipt.asp) that represents a certain quantity and quality of a commodity in a specific location changes hands from the seller to the buyer who then makes full payment. The buyer has the right to remove the commodity from the warehouse or has the option of leaving the commodity at the storage facility for a periodic fee. The buyer could also arrange with the warehouse to transport the commodity to another location of their choice, including their home, and pays any transportation fees. In addition to delivery specifications stipulated by the exchanges, the quality, grade, or nature of the underlying asset to be delivered are also regulated by the exchanges. Most derivatives are not exercised but are traded out before their delivery date. However, physical delivery still occurs with some trades—it is most common with commodities and bonds but can also occur with other financial instruments. Settlement by physical delivery is carried out by [clearing brokers](https://www.investopedia.com/terms/c/clearingbroker.asp) or their agents. Promptly after the last day of trading, the regulated exchange's clearing organization will report a purchase and sale of the underlying asset at the previous day's settlement price. Traders who hold a short position in a physically settled security futures contract to expiration are required to make delivery of the underlying asset. Those who already own the assets may tender them to the appropriate clearing organization. Traders who do not own assets are obligated to purchase them at the current price.

Physical delivery is a term in an options or futures contract which requires the actual underlying asset to be delivered upon the specified delivery date, rather than being traded out with offsetting contracts. Understanding Physical Delivery Derivatives contracts are either cash-settled or physically delivered on the expiry date of the contract. When a contract is cash-settled, the net cash position of the contract on the expiry date is transferred between the buyer and the seller. For example, assume two parties enter into an E-mini S&P 500 futures contract to be settled in six months for $2,770 (the futures price). If the value of the index on the day the contract expires is higher than the futures price, the buyer gains; otherwise, the seller profits. The difference between the spot price of the contract as of the settlement date and the futures price agreed on will be credited or debited from the accounts of both parties. Say, the closing value of the index six months from now is $2,900, the long futures holder’s account will be credited ($2,900 - $2,770) x $50 = 130 x 50 = $6,500. This amount will be debited from the account of the party shorting the position. [Note that $50 x S&P 500 index represents 1 contract unit for E-mini S&P 500 futures contract]. With a physical delivery, the underlying asset of the option or derivatives contract is physically delivered on a predetermined delivery date. Let’s look at an example of physical delivery. Assume two parties enter into a one-year (March 2019) Crude Oil futures contract at a futures price of $58.40. Regardless of the commodity’s spot price on the settlement date, the buyer is obligated to purchase 1,000 barrels of crude oil (unit for 1 crude oil futures contract) from the seller. If the spot price on the agreed settlement day sometime in March is below $58.40, the long contract holder loses and the short position gains. If the spot price is above the futures price of $58.40, the long position profits, and the seller records a loss. Exchanges specify the conditions of delivery for the contracts they cover. The exchange designates warehouse and delivery locations for many commodities. When delivery takes place, a warrant or bearer receipt that represents a certain quantity and quality of a commodity in a specific location changes hands from the seller to the buyer who then makes full payment. The buyer has the right to remove the commodity from the warehouse or has the option of leaving the commodity at the storage facility for a periodic fee. The buyer could also arrange with the warehouse to transport the commodity to another location of their choice, including their home, and pays any transportation fees. In addition to delivery specifications stipulated by the exchanges, the quality, grade, or nature of the underlying asset to be delivered are also regulated by the exchanges. Most derivatives are not exercised but are traded out before their delivery date. However, physical delivery still occurs with some trades—it is most common with commodities and bonds but can also occur with other financial instruments. Settlement by physical delivery is carried out by clearing brokers or their agents. Promptly after the last day of trading, the regulated exchange's clearing organization will report a purchase and sale of the underlying asset at the previous day's settlement price. Traders who hold a short position in a physically settled security futures contract to expiration are required to make delivery of the underlying asset. Those who already own the assets may tender them to the appropriate clearing organization. Traders who do not own assets are obligated to purchase them at the current price.

https://www.investopedia.com/terms/t/trackingstocks.asp

Tracking Stock: Definition, Benefits, Risks, and Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-tracking-stock"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Tracking Stock? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A tracking stock is a special equity offering issued by a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/parentcompany.asp">parent company</a> that tracks the financial performance of a particular <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/segment.asp">segment</a> or division. Tracking stocks will trade in the open market separately from the parent company's stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Tracking stocks allow larger companies to isolate the financial performance of a higher growth segment. In turn, tracking stocks give investors the ability to gain exposure to a specific aspect of a larger company's business (e.g., the mobile division within a large telecom provider). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A tracking stock is a specialized equity security issued by a parent company to "track" a certain segment or division of the corporation.</li><li>A company's tracking stock will trade in the open market independent of the parent stock.</li><li>The tracking stock's performance will largely be tied to the success of the division it tracks, not the overall company.</li><li>Companies issue tracking shares in order to raise capital and to give investors the opportunity to gain exposure to one specific division.</li><li>Tracking stocks carry the same risk as any other stock and typically don't include shareholder voting rights.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-tracking-stocks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Tracking Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> When a parent company issues a tracking stock, all revenue and expenses of the applicable division are separated from the parent company's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-statements.asp">financial statements</a>. The long-term performance of the tracking stock is tied to the financials of the division or segment it follows, not the parent company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> If the division does well financially, the tracking stock will likely appreciate even if the parent company is performing poorly. Conversely, if the division slumps financially, the tracking stock will likely fall even if the parent company is doing well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Large companies might issue tracking stocks in order to separate a segment that doesn't quite fit with the core business. An example would be a large manufacturing company with a small software development division. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Companies also issue tracking stocks to isolate a high-growth division from the larger slower-growth parent. However, the parent company and its shareholders retain control of the division's operations. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Tracking stocks are registered similarly to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commonstock.asp">common stocks</a> per the regulations enforced by the U.S. Securities and Exchange Commission (SEC). The issuance and reporting are essentially the same as they are for any new common shares. Companies include a separate section for the tracking stock and the financials of the underlying division in their financial reports. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_20-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Tracking stocks were more frequently used in the late 1990s technology boom than they are now, although some companies still issue them today.</p></div></div></div> <span class="heading-toc" id="toc-tracking-stocks-benefits-and-risks-for-investors"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Tracking Stocks Benefits and Risks for Investors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Tracking stocks allow investors the opportunity to invest in a particular portion of a much larger business. The appreciation potential of well-established <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conglomerate.asp">conglomerates</a> is often limited due to them having multiple divisions across various business lines. Tracking stocks can give investors access to only the most promising parts of a company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Tracking stocks also allow investors to participate in the business segments that best fit their own <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risktolerance.asp">risk tolerance</a>. That said, investors need to be mindful of the risks involved in buying a tracking stock when the parent company is struggling or not well established. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The parent company and its shareholders do not give up control of the tracking segment's operations. Investors of tracking shares typically have limited or no <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/votingright.asp">voting rights</a> and in the event of corporate <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp">bankruptcy</a> at the parent company, creditors would have a claim on the tracking segment's assets (even if the segment was doing well). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-tracking-stocks-benefits-and-risks-for-companies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-heading__text"> Tracking Stocks Benefits and Risks for Companies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Companies raise money through the issuance of tracking stocks. The proceeds can then be used to pay down debt, fund other growth projects, or invest further in the tracking division. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Companies can gauge investor interest in specific segments of the business through the associated activity of each tracking stock. For example, a large-scale telecom giant may choose to use tracking stocks to separate its wireless segment and its landline services. Investor interest in each division can be measured based on the performance of each of the tracking stocks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Tracking stocks also eliminate the need for management to create a separate business or legal entity for the tracked segment. In a spinoff situation, for example, the separated segment would require its own board of directors and management team. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> On the flip side, companies that issue tracking stocks might be parsing out the best parts of their company. If the parent company underperforms financially, the high-growth segment associated with the tracking stock won't be able to help offset that poor performance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_37-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_38-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Tracking stocks give investors access to the more promising divisions of a company.</p></li> <li><p>The performance of tracking stocks comes only from the tracked segment—not from the parent company as a whole.</p></li> <li><p>New issuance of tracking stocks provides companies with capital to pay down debt and fund growth.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Investors can lose money on tracking stocks if the division performs poorly even if the parent company does well.</p></li> <li><p>Tracking stocks typically come with limited or no voting rights.</p></li> <li><p>If the parent company goes into bankruptcy, creditors may have a claim on the tracking segment's assets (even if it is doing well financially).</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-example-of-a-tracking-stock"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> Example of a Tracking Stock </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> In 1999, the Walt Disney Company issued a tracking stock for its internet holdings division, Go.com. Go.com's websites included ESPN.com, ABCNews.com, Disney Online, and Disney's Daily Blast. The tracking stock traded under the ticker symbol "GO."<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> In January 2001, just as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tech_bubble.asp">tech bubble</a> was popping, Disney was forced to close Go.com, lay off hundreds of employees, and retire the tracking stock permanently.<span class="ql-inline-citation" data-cite="1"></span> </p></div>

## What Is a Tracking Stock? A tracking stock is a special equity offering issued by a [parent company](https://www.investopedia.com/terms/p/parentcompany.asp) that tracks the financial performance of a particular [segment](https://www.investopedia.com/terms/s/segment.asp) or division. Tracking stocks will trade in the open market separately from the parent company's stock. Tracking stocks allow larger companies to isolate the financial performance of a higher growth segment. In turn, tracking stocks give investors the ability to gain exposure to a specific aspect of a larger company's business (e.g., the mobile division within a large telecom provider). ### Key Takeaways * A tracking stock is a specialized equity security issued by a parent company to "track" a certain segment or division of the corporation. * A company's tracking stock will trade in the open market independent of the parent stock. * The tracking stock's performance will largely be tied to the success of the division it tracks, not the overall company. * Companies issue tracking shares in order to raise capital and to give investors the opportunity to gain exposure to one specific division. * Tracking stocks carry the same risk as any other stock and typically don't include shareholder voting rights. ## Understanding Tracking Stocks When a parent company issues a tracking stock, all revenue and expenses of the applicable division are separated from the parent company's [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp). The long-term performance of the tracking stock is tied to the financials of the division or segment it follows, not the parent company. If the division does well financially, the tracking stock will likely appreciate even if the parent company is performing poorly. Conversely, if the division slumps financially, the tracking stock will likely fall even if the parent company is doing well. Large companies might issue tracking stocks in order to separate a segment that doesn't quite fit with the core business. An example would be a large manufacturing company with a small software development division. Companies also issue tracking stocks to isolate a high-growth division from the larger slower-growth parent. However, the parent company and its shareholders retain control of the division's operations. Tracking stocks are registered similarly to [common stocks](https://www.investopedia.com/terms/c/commonstock.asp) per the regulations enforced by the U.S. Securities and Exchange Commission (SEC). The issuance and reporting are essentially the same as they are for any new common shares. Companies include a separate section for the tracking stock and the financials of the underlying division in their financial reports. ### Tracking stocks were more frequently used in the late 1990s technology boom than they are now, although some companies still issue them today. ## Tracking Stocks Benefits and Risks for Investors Tracking stocks allow investors the opportunity to invest in a particular portion of a much larger business. The appreciation potential of well-established [conglomerates](https://www.investopedia.com/terms/c/conglomerate.asp) is often limited due to them having multiple divisions across various business lines. Tracking stocks can give investors access to only the most promising parts of a company. Tracking stocks also allow investors to participate in the business segments that best fit their own [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp). That said, investors need to be mindful of the risks involved in buying a tracking stock when the parent company is struggling or not well established. The parent company and its shareholders do not give up control of the tracking segment's operations. Investors of tracking shares typically have limited or no [voting rights](https://www.investopedia.com/terms/v/votingright.asp) and in the event of corporate [bankruptcy](https://www.investopedia.com/terms/b/bankruptcy.asp) at the parent company, creditors would have a claim on the tracking segment's assets (even if the segment was doing well). ## Tracking Stocks Benefits and Risks for Companies Companies raise money through the issuance of tracking stocks. The proceeds can then be used to pay down debt, fund other growth projects, or invest further in the tracking division. Companies can gauge investor interest in specific segments of the business through the associated activity of each tracking stock. For example, a large-scale telecom giant may choose to use tracking stocks to separate its wireless segment and its landline services. Investor interest in each division can be measured based on the performance of each of the tracking stocks. Tracking stocks also eliminate the need for management to create a separate business or legal entity for the tracked segment. In a spinoff situation, for example, the separated segment would require its own board of directors and management team. On the flip side, companies that issue tracking stocks might be parsing out the best parts of their company. If the parent company underperforms financially, the high-growth segment associated with the tracking stock won't be able to help offset that poor performance. Pros * Tracking stocks give investors access to the more promising divisions of a company. * The performance of tracking stocks comes only from the tracked segment—not from the parent company as a whole. * New issuance of tracking stocks provides companies with capital to pay down debt and fund growth. Cons * Investors can lose money on tracking stocks if the division performs poorly even if the parent company does well. * Tracking stocks typically come with limited or no voting rights. * If the parent company goes into bankruptcy, creditors may have a claim on the tracking segment's assets (even if it is doing well financially). ## Example of a Tracking Stock In 1999, the Walt Disney Company issued a tracking stock for its internet holdings division, Go.com. Go.com's websites included ESPN.com, ABCNews.com, Disney Online, and Disney's Daily Blast. The tracking stock traded under the ticker symbol "GO." In January 2001, just as the [tech bubble](https://www.investopedia.com/terms/t/tech_bubble.asp) was popping, Disney was forced to close Go.com, lay off hundreds of employees, and retire the tracking stock permanently.

What Is a Tracking Stock? A tracking stock is a special equity offering issued by a parent company that tracks the financial performance of a particular segment or division. Tracking stocks will trade in the open market separately from the parent company's stock. Tracking stocks allow larger companies to isolate the financial performance of a higher growth segment. In turn, tracking stocks give investors the ability to gain exposure to a specific aspect of a larger company's business (e.g., the mobile division within a large telecom provider). Key Takeaways A tracking stock is a specialized equity security issued by a parent company to "track" a certain segment or division of the corporation.A company's tracking stock will trade in the open market independent of the parent stock.The tracking stock's performance will largely be tied to the success of the division it tracks, not the overall company.Companies issue tracking shares in order to raise capital and to give investors the opportunity to gain exposure to one specific division.Tracking stocks carry the same risk as any other stock and typically don't include shareholder voting rights. Understanding Tracking Stocks When a parent company issues a tracking stock, all revenue and expenses of the applicable division are separated from the parent company's financial statements. The long-term performance of the tracking stock is tied to the financials of the division or segment it follows, not the parent company. If the division does well financially, the tracking stock will likely appreciate even if the parent company is performing poorly. Conversely, if the division slumps financially, the tracking stock will likely fall even if the parent company is doing well. Large companies might issue tracking stocks in order to separate a segment that doesn't quite fit with the core business. An example would be a large manufacturing company with a small software development division. Companies also issue tracking stocks to isolate a high-growth division from the larger slower-growth parent. However, the parent company and its shareholders retain control of the division's operations. Tracking stocks are registered similarly to common stocks per the regulations enforced by the U.S. Securities and Exchange Commission (SEC). The issuance and reporting are essentially the same as they are for any new common shares. Companies include a separate section for the tracking stock and the financials of the underlying division in their financial reports. Tracking stocks were more frequently used in the late 1990s technology boom than they are now, although some companies still issue them today. Tracking Stocks Benefits and Risks for Investors Tracking stocks allow investors the opportunity to invest in a particular portion of a much larger business. The appreciation potential of well-established conglomerates is often limited due to them having multiple divisions across various business lines. Tracking stocks can give investors access to only the most promising parts of a company. Tracking stocks also allow investors to participate in the business segments that best fit their own risk tolerance. That said, investors need to be mindful of the risks involved in buying a tracking stock when the parent company is struggling or not well established. The parent company and its shareholders do not give up control of the tracking segment's operations. Investors of tracking shares typically have limited or no voting rights and in the event of corporate bankruptcy at the parent company, creditors would have a claim on the tracking segment's assets (even if the segment was doing well). Tracking Stocks Benefits and Risks for Companies Companies raise money through the issuance of tracking stocks. The proceeds can then be used to pay down debt, fund other growth projects, or invest further in the tracking division. Companies can gauge investor interest in specific segments of the business through the associated activity of each tracking stock. For example, a large-scale telecom giant may choose to use tracking stocks to separate its wireless segment and its landline services. Investor interest in each division can be measured based on the performance of each of the tracking stocks. Tracking stocks also eliminate the need for management to create a separate business or legal entity for the tracked segment. In a spinoff situation, for example, the separated segment would require its own board of directors and management team. On the flip side, companies that issue tracking stocks might be parsing out the best parts of their company. If the parent company underperforms financially, the high-growth segment associated with the tracking stock won't be able to help offset that poor performance. Pros Tracking stocks give investors access to the more promising divisions of a company. The performance of tracking stocks comes only from the tracked segment—not from the parent company as a whole. New issuance of tracking stocks provides companies with capital to pay down debt and fund growth. Cons Investors can lose money on tracking stocks if the division performs poorly even if the parent company does well. Tracking stocks typically come with limited or no voting rights. If the parent company goes into bankruptcy, creditors may have a claim on the tracking segment's assets (even if it is doing well financially). Example of a Tracking Stock In 1999, the Walt Disney Company issued a tracking stock for its internet holdings division, Go.com. Go.com's websites included ESPN.com, ABCNews.com, Disney Online, and Disney's Daily Blast. The tracking stock traded under the ticker symbol "GO." In January 2001, just as the tech bubble was popping, Disney was forced to close Go.com, lay off hundreds of employees, and retire the tracking stock permanently.

https://www.investopedia.com/biden-seeks-steep-tariffs-hike-on-some-chinese-steel-aluminum-imports-8634700

Biden Seeks Steep Tariffs Hike on Some Chinese Steel, Aluminum Imports

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">KEY TAKEAWAY</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Biden administration is reportedly seeking a more than tripling of certain tariffs on imports of steel and aluminum from China, to 25% from 7.5%.</li><li>The new levies would be in addition to a separate 25% tariff on steel and a 10% duty on aluminum imposed by the Trump administration.</li><li>Shares of Alcoa, one of the world's largest aluminum producers, surged soon after the opening bell Wednesday.<br/></li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> President Biden is reportedly seeking a more than tripling of certain tariffs on imports of steel and aluminum from China, to 25% from 7.5%,<span class="ql-inline-citation" data-cite="7"></span> as he aims to attract workers ahead of the presidential election later this year.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The new levies would be in addition to a separate 25% <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/what-are-tariffs-and-how-do-they-affect-you/">tariff</a> on steel and a 10% duty on aluminum imposed by the Trump administration.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Shares of Alcoa (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=aa">AA</a>), one of the world's largest aluminum producers, surged almost 3% soon after the opening bell Wednesday. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Chinese exports have surged recently while <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/yellen-says-us-will-underscore-need-for-china-to-shift-course-8628167">U.S. Treasury Secretary Janet Yellen</a> has accused Beijing of creating excess capacity and cut-price goods on the back of the country's strategy of turbocharging manufacturing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The Commerce Department has imposed more than 30 anti-dumping and countervailing duties on steel-related products under the Biden administration, a White House statement said. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> "American-made steel remains critical for our economic and national security," the statement said. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Last month, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-steel-biden-to-raise-concerns-about-nippon-steal-deal-8608721">President Biden voiced concerns</a> about Nippon Steel's proposed <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-steel-sold-to-nippon-steel-8417283">$14 billion all-cash acquisition</a> of U.S. Steel announced in December. U.S. Steel shareholders approved the sale of the storied company to the Japanese firm but union opposition and ongoing regulatory reviews are raising doubts about the deal.<span class="ql-inline-citation" data-cite="3"></span> The White House said Wednesday that "U.S. Steel has been an iconic American steel company for more than a century, and that it is vital for it to remain an American steel company that is domestically owned and operated." </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### KEY TAKEAWAY * The Biden administration is reportedly seeking a more than tripling of certain tariffs on imports of steel and aluminum from China, to 25% from 7.5%. * The new levies would be in addition to a separate 25% tariff on steel and a 10% duty on aluminum imposed by the Trump administration. * Shares of Alcoa, one of the world's largest aluminum producers, surged soon after the opening bell Wednesday. President Biden is reportedly seeking a more than tripling of certain tariffs on imports of steel and aluminum from China, to 25% from 7.5%, as he aims to attract workers ahead of the presidential election later this year. The new levies would be in addition to a separate 25% [tariff](https://www.investopedia.com/news/what-are-tariffs-and-how-do-they-affect-you/) on steel and a 10% duty on aluminum imposed by the Trump administration. Shares of Alcoa ([AA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=aa)), one of the world's largest aluminum producers, surged almost 3% soon after the opening bell Wednesday. Chinese exports have surged recently while [U.S. Treasury Secretary Janet Yellen](https://www.investopedia.com/yellen-says-us-will-underscore-need-for-china-to-shift-course-8628167) has accused Beijing of creating excess capacity and cut-price goods on the back of the country's strategy of turbocharging manufacturing. The Commerce Department has imposed more than 30 anti-dumping and countervailing duties on steel-related products under the Biden administration, a White House statement said. "American-made steel remains critical for our economic and national security," the statement said. Last month, [President Biden voiced concerns](https://www.investopedia.com/us-steel-biden-to-raise-concerns-about-nippon-steal-deal-8608721) about Nippon Steel's proposed [$14 billion all-cash acquisition](https://www.investopedia.com/us-steel-sold-to-nippon-steel-8417283) of U.S. Steel announced in December. U.S. Steel shareholders approved the sale of the storied company to the Japanese firm but union opposition and ongoing regulatory reviews are raising doubts about the deal. The White House said Wednesday that "U.S. Steel has been an iconic American steel company for more than a century, and that it is vital for it to remain an American steel company that is domestically owned and operated." Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

KEY TAKEAWAY The Biden administration is reportedly seeking a more than tripling of certain tariffs on imports of steel and aluminum from China, to 25% from 7.5%.The new levies would be in addition to a separate 25% tariff on steel and a 10% duty on aluminum imposed by the Trump administration.Shares of Alcoa, one of the world's largest aluminum producers, surged soon after the opening bell Wednesday. President Biden is reportedly seeking a more than tripling of certain tariffs on imports of steel and aluminum from China, to 25% from 7.5%, as he aims to attract workers ahead of the presidential election later this year. The new levies would be in addition to a separate 25% tariff on steel and a 10% duty on aluminum imposed by the Trump administration. Shares of Alcoa (AA), one of the world's largest aluminum producers, surged almost 3% soon after the opening bell Wednesday. Chinese exports have surged recently while U.S. Treasury Secretary Janet Yellen has accused Beijing of creating excess capacity and cut-price goods on the back of the country's strategy of turbocharging manufacturing. The Commerce Department has imposed more than 30 anti-dumping and countervailing duties on steel-related products under the Biden administration, a White House statement said. "American-made steel remains critical for our economic and national security," the statement said. Last month, President Biden voiced concerns about Nippon Steel's proposed $14 billion all-cash acquisition of U.S. Steel announced in December. U.S. Steel shareholders approved the sale of the storied company to the Japanese firm but union opposition and ongoing regulatory reviews are raising doubts about the deal. The White House said Wednesday that "U.S. Steel has been an iconic American steel company for more than a century, and that it is vital for it to remain an American steel company that is domestically owned and operated." Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/intel-takes-aim-at-nvidia-ai-dominance-with-launch-of-gaudi-3-chip-8628911

Intel Takes Aim at Nvidia's AI Dominance With Launch of Gaudi 3 Chip

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Intel announced its latest artificial intelligence chip, the Gaudi 3 AI accelerator, at an event on Tuesday.</li><li>The company said that its new accelerator outperforms Nvidia's H100 in inference and power efficiency at a lower price point.</li><li>Intel said the chip is set to be available to Dell Technologies, Hewlett Packard Enterprise, Lenovo, and Super Micro Computer in the second quarter of 2024.</li><li>Nvidia unveiled the GB200 chip, which significantly outperforms the earlier generation, H100, as a part of its Blackwell platform in March.<br/></li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Intel (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=intc">INTC</a>) unveiled its latest <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI)</a> chip, the Gaudi 3 AI accelerator, which the chipmaker claims outperforms Nvidia's (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda">NVDA</a>) H100, during an event on Tuesday.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The Gaudi 3 accelerator delivers "50% on average better inference and 40% on average better power efficiency" than Nvidia's H100 at "a fraction of the cost," Intel said. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The latest Intel AI chip will be available to some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/oem.asp">original equipment manufacturers (OEMs)</a> including Dell Technologies (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DELL">DELL</a>), Hewlett Packard Enterprise (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HPE">HPE</a>), <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/073015/look-lenovos-strategy-business-model.asp">Lenovo</a>, and Super Micro Computer (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMCI">SMCI</a>) in the second quarter of 2024. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The announcement comes as the chipmaker works to compete with other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/semiconductor.asp">semiconductor</a> companies leading the AI boom, including Nvidia and Advanced Micro Devices (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amd">AMD</a>). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Intel compared its latest chip to Nvidia's H100, which was first announced in 2022.<span class="ql-inline-citation" data-cite="3"></span> Nvidia has since <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/6-takeaways-from-nvidia-ceo-jensen-huang-gpu-tech-conference-keynote-8610736">unveiled</a> the Blackwell platform, the latest version of its AI-powering tech, which <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/analysts-call-nvidia-blackwell-platform-the-most-ambitious-project-in-silicon-valley-8611111">analysts called</a> the "most ambitious project in Silicon Valley," in March. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Nvidia's latest chip, the GB200, "provides up to a 30x performance increase compared to the same number of NVIDIA H100 Tensor Core GPUs for LLM inference workloads, and reduces cost and energy consumption by up to 25x," the company said.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Intel shares were up 0.4% at $38.12 as of about 12:45 p.m. ET Tuesday. The stock has lost about one-fifth of its value year to date.<br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * Intel announced its latest artificial intelligence chip, the Gaudi 3 AI accelerator, at an event on Tuesday. * The company said that its new accelerator outperforms Nvidia's H100 in inference and power efficiency at a lower price point. * Intel said the chip is set to be available to Dell Technologies, Hewlett Packard Enterprise, Lenovo, and Super Micro Computer in the second quarter of 2024. * Nvidia unveiled the GB200 chip, which significantly outperforms the earlier generation, H100, as a part of its Blackwell platform in March. Intel ([INTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=intc)) unveiled its latest [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) chip, the Gaudi 3 AI accelerator, which the chipmaker claims outperforms Nvidia's ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda)) H100, during an event on Tuesday. The Gaudi 3 accelerator delivers "50% on average better inference and 40% on average better power efficiency" than Nvidia's H100 at "a fraction of the cost," Intel said. The latest Intel AI chip will be available to some [original equipment manufacturers (OEMs)](https://www.investopedia.com/terms/o/oem.asp) including Dell Technologies ([DELL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DELL)), Hewlett Packard Enterprise ([HPE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HPE)), [Lenovo](https://www.investopedia.com/articles/investing/073015/look-lenovos-strategy-business-model.asp), and Super Micro Computer ([SMCI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMCI)) in the second quarter of 2024. The announcement comes as the chipmaker works to compete with other [semiconductor](https://www.investopedia.com/terms/s/semiconductor.asp) companies leading the AI boom, including Nvidia and Advanced Micro Devices ([AMD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amd)). Intel compared its latest chip to Nvidia's H100, which was first announced in 2022. Nvidia has since [unveiled](https://www.investopedia.com/6-takeaways-from-nvidia-ceo-jensen-huang-gpu-tech-conference-keynote-8610736) the Blackwell platform, the latest version of its AI-powering tech, which [analysts called](https://www.investopedia.com/analysts-call-nvidia-blackwell-platform-the-most-ambitious-project-in-silicon-valley-8611111) the "most ambitious project in Silicon Valley," in March. Nvidia's latest chip, the GB200, "provides up to a 30x performance increase compared to the same number of NVIDIA H100 Tensor Core GPUs for LLM inference workloads, and reduces cost and energy consumption by up to 25x," the company said. Intel shares were up 0.4% at $38.12 as of about 12:45 p.m. ET Tuesday. The stock has lost about one-fifth of its value year to date. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Intel announced its latest artificial intelligence chip, the Gaudi 3 AI accelerator, at an event on Tuesday.The company said that its new accelerator outperforms Nvidia's H100 in inference and power efficiency at a lower price point.Intel said the chip is set to be available to Dell Technologies, Hewlett Packard Enterprise, Lenovo, and Super Micro Computer in the second quarter of 2024.Nvidia unveiled the GB200 chip, which significantly outperforms the earlier generation, H100, as a part of its Blackwell platform in March. Intel (INTC) unveiled its latest artificial intelligence (AI) chip, the Gaudi 3 AI accelerator, which the chipmaker claims outperforms Nvidia's (NVDA) H100, during an event on Tuesday. The Gaudi 3 accelerator delivers "50% on average better inference and 40% on average better power efficiency" than Nvidia's H100 at "a fraction of the cost," Intel said. The latest Intel AI chip will be available to some original equipment manufacturers (OEMs) including Dell Technologies (DELL), Hewlett Packard Enterprise (HPE), Lenovo, and Super Micro Computer (SMCI) in the second quarter of 2024. The announcement comes as the chipmaker works to compete with other semiconductor companies leading the AI boom, including Nvidia and Advanced Micro Devices (AMD). Intel compared its latest chip to Nvidia's H100, which was first announced in 2022. Nvidia has since unveiled the Blackwell platform, the latest version of its AI-powering tech, which analysts called the "most ambitious project in Silicon Valley," in March. Nvidia's latest chip, the GB200, "provides up to a 30x performance increase compared to the same number of NVIDIA H100 Tensor Core GPUs for LLM inference workloads, and reduces cost and energy consumption by up to 25x," the company said. Intel shares were up 0.4% at $38.12 as of about 12:45 p.m. ET Tuesday. The stock has lost about one-fifth of its value year to date. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/how-to-file-bankruptcy-on-a-car-loan-7557611

How to File Bankruptcy on a Car Loan

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> You can file bankruptcy on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-auto-loan-rates-4846394">car loan</a>, but it’s not the best way to get out of your car loan, especially if you have other options (such as a debt settlement with a creditor). You won’t necessarily be able to both get rid of the loan and keep your car.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> There are two types of bankruptcy. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chapter7.asp">Chapter 7</a> is for people who can’t pay their debts. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chapter13.asp">Chapter 13</a> reorganizes how you will pay your debts.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> If you declare Chapter 7 bankruptcy, your car will be repossessed unless it’s worth less than a specific amount, or you either pay off your loan or promise to keep paying it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> If you declare Chapter 13 bankruptcy, you’ll agree to keep paying off your car loan but under different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/loan-terms-5075341">loan terms</a>.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_9-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_10-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>You can file bankruptcy on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/auto-loans-4689734">car loan</a>, but it’s not a good way to get out of it.</li> <li>You can't get rid of your loan and keep your car unless your loan account is in good standing. </li> <li>You may be forced to sell your car or return it to your lender if you own significant equity in it. </li> <li>The best way to protect your car during bankruptcy proceedings is to buy it outright before you start the bankruptcy process.</li> </ul></div></div></div> <span class="heading-toc" id="toc-steps-to-file-for-bankruptcy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> Steps to File for Bankruptcy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/07/bankruptcy.asp">Filing for bankruptcy</a> has consequences that can affect your assets and your credit. It's important that you understand them before you file. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> For instance, depending on the bankruptcy chapter that you choose, your assets may need to be sold to pay off your debts.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> In addition, a bankruptcy becomes part of your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a>. Only after seven or 10 years (based on the bankruptcy) will evidence of it be removed. That means your credit will be affected negatively, making loans of any kind difficult to obtain.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Prepare to file for bankruptcy by taking the following steps: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li>Consult an attorney who can recommend the type of bankruptcy that's appropriate for you.<span class="ql-inline-citation" data-cite="5"></span></li> <li>Attend <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-counseling.asp">credit counseling</a>. Before you file, you are required to attend a counseling session with a credit counseling organization approved by the U.S. Department of Justice’s U.S. Trustee Program.<span class="ql-inline-citation" data-cite="13"></span></li> <li>List your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt.asp">debts</a>, including your car loan.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>When the bankruptcy court issues a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt-discharge.asp">discharge</a>, you're relieved of your obligation to pay your listed debts. Creditors no longer have a legal claim and cannot pursue any collection activity, take legal action, or communicate with you. However, this doesn’t necessarily mean you can keep your car. What happens to your car depends on what type of bankruptcy you file for.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="6"></span><br/></p></div></div></div> <span class="heading-toc" id="toc-cars-and-bankruptcy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Cars and Bankruptcy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Whether you can keep your car depends on the type of bankruptcy that you file for. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-subheading__text"> Chapter 7 Bankruptcy </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> When you file for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/bankruptcy-filing.asp">Chapter 7 bankruptcy</a>, you are required to sell your assets to repay your debts. In some cases, you will be required to sell your car or return it to your lender in order to pay off your car loan.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> If you are making monthly payments on a loan, the lender holds the title to your car as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a>. Once you’ve paid off your loan, you get the title and own the car free and clear. If you can’t make payments, the lender may take the car back as part of your bankruptcy process.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-subheading__text"> Exception </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> However, there is an exception to this. Most states offer an exemption for motor vehicles during a Chapter 7 bankruptcy. Whether this applies to you depends on: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <li>Whether you are up to date on your loan repayments</li><li>The law in your state</li><li>How much equity you own in your car.<span class="ql-inline-citation" data-cite="12"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The federal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exemption.asp">exemption</a> for motor vehicles is $4,450 until 2025. If you have less equity than this and you are current on your loan <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repayments</a>, you should be able to keep your car. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> However, 31 states have their own exemptions that those filing bankruptcy must abide by. Be sure to check the exemption for your state. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_41-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_42-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Consult an attorney to find out how the federal exemption of $4,450 may affect your car ownership in a potential bankruptcy case.<span class="ql-inline-citation" data-cite="6"></span><br/></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_43-0"> <span class="mntl-sc-block-subheading__text"> Chapter 13 Bankruptcy </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Chapter 13 bankruptcy is known as “reorganization bankruptcy.” If you file for Chapter 13 bankruptcy, your debts will be restructured so that you can repay them more easily. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Chapter 13 bankruptcy generally doesn’t require you to give up your car, so you can keep it throughout the proceedings.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-how-to-protect-your-car-after-filing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-heading__text"> How to Protect Your Car After Filing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> If you want to be sure you can keep your car during bankruptcy proceedings, try to pay off your car loan before filing. If you own your car outright, you can claim the federal exemption for motor vehicles during the proceedings. That means if your car is worth less than $4,450, you can keep it.<span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Or, if you file for Chapter 7 bankruptcy, you may be able to sign a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reaffirmation.asp">reaffirmation agreement</a>.<span class="ql-inline-citation" data-cite="14"></span> This is a commitment to keep making car repayments as if you hadn’t filed for bankruptcy. This will allow you to keep your car loan (and car). Just make sure that you can still make the monthly payments.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-can-i-keep-my-car-if-i-file-for-bankruptcy"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Keep My Car If I File for Bankruptcy?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You may be able to keep your car if you file for bankruptcy. If your car is worth less than $4,450, or if you have less than $4,450 in equity in the car (even if it is worth more than $4,450), you might be able to claim the federal exemption during bankruptcy proceedings. This will allow you to keep the car. However, if you have missed car loan repayments, your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lender</a> normally will repossess your car during bankruptcy.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-how-do-i-discharge-my-car-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Discharge My Car Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Courts can issue a discharge ruling for a car loan when you meet the discharge requirements under Chapter 7 or Chapter 13 bankruptcy.<span class="ql-inline-citation" data-cite="11"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-how-long-after-bankruptcy-can-i-get-a-car-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Long After Bankruptcy Can I Get a Car Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most lenders will make you wait 12 to 24 months after bankruptcy is completed before they consider you for a car loan. Even then, you will likely only be considered by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subprimelender.asp">subprime lenders</a> that charge higher interest rates than prime lenders.<span class="ql-inline-citation" data-cite="15"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_59-0"><span class="heading-toc" id="toc-why-did-my-car-loan-disappear-from-my-credit-report"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Did My Car Loan Disappear From My Credit Report?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If the car loan listed on your credit report was never paid off, it will be removed from your report after seven years. If the car loan is closed in good standing, it will be removed after up to 10 years.<span class="ql-inline-citation" data-cite="8"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Bankruptcy isn't always the best way to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-auto-loan-debt-relief-8548742">get out of your car loan</a>. Generally, you won’t be able to both, get rid of the loan and keep your car if you still owe on your car loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> However, there are exceptions to this rule that may allow you to keep your car if your equity in the car is below a certain exemption amount. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Whether you can keep your car during bankruptcy proceedings depends on a variety of factors: the type of bankruptcy that you apply for, whether your car loan is in good standing, how much your car is worth, and other financial circumstances. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> The rules that govern bankruptcy are complex, so be sure to consult an attorney before starting the process.<br/> </p></div>

You can file bankruptcy on a [car loan](https://www.investopedia.com/best-auto-loan-rates-4846394), but it’s not the best way to get out of your car loan, especially if you have other options (such as a debt settlement with a creditor). You won’t necessarily be able to both get rid of the loan and keep your car. There are two types of bankruptcy. [Chapter 7](https://www.investopedia.com/terms/c/chapter7.asp) is for people who can’t pay their debts. [Chapter 13](https://www.investopedia.com/terms/c/chapter13.asp) reorganizes how you will pay your debts. If you declare Chapter 7 bankruptcy, your car will be repossessed unless it’s worth less than a specific amount, or you either pay off your loan or promise to keep paying it. If you declare Chapter 13 bankruptcy, you’ll agree to keep paying off your car loan but under different [loan terms](https://www.investopedia.com/loan-terms-5075341). ### Key Takeaways * You can file bankruptcy on a [car loan](https://www.investopedia.com/auto-loans-4689734), but it’s not a good way to get out of it. * You can't get rid of your loan and keep your car unless your loan account is in good standing. * You may be forced to sell your car or return it to your lender if you own significant equity in it. * The best way to protect your car during bankruptcy proceedings is to buy it outright before you start the bankruptcy process. ## Steps to File for Bankruptcy [Filing for bankruptcy](https://www.investopedia.com/articles/pf/07/bankruptcy.asp) has consequences that can affect your assets and your credit. It's important that you understand them before you file. For instance, depending on the bankruptcy chapter that you choose, your assets may need to be sold to pay off your debts. In addition, a bankruptcy becomes part of your [credit report](https://www.investopedia.com/terms/c/creditreport.asp). Only after seven or 10 years (based on the bankruptcy) will evidence of it be removed. That means your credit will be affected negatively, making loans of any kind difficult to obtain. Prepare to file for bankruptcy by taking the following steps: * Consult an attorney who can recommend the type of bankruptcy that's appropriate for you. * Attend [credit counseling](https://www.investopedia.com/terms/c/credit-counseling.asp). Before you file, you are required to attend a counseling session with a credit counseling organization approved by the U.S. Department of Justice’s U.S. Trustee Program. * List your [debts](https://www.investopedia.com/terms/d/debt.asp), including your car loan. ### When the bankruptcy court issues a [discharge](https://www.investopedia.com/terms/d/debt-discharge.asp), you're relieved of your obligation to pay your listed debts. Creditors no longer have a legal claim and cannot pursue any collection activity, take legal action, or communicate with you. However, this doesn’t necessarily mean you can keep your car. What happens to your car depends on what type of bankruptcy you file for. ## Cars and Bankruptcy Whether you can keep your car depends on the type of bankruptcy that you file for. ### Chapter 7 Bankruptcy When you file for [Chapter 7 bankruptcy](https://www.investopedia.com/articles/pf/08/bankruptcy-filing.asp), you are required to sell your assets to repay your debts. In some cases, you will be required to sell your car or return it to your lender in order to pay off your car loan. If you are making monthly payments on a loan, the lender holds the title to your car as [collateral](https://www.investopedia.com/terms/c/collateral.asp). Once you’ve paid off your loan, you get the title and own the car free and clear. If you can’t make payments, the lender may take the car back as part of your bankruptcy process. ### Exception However, there is an exception to this. Most states offer an exemption for motor vehicles during a Chapter 7 bankruptcy. Whether this applies to you depends on: * Whether you are up to date on your loan repayments * The law in your state * How much equity you own in your car. The federal [exemption](https://www.investopedia.com/terms/e/exemption.asp) for motor vehicles is $4,450 until 2025. If you have less equity than this and you are current on your loan [repayments](https://www.investopedia.com/terms/r/repayment.asp), you should be able to keep your car. However, 31 states have their own exemptions that those filing bankruptcy must abide by. Be sure to check the exemption for your state. ### Consult an attorney to find out how the federal exemption of $4,450 may affect your car ownership in a potential bankruptcy case. ### Chapter 13 Bankruptcy Chapter 13 bankruptcy is known as “reorganization bankruptcy.” If you file for Chapter 13 bankruptcy, your debts will be restructured so that you can repay them more easily. Chapter 13 bankruptcy generally doesn’t require you to give up your car, so you can keep it throughout the proceedings. ## How to Protect Your Car After Filing If you want to be sure you can keep your car during bankruptcy proceedings, try to pay off your car loan before filing. If you own your car outright, you can claim the federal exemption for motor vehicles during the proceedings. That means if your car is worth less than $4,450, you can keep it. Or, if you file for Chapter 7 bankruptcy, you may be able to sign a [reaffirmation agreement](https://www.investopedia.com/terms/r/reaffirmation.asp). This is a commitment to keep making car repayments as if you hadn’t filed for bankruptcy. This will allow you to keep your car loan (and car). Just make sure that you can still make the monthly payments. ## Can I Keep My Car If I File for Bankruptcy? You may be able to keep your car if you file for bankruptcy. If your car is worth less than $4,450, or if you have less than $4,450 in equity in the car (even if it is worth more than $4,450), you might be able to claim the federal exemption during bankruptcy proceedings. This will allow you to keep the car. However, if you have missed car loan repayments, your [lender](https://www.investopedia.com/terms/l/lender.asp) normally will repossess your car during bankruptcy. ## How Do I Discharge My Car Loan? Courts can issue a discharge ruling for a car loan when you meet the discharge requirements under Chapter 7 or Chapter 13 bankruptcy. ## How Long After Bankruptcy Can I Get a Car Loan? Most lenders will make you wait 12 to 24 months after bankruptcy is completed before they consider you for a car loan. Even then, you will likely only be considered by [subprime lenders](https://www.investopedia.com/terms/s/subprimelender.asp) that charge higher interest rates than prime lenders. ## Why Did My Car Loan Disappear From My Credit Report? If the car loan listed on your credit report was never paid off, it will be removed from your report after seven years. If the car loan is closed in good standing, it will be removed after up to 10 years. ## The Bottom Line Bankruptcy isn't always the best way to [get out of your car loan](https://www.investopedia.com/how-to-get-auto-loan-debt-relief-8548742). Generally, you won’t be able to both, get rid of the loan and keep your car if you still owe on your car loan. However, there are exceptions to this rule that may allow you to keep your car if your equity in the car is below a certain exemption amount. Whether you can keep your car during bankruptcy proceedings depends on a variety of factors: the type of bankruptcy that you apply for, whether your car loan is in good standing, how much your car is worth, and other financial circumstances. The rules that govern bankruptcy are complex, so be sure to consult an attorney before starting the process.

You can file bankruptcy on a car loan, but it’s not the best way to get out of your car loan, especially if you have other options (such as a debt settlement with a creditor). You won’t necessarily be able to both get rid of the loan and keep your car. There are two types of bankruptcy. Chapter 7 is for people who can’t pay their debts. Chapter 13 reorganizes how you will pay your debts. If you declare Chapter 7 bankruptcy, your car will be repossessed unless it’s worth less than a specific amount, or you either pay off your loan or promise to keep paying it. If you declare Chapter 13 bankruptcy, you’ll agree to keep paying off your car loan but under different loan terms. Key Takeaways You can file bankruptcy on a car loan, but it’s not a good way to get out of it. You can't get rid of your loan and keep your car unless your loan account is in good standing.  You may be forced to sell your car or return it to your lender if you own significant equity in it.  The best way to protect your car during bankruptcy proceedings is to buy it outright before you start the bankruptcy process. Steps to File for Bankruptcy Filing for bankruptcy has consequences that can affect your assets and your credit. It's important that you understand them before you file. For instance, depending on the bankruptcy chapter that you choose, your assets may need to be sold to pay off your debts. In addition, a bankruptcy becomes part of your credit report. Only after seven or 10 years (based on the bankruptcy) will evidence of it be removed. That means your credit will be affected negatively, making loans of any kind difficult to obtain. Prepare to file for bankruptcy by taking the following steps: Consult an attorney who can recommend the type of bankruptcy that's appropriate for you. Attend credit counseling. Before you file, you are required to attend a counseling session with a credit counseling organization approved by the U.S. Department of Justice’s U.S. Trustee Program. List your debts, including your car loan. When the bankruptcy court issues a discharge, you're relieved of your obligation to pay your listed debts. Creditors no longer have a legal claim and cannot pursue any collection activity, take legal action, or communicate with you. However, this doesn’t necessarily mean you can keep your car. What happens to your car depends on what type of bankruptcy you file for. Cars and Bankruptcy Whether you can keep your car depends on the type of bankruptcy that you file for. Chapter 7 Bankruptcy When you file for Chapter 7 bankruptcy, you are required to sell your assets to repay your debts. In some cases, you will be required to sell your car or return it to your lender in order to pay off your car loan. If you are making monthly payments on a loan, the lender holds the title to your car as collateral. Once you’ve paid off your loan, you get the title and own the car free and clear. If you can’t make payments, the lender may take the car back as part of your bankruptcy process. Exception However, there is an exception to this. Most states offer an exemption for motor vehicles during a Chapter 7 bankruptcy. Whether this applies to you depends on: Whether you are up to date on your loan repaymentsThe law in your stateHow much equity you own in your car. The federal exemption for motor vehicles is $4,450 until 2025. If you have less equity than this and you are current on your loan repayments, you should be able to keep your car. However, 31 states have their own exemptions that those filing bankruptcy must abide by. Be sure to check the exemption for your state. Consult an attorney to find out how the federal exemption of $4,450 may affect your car ownership in a potential bankruptcy case. Chapter 13 Bankruptcy Chapter 13 bankruptcy is known as “reorganization bankruptcy.” If you file for Chapter 13 bankruptcy, your debts will be restructured so that you can repay them more easily. Chapter 13 bankruptcy generally doesn’t require you to give up your car, so you can keep it throughout the proceedings. How to Protect Your Car After Filing If you want to be sure you can keep your car during bankruptcy proceedings, try to pay off your car loan before filing. If you own your car outright, you can claim the federal exemption for motor vehicles during the proceedings. That means if your car is worth less than $4,450, you can keep it. Or, if you file for Chapter 7 bankruptcy, you may be able to sign a reaffirmation agreement. This is a commitment to keep making car repayments as if you hadn’t filed for bankruptcy. This will allow you to keep your car loan (and car). Just make sure that you can still make the monthly payments. Can I Keep My Car If I File for Bankruptcy? You may be able to keep your car if you file for bankruptcy. If your car is worth less than $4,450, or if you have less than $4,450 in equity in the car (even if it is worth more than $4,450), you might be able to claim the federal exemption during bankruptcy proceedings. This will allow you to keep the car. However, if you have missed car loan repayments, your lender normally will repossess your car during bankruptcy. How Do I Discharge My Car Loan? Courts can issue a discharge ruling for a car loan when you meet the discharge requirements under Chapter 7 or Chapter 13 bankruptcy. How Long After Bankruptcy Can I Get a Car Loan? Most lenders will make you wait 12 to 24 months after bankruptcy is completed before they consider you for a car loan. Even then, you will likely only be considered by subprime lenders that charge higher interest rates than prime lenders. Why Did My Car Loan Disappear From My Credit Report? If the car loan listed on your credit report was never paid off, it will be removed from your report after seven years. If the car loan is closed in good standing, it will be removed after up to 10 years. The Bottom Line Bankruptcy isn't always the best way to get out of your car loan. Generally, you won’t be able to both, get rid of the loan and keep your car if you still owe on your car loan. However, there are exceptions to this rule that may allow you to keep your car if your equity in the car is below a certain exemption amount. Whether you can keep your car during bankruptcy proceedings depends on a variety of factors: the type of bankruptcy that you apply for, whether your car loan is in good standing, how much your car is worth, and other financial circumstances. The rules that govern bankruptcy are complex, so be sure to consult an attorney before starting the process.

https://www.investopedia.com/terms/l/leveraged-loan-index.asp

Leveraged Loan Index (LLI): What it Means, How it Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-leveraged-loan-index-lli"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Leveraged Loan Index (LLI)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A leveraged loan index (LLI) is a market-weighted index that tracks the performance of institutional leveraged loans. Several indexes for the market exist, but the most widely followed one is the S&amp;P/LSTA U.S. Leveraged Loan 100 Index.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leveragedloan.asp">leveraged loan</a> is a senior secured debt obligation that is rated below investment grade (i.e., part of the high-yield or "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/junkbond.asp">junk</a>" bond market). Leveraged loans are issued to finance <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leveragedbuyout.asp">leveraged buyouts</a> (LBOs), and most of the loans are traded in the secondary market. The leveraged loan index tracks the prices of the loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A leveraged loan index (LLI) tracks the performance of institutional leveraged loans on a market-weighted basis.</li><li>A leveraged loan is a type of credit facility that is extended to companies or individuals that already have considerable amounts of debt or a poor credit history</li><li>The fixed-income securities tracked by an LLI will be riskier and higher-yield than investment-grade benchmark bond indices.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-leveraged-loan-index-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How a Leveraged Loan Index Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A leveraged loan is structured, arranged, through a process known as syndication. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loansyndication.asp">Loan syndication</a> is the process of bringing together a group of lenders in funding various portions of a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loan.asp">loan</a> for a single borrower, often to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pro-rata_tranche.asp">diversify the credit risk exposure</a> of any single lender. This version of a leveraged loan index is a common benchmark and represents the 100 largest and most liquid issues of the institutional loan universe. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The most popular leveraged loan index (LLI) was developed by Standard &amp; Poor’s (S&amp;P) and the Loan Syndications and Trading Association (LSTA). A sub-index assembled by S&amp;P and LSTA is the U.S. Leveraged Loan 100 B/<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/ba2-bb.asp">BB</a> Rating Index, while S&amp;P has a Global Leveraged Loan 100 Index on its own to include major issuers in Europe. The indexes are rebalanced twice per year. IHS Markit Ltd. and Credit Suisse also maintain proprietary leveraged loan indexes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-leveraged-loan-indices-in-practice"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Leveraged Loan Indices in Practice </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> An LLI serves as a benchmark for performance measurement of fund managers dedicated to leveraged loan investment strategies and as a basis for passive investment vehicles such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange traded funds</a> (ETF). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> For example, the Invesco Senior Loan Portfolio (ticker: BKLN) is based on the S&amp;P/LSTA U.S. Leveraged Loan 100 Index. According to Invesco, the asset management company that offers BKLN, the fund invests at least 80% of its total assets in the constituent securities that make up the leveraged loan index, which tracks the market-weighted performance of the component loans based on market weightings, spreads, and interest payments.<span class="ql-inline-citation" data-cite="2"></span> If less than 100% of the assets are invested in the component securities of the index, there will be variability in the performance of the ETF versus the index. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-llis-and-cdss"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> LLIs and CDSs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Some LLIs are tailored to derivatives products that utilize leveraged loans. For instance, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/itraxx-levx-indexes.asp">iTraxx LevX</a> are a pair of two tradable indexes that hold credit default swaps (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditdefaultswap.asp">CDSs</a>) representing a diversified basket of the 40 (formerly 35) most liquid European companies that have tradable debt offerings in the secondary market.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The LevX indices track what are known as leveraged loan credit default swaps (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loan-credit-default-swap.asp">LCDS</a>). The iTraxx LevX Senior Index represents only <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seniordebt.asp">senior</a> loans, while the iTraxx LevX Subordinated Index represents <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subordinateddebt.asp">subordinated</a> debt including second- and third-lien loans.<span class="ql-inline-citation" data-cite="4"></span> </p></div>

## What Is a Leveraged Loan Index (LLI)? A leveraged loan index (LLI) is a market-weighted index that tracks the performance of institutional leveraged loans. Several indexes for the market exist, but the most widely followed one is the S&P/LSTA U.S. Leveraged Loan 100 Index. A [leveraged loan](https://www.investopedia.com/terms/l/leveragedloan.asp) is a senior secured debt obligation that is rated below investment grade (i.e., part of the high-yield or "[junk](https://www.investopedia.com/terms/j/junkbond.asp)" bond market). Leveraged loans are issued to finance [leveraged buyouts](https://www.investopedia.com/terms/l/leveragedbuyout.asp) (LBOs), and most of the loans are traded in the secondary market. The leveraged loan index tracks the prices of the loans. ### Key Takeaways * A leveraged loan index (LLI) tracks the performance of institutional leveraged loans on a market-weighted basis. * A leveraged loan is a type of credit facility that is extended to companies or individuals that already have considerable amounts of debt or a poor credit history * The fixed-income securities tracked by an LLI will be riskier and higher-yield than investment-grade benchmark bond indices. ## How a Leveraged Loan Index Works A leveraged loan is structured, arranged, through a process known as syndication. [Loan syndication](https://www.investopedia.com/terms/l/loansyndication.asp) is the process of bringing together a group of lenders in funding various portions of a [loan](https://www.investopedia.com/terms/l/loan.asp) for a single borrower, often to [diversify the credit risk exposure](https://www.investopedia.com/terms/p/pro-rata_tranche.asp) of any single lender. This version of a leveraged loan index is a common benchmark and represents the 100 largest and most liquid issues of the institutional loan universe. The most popular leveraged loan index (LLI) was developed by Standard & Poor’s (S&P) and the Loan Syndications and Trading Association (LSTA). A sub-index assembled by S&P and LSTA is the U.S. Leveraged Loan 100 B/[BB](https://www.investopedia.com/terms/b/ba2-bb.asp) Rating Index, while S&P has a Global Leveraged Loan 100 Index on its own to include major issuers in Europe. The indexes are rebalanced twice per year. IHS Markit Ltd. and Credit Suisse also maintain proprietary leveraged loan indexes. ## Leveraged Loan Indices in Practice An LLI serves as a benchmark for performance measurement of fund managers dedicated to leveraged loan investment strategies and as a basis for passive investment vehicles such as [exchange traded funds](https://www.investopedia.com/terms/e/etf.asp) (ETF). For example, the Invesco Senior Loan Portfolio (ticker: BKLN) is based on the S&P/LSTA U.S. Leveraged Loan 100 Index. According to Invesco, the asset management company that offers BKLN, the fund invests at least 80% of its total assets in the constituent securities that make up the leveraged loan index, which tracks the market-weighted performance of the component loans based on market weightings, spreads, and interest payments. If less than 100% of the assets are invested in the component securities of the index, there will be variability in the performance of the ETF versus the index. ## LLIs and CDSs Some LLIs are tailored to derivatives products that utilize leveraged loans. For instance, the [iTraxx LevX](https://www.investopedia.com/terms/i/itraxx-levx-indexes.asp) are a pair of two tradable indexes that hold credit default swaps ([CDSs](https://www.investopedia.com/terms/c/creditdefaultswap.asp)) representing a diversified basket of the 40 (formerly 35) most liquid European companies that have tradable debt offerings in the secondary market. The LevX indices track what are known as leveraged loan credit default swaps ([LCDS](https://www.investopedia.com/terms/l/loan-credit-default-swap.asp)). The iTraxx LevX Senior Index represents only [senior](https://www.investopedia.com/terms/s/seniordebt.asp) loans, while the iTraxx LevX Subordinated Index represents [subordinated](https://www.investopedia.com/terms/s/subordinateddebt.asp) debt including second- and third-lien loans.

What Is a Leveraged Loan Index (LLI)? A leveraged loan index (LLI) is a market-weighted index that tracks the performance of institutional leveraged loans. Several indexes for the market exist, but the most widely followed one is the S&P/LSTA U.S. Leveraged Loan 100 Index. A leveraged loan is a senior secured debt obligation that is rated below investment grade (i.e., part of the high-yield or "junk" bond market). Leveraged loans are issued to finance leveraged buyouts (LBOs), and most of the loans are traded in the secondary market. The leveraged loan index tracks the prices of the loans. Key Takeaways A leveraged loan index (LLI) tracks the performance of institutional leveraged loans on a market-weighted basis.A leveraged loan is a type of credit facility that is extended to companies or individuals that already have considerable amounts of debt or a poor credit historyThe fixed-income securities tracked by an LLI will be riskier and higher-yield than investment-grade benchmark bond indices. How a Leveraged Loan Index Works A leveraged loan is structured, arranged, through a process known as syndication. Loan syndication is the process of bringing together a group of lenders in funding various portions of a loan for a single borrower, often to diversify the credit risk exposure of any single lender. This version of a leveraged loan index is a common benchmark and represents the 100 largest and most liquid issues of the institutional loan universe. The most popular leveraged loan index (LLI) was developed by Standard & Poor’s (S&P) and the Loan Syndications and Trading Association (LSTA). A sub-index assembled by S&P and LSTA is the U.S. Leveraged Loan 100 B/BB Rating Index, while S&P has a Global Leveraged Loan 100 Index on its own to include major issuers in Europe. The indexes are rebalanced twice per year. IHS Markit Ltd. and Credit Suisse also maintain proprietary leveraged loan indexes. Leveraged Loan Indices in Practice An LLI serves as a benchmark for performance measurement of fund managers dedicated to leveraged loan investment strategies and as a basis for passive investment vehicles such as exchange traded funds (ETF). For example, the Invesco Senior Loan Portfolio (ticker: BKLN) is based on the S&P/LSTA U.S. Leveraged Loan 100 Index. According to Invesco, the asset management company that offers BKLN, the fund invests at least 80% of its total assets in the constituent securities that make up the leveraged loan index, which tracks the market-weighted performance of the component loans based on market weightings, spreads, and interest payments. If less than 100% of the assets are invested in the component securities of the index, there will be variability in the performance of the ETF versus the index. LLIs and CDSs Some LLIs are tailored to derivatives products that utilize leveraged loans. For instance, the iTraxx LevX are a pair of two tradable indexes that hold credit default swaps (CDSs) representing a diversified basket of the 40 (formerly 35) most liquid European companies that have tradable debt offerings in the secondary market. The LevX indices track what are known as leveraged loan credit default swaps (LCDS). The iTraxx LevX Senior Index represents only senior loans, while the iTraxx LevX Subordinated Index represents subordinated debt including second- and third-lien loans.

https://www.investopedia.com/financial-literacy-quiz-8622189

Financial Literacy Quiz: Where Are You on Your Journey?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> There are several benefits to taking a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-literacy.asp">financial literacy</a> quiz. Essential topics ranging from mortgages to inflation are not covered often enough within the traditional education system. And even if you are a financial whiz, there is likely more you have to learn. Our financial literacy quiz is an excellent way to identify gaps in your knowledge and may even put some new concepts on your radar.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block mntl-sc-block-digiohembed" id="mntl-sc-block_3-0"> <div class="mntl-sc-block-digiohembed__container" data-guid="lightbox-inline-form-7cf88993-147a-4992-a021-39f4d32b5d82" data-title="Financial Literacy Quiz" id="lightbox-inline-form-7cf88993-147a-4992-a021-39f4d32b5d82"> </div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <span class="heading-toc" id="toc-knowing-your-credit-score"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Knowing Your Credit Score </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Your credit score is calculated based on information in your credit history. Depending on the scoring model, you can have more than one credit score. While <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fico-08.asp">FICO 8</a> is the most commonly used by lenders to judge your fiscal health, some mortgage lenders might use FICO Score 2, 4, or 5.<span class="ql-inline-citation" data-cite="3"></span> Monitoring your credit score(s) is important, as it can impact your eligibility for loans, car leases, and housing.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> There are several ways to check your credit score. Many major credit card companies provide credit scores for their customers; they could be listed on your monthly statement or found by logging into your online account. Additionally, several financial services monitor your spending and credit and can provide you with a score.<span class="ql-inline-citation" data-cite="1"></span> The U.S. Department of Justice maintains a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111">list of approved non-profit credit counselors</a>, while the U.S. Department of Housing and Urban Development offers the same for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.hud.gov/program_offices/housing/sfh/hcc/housing_counseling">HUD-approved housing counselors</a>. These counselors can often provide you with a free credit report and help you review them.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>You are entitled to free copies of your credit reports from all three major bureaus at least once a year. You can request them at the official website for that purpose: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.annualcreditreport.com/">AnnualCreditReport.com</a>. If you find any errors, you have a right to challenge them, and the credit bureau is required to investigate.<span class="ql-inline-citation" data-cite="4"></span></p></div></div></div> <span class="heading-toc" id="toc-what-is-a-401k"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> What Is a 401(K)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k)</a> is a retirement savings plan offered to many U.S. employees The person who enrolls in a 401(k) plan agrees to have a percentage of each paycheck paid directly into an investment account. Sometimes, the employer may match part of that contribution, typically pre-tax. From there, the employee can choose from some investment options, typically mutual funds.<span class="ql-inline-citation" data-cite="5"></span> By understanding the different kinds of retirement savings options, you can assess what is the best move for you at this time. Generally, it’s better to begin saving as soon as possible.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-causes-of-inflation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Causes of Inflation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/111314/what-causes-inflation-and-does-anyone-gain-it.asp">Inflation</a> is a rise in prices, which can also be described as the decline of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/purchasingpower.asp">purchasing power</a> over time. If inflation rises too quickly, it can have a negative impact on the overall economy. It can occur in nearly any product or service, especially need-based expenses such as food, housing, medical care, and consumer goods like cosmetics and cars. Once inflation extends to most sectors of an economy, it becomes a concern for both businesses and consumers. The Federal Reserve has an inflation target of approximately 2% and adjusts monetary policy to combat inflation if prices spike too quickly.<span class="ql-inline-citation" data-cite="2"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> By knowing what inflation is and how it snowballs, you can adjust your lifestyle accordingly–limiting expenses, shifting your savings to a high-yield account, or investing.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-stock-market-indexes"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Stock Market Indexes </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> There are three major <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketindex.asp">stock indexes</a> for tracking the performance of the U.S. market: the Dow Jones Industrial Average (DJIA), the S&amp;P 500 Index, and the Nasdaq Composite Index. They provide a broad representative portfolio of investment holdings, so people follow different indexes to gauge market movements.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Once you begin to explore and follow these indexes, you’ll have a better idea of what to do with your own investments.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-apr"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> APR </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">Annual percentage rate</a>, or APR, is the yearly interest rate charged for a loan or earned by an investment. It calculates what percentage of the principal you’ll pay each year by taking things such as monthly payments and fees into account. It is also the annual rate of interest paid on investments without accounting for the compounding of interest within that year.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> You’re most likely to come across APR on your credit card. It can either be fixed or variable. A fixed APR loan has an interest rate that is guaranteed to stay the same during the life of the loan, line, or lease. A variable APR, on the other hand, has an interest rate that may change. Rates for people with excellent credit are significantly lower than the rates offered to people with bad credit.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> It’s crucial to understand APRs so that you can make safe decisions when borrowing money, whether it's through a simple credit card or taking out a loan. If you have a variable APR, it’s important to monitor your rate actively and make payments on time, or else a high APR may mean a higher payment that could thrust you into debt if you aren't ready to pay it.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-apy"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> APY </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apy.asp">Annual percentage yield</a>, or APY, is the interest rate earned on an investment in one year, including compound interest.<span class="ql-inline-citation" data-cite="7"></span> The more often interest is compounded, the higher the APY will be. A higher APY is better because your return will be higher. You can compare APYs at different financial institutions to ensure you open an account with the biggest possible return. Similar to APR, APYs can have either fixed or variable rates. Generally, higher APYs are associated with less liquid accounts.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-mortgages"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> Mortgages </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage.asp">mortgage</a> is a loan used to purchase a home, plot of land, or other type of real estate. The home serves as collateral to secure the loan. To get approved for a mortgage loan, you’ll likely need good credit and enough money for a down payment (this is where knowing your credit scores, APRs, and APYs comes in handy).  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-how-to-continue-your-financial-literacy-journey"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> How To Continue Your Financial Literacy Journey </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Our financial literacy quiz is a great step to take to identify and understand what you don’t know and can help guide your continued learning of financial topics.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> To those who got perfect scores, congratulations. You’re ready to move forward to more long-term financial education. Since you have a solid understanding of personal finance, now is a great time to begin educating yourself on retirement planning and wealth-building topics. With your present financial situation under control, learning more about your options for the future will allow you to live comfortably later in life, too.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> For those who got passing scores, you’re on the right track. We recommend looking into debt management and investing to ensure you’re making responsible financial decisions. You seem to have some money put away or have begun building credit. Now, you can focus on staying on top of monthly payments and saving.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> For those who still have room for improvement, don’t worry. Start with the basics: open a bank account and track your monthly spending. From there, you can begin budgeting and saving.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_47-0"><span class="heading-toc" id="toc-what-are-the-benefits-of-taking-a-financial-literacy-quiz"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Benefits of Taking a Financial Literacy Quiz?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Our financial literacy quiz is a great way to identify benchmarks in your personal finance journey. Maybe you know more than you realize, or maybe you’ll learn that you’ve misunderstood a concept. They are designed to help identify gaps in your understanding so that you know how to move forward or what to prioritize in your personal finance journey. </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-how-can-i-prepare-effectively-for-a-financial-literacy-quiz"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Prepare Effectively for a Financial Literacy Quiz?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You don’t need to prepare for a financial literacy quiz. They are used mainly to help you reflect on your own financial journey, so studying for them would produce an inaccurate representation of your experience. Answer the questions to the best of your ability with the knowledge you already have, and from there, you can identify topics to continue learning about. </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-what-resources-can-help-me-improve-my-financial-literacy-knowledge"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Resources Can Help Me Improve My Financial Literacy Knowledge?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Investopedia has educational information to answer any of your financial questions, covering anything from mortgages and airline points to broader economic theories. </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> It’s important to know your level of financial literacy. Navigating the world of personal finance is a tricky undertaking, but by eliminating topics you already have a good grasp of, you can identify the areas that require more attention. Sometimes, the mere scope of one’s understanding can change by taking this quiz, and others like it, as they can expose you to new topics.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> When it comes to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/050714/5-articles-refresh-your-financial-literacy.asp">financial literacy and preparedness</a>, it’s called a journey for a reason. People who walk away with both low or perfect scores will still have something new on their radar to learn about. Focus on one step at a time.  </p></div>

There are several benefits to taking a [financial literacy](https://www.investopedia.com/terms/f/financial-literacy.asp) quiz. Essential topics ranging from mortgages to inflation are not covered often enough within the traditional education system. And even if you are a financial whiz, there is likely more you have to learn. Our financial literacy quiz is an excellent way to identify gaps in your knowledge and may even put some new concepts on your radar.  ## Knowing Your Credit Score Your credit score is calculated based on information in your credit history. Depending on the scoring model, you can have more than one credit score. While [FICO 8](https://www.investopedia.com/terms/f/fico-08.asp) is the most commonly used by lenders to judge your fiscal health, some mortgage lenders might use FICO Score 2, 4, or 5. Monitoring your credit score(s) is important, as it can impact your eligibility for loans, car leases, and housing.  There are several ways to check your credit score. Many major credit card companies provide credit scores for their customers; they could be listed on your monthly statement or found by logging into your online account. Additionally, several financial services monitor your spending and credit and can provide you with a score. The U.S. Department of Justice maintains a [list of approved non-profit credit counselors](https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111), while the U.S. Department of Housing and Urban Development offers the same for [HUD-approved housing counselors](https://www.hud.gov/program_offices/housing/sfh/hcc/housing_counseling). These counselors can often provide you with a free credit report and help you review them.  ### You are entitled to free copies of your credit reports from all three major bureaus at least once a year. You can request them at the official website for that purpose: [AnnualCreditReport.com](https://www.annualcreditreport.com/). If you find any errors, you have a right to challenge them, and the credit bureau is required to investigate. ## What Is a 401(K)? A [401(k)](https://www.investopedia.com/terms/1/401kplan.asp) is a retirement savings plan offered to many U.S. employees The person who enrolls in a 401(k) plan agrees to have a percentage of each paycheck paid directly into an investment account. Sometimes, the employer may match part of that contribution, typically pre-tax. From there, the employee can choose from some investment options, typically mutual funds. By understanding the different kinds of retirement savings options, you can assess what is the best move for you at this time. Generally, it’s better to begin saving as soon as possible.  ## Causes of Inflation [Inflation](https://www.investopedia.com/ask/answers/111314/what-causes-inflation-and-does-anyone-gain-it.asp) is a rise in prices, which can also be described as the decline of [purchasing power](https://www.investopedia.com/terms/p/purchasingpower.asp) over time. If inflation rises too quickly, it can have a negative impact on the overall economy. It can occur in nearly any product or service, especially need-based expenses such as food, housing, medical care, and consumer goods like cosmetics and cars. Once inflation extends to most sectors of an economy, it becomes a concern for both businesses and consumers. The Federal Reserve has an inflation target of approximately 2% and adjusts monetary policy to combat inflation if prices spike too quickly.  By knowing what inflation is and how it snowballs, you can adjust your lifestyle accordingly–limiting expenses, shifting your savings to a high-yield account, or investing.  ## Stock Market Indexes There are three major [stock indexes](https://www.investopedia.com/terms/m/marketindex.asp) for tracking the performance of the U.S. market: the Dow Jones Industrial Average (DJIA), the S&P 500 Index, and the Nasdaq Composite Index. They provide a broad representative portfolio of investment holdings, so people follow different indexes to gauge market movements.  Once you begin to explore and follow these indexes, you’ll have a better idea of what to do with your own investments.  ## APR [Annual percentage rate](https://www.investopedia.com/terms/a/apr.asp), or APR, is the yearly interest rate charged for a loan or earned by an investment. It calculates what percentage of the principal you’ll pay each year by taking things such as monthly payments and fees into account. It is also the annual rate of interest paid on investments without accounting for the compounding of interest within that year.  You’re most likely to come across APR on your credit card. It can either be fixed or variable. A fixed APR loan has an interest rate that is guaranteed to stay the same during the life of the loan, line, or lease. A variable APR, on the other hand, has an interest rate that may change. Rates for people with excellent credit are significantly lower than the rates offered to people with bad credit. It’s crucial to understand APRs so that you can make safe decisions when borrowing money, whether it's through a simple credit card or taking out a loan. If you have a variable APR, it’s important to monitor your rate actively and make payments on time, or else a high APR may mean a higher payment that could thrust you into debt if you aren't ready to pay it.  ## APY [Annual percentage yield](https://www.investopedia.com/terms/a/apy.asp), or APY, is the interest rate earned on an investment in one year, including compound interest. The more often interest is compounded, the higher the APY will be. A higher APY is better because your return will be higher. You can compare APYs at different financial institutions to ensure you open an account with the biggest possible return. Similar to APR, APYs can have either fixed or variable rates. Generally, higher APYs are associated with less liquid accounts.   ## Mortgages A [mortgage](https://www.investopedia.com/terms/m/mortgage.asp) is a loan used to purchase a home, plot of land, or other type of real estate. The home serves as collateral to secure the loan. To get approved for a mortgage loan, you’ll likely need good credit and enough money for a down payment (this is where knowing your credit scores, APRs, and APYs comes in handy).  ## How To Continue Your Financial Literacy Journey Our financial literacy quiz is a great step to take to identify and understand what you don’t know and can help guide your continued learning of financial topics.  To those who got perfect scores, congratulations. You’re ready to move forward to more long-term financial education. Since you have a solid understanding of personal finance, now is a great time to begin educating yourself on retirement planning and wealth-building topics. With your present financial situation under control, learning more about your options for the future will allow you to live comfortably later in life, too.  For those who got passing scores, you’re on the right track. We recommend looking into debt management and investing to ensure you’re making responsible financial decisions. You seem to have some money put away or have begun building credit. Now, you can focus on staying on top of monthly payments and saving.  For those who still have room for improvement, don’t worry. Start with the basics: open a bank account and track your monthly spending. From there, you can begin budgeting and saving.  ## What Are the Benefits of Taking a Financial Literacy Quiz? Our financial literacy quiz is a great way to identify benchmarks in your personal finance journey. Maybe you know more than you realize, or maybe you’ll learn that you’ve misunderstood a concept. They are designed to help identify gaps in your understanding so that you know how to move forward or what to prioritize in your personal finance journey.  ## How Can I Prepare Effectively for a Financial Literacy Quiz? You don’t need to prepare for a financial literacy quiz. They are used mainly to help you reflect on your own financial journey, so studying for them would produce an inaccurate representation of your experience. Answer the questions to the best of your ability with the knowledge you already have, and from there, you can identify topics to continue learning about.  ## What Resources Can Help Me Improve My Financial Literacy Knowledge? Investopedia has educational information to answer any of your financial questions, covering anything from mortgages and airline points to broader economic theories.  ## The Bottom Line It’s important to know your level of financial literacy. Navigating the world of personal finance is a tricky undertaking, but by eliminating topics you already have a good grasp of, you can identify the areas that require more attention. Sometimes, the mere scope of one’s understanding can change by taking this quiz, and others like it, as they can expose you to new topics.  When it comes to [financial literacy and preparedness](https://www.investopedia.com/articles/personal-finance/050714/5-articles-refresh-your-financial-literacy.asp), it’s called a journey for a reason. People who walk away with both low or perfect scores will still have something new on their radar to learn about. Focus on one step at a time. 

There are several benefits to taking a financial literacy quiz. Essential topics ranging from mortgages to inflation are not covered often enough within the traditional education system. And even if you are a financial whiz, there is likely more you have to learn. Our financial literacy quiz is an excellent way to identify gaps in your knowledge and may even put some new concepts on your radar.  Knowing Your Credit Score Your credit score is calculated based on information in your credit history. Depending on the scoring model, you can have more than one credit score. While FICO 8 is the most commonly used by lenders to judge your fiscal health, some mortgage lenders might use FICO Score 2, 4, or 5. Monitoring your credit score(s) is important, as it can impact your eligibility for loans, car leases, and housing.  There are several ways to check your credit score. Many major credit card companies provide credit scores for their customers; they could be listed on your monthly statement or found by logging into your online account. Additionally, several financial services monitor your spending and credit and can provide you with a score. The U.S. Department of Justice maintains a list of approved non-profit credit counselors, while the U.S. Department of Housing and Urban Development offers the same for HUD-approved housing counselors. These counselors can often provide you with a free credit report and help you review them.  You are entitled to free copies of your credit reports from all three major bureaus at least once a year. You can request them at the official website for that purpose: AnnualCreditReport.com. If you find any errors, you have a right to challenge them, and the credit bureau is required to investigate. What Is a 401(K)? A 401(k) is a retirement savings plan offered to many U.S. employees The person who enrolls in a 401(k) plan agrees to have a percentage of each paycheck paid directly into an investment account. Sometimes, the employer may match part of that contribution, typically pre-tax. From there, the employee can choose from some investment options, typically mutual funds. By understanding the different kinds of retirement savings options, you can assess what is the best move for you at this time. Generally, it’s better to begin saving as soon as possible.  Causes of Inflation Inflation is a rise in prices, which can also be described as the decline of purchasing power over time. If inflation rises too quickly, it can have a negative impact on the overall economy. It can occur in nearly any product or service, especially need-based expenses such as food, housing, medical care, and consumer goods like cosmetics and cars. Once inflation extends to most sectors of an economy, it becomes a concern for both businesses and consumers. The Federal Reserve has an inflation target of approximately 2% and adjusts monetary policy to combat inflation if prices spike too quickly.  By knowing what inflation is and how it snowballs, you can adjust your lifestyle accordingly–limiting expenses, shifting your savings to a high-yield account, or investing.  Stock Market Indexes There are three major stock indexes for tracking the performance of the U.S. market: the Dow Jones Industrial Average (DJIA), the S&P 500 Index, and the Nasdaq Composite Index. They provide a broad representative portfolio of investment holdings, so people follow different indexes to gauge market movements.  Once you begin to explore and follow these indexes, you’ll have a better idea of what to do with your own investments.  APR Annual percentage rate, or APR, is the yearly interest rate charged for a loan or earned by an investment. It calculates what percentage of the principal you’ll pay each year by taking things such as monthly payments and fees into account. It is also the annual rate of interest paid on investments without accounting for the compounding of interest within that year.  You’re most likely to come across APR on your credit card. It can either be fixed or variable. A fixed APR loan has an interest rate that is guaranteed to stay the same during the life of the loan, line, or lease. A variable APR, on the other hand, has an interest rate that may change. Rates for people with excellent credit are significantly lower than the rates offered to people with bad credit. It’s crucial to understand APRs so that you can make safe decisions when borrowing money, whether it's through a simple credit card or taking out a loan. If you have a variable APR, it’s important to monitor your rate actively and make payments on time, or else a high APR may mean a higher payment that could thrust you into debt if you aren't ready to pay it.  APY Annual percentage yield, or APY, is the interest rate earned on an investment in one year, including compound interest. The more often interest is compounded, the higher the APY will be. A higher APY is better because your return will be higher. You can compare APYs at different financial institutions to ensure you open an account with the biggest possible return. Similar to APR, APYs can have either fixed or variable rates. Generally, higher APYs are associated with less liquid accounts.   Mortgages A mortgage is a loan used to purchase a home, plot of land, or other type of real estate. The home serves as collateral to secure the loan. To get approved for a mortgage loan, you’ll likely need good credit and enough money for a down payment (this is where knowing your credit scores, APRs, and APYs comes in handy).  How To Continue Your Financial Literacy Journey Our financial literacy quiz is a great step to take to identify and understand what you don’t know and can help guide your continued learning of financial topics.  To those who got perfect scores, congratulations. You’re ready to move forward to more long-term financial education. Since you have a solid understanding of personal finance, now is a great time to begin educating yourself on retirement planning and wealth-building topics. With your present financial situation under control, learning more about your options for the future will allow you to live comfortably later in life, too.  For those who got passing scores, you’re on the right track. We recommend looking into debt management and investing to ensure you’re making responsible financial decisions. You seem to have some money put away or have begun building credit. Now, you can focus on staying on top of monthly payments and saving.  For those who still have room for improvement, don’t worry. Start with the basics: open a bank account and track your monthly spending. From there, you can begin budgeting and saving.  What Are the Benefits of Taking a Financial Literacy Quiz? Our financial literacy quiz is a great way to identify benchmarks in your personal finance journey. Maybe you know more than you realize, or maybe you’ll learn that you’ve misunderstood a concept. They are designed to help identify gaps in your understanding so that you know how to move forward or what to prioritize in your personal finance journey.  How Can I Prepare Effectively for a Financial Literacy Quiz? You don’t need to prepare for a financial literacy quiz. They are used mainly to help you reflect on your own financial journey, so studying for them would produce an inaccurate representation of your experience. Answer the questions to the best of your ability with the knowledge you already have, and from there, you can identify topics to continue learning about.  What Resources Can Help Me Improve My Financial Literacy Knowledge? Investopedia has educational information to answer any of your financial questions, covering anything from mortgages and airline points to broader economic theories.  The Bottom Line It’s important to know your level of financial literacy. Navigating the world of personal finance is a tricky undertaking, but by eliminating topics you already have a good grasp of, you can identify the areas that require more attention. Sometimes, the mere scope of one’s understanding can change by taking this quiz, and others like it, as they can expose you to new topics.  When it comes to financial literacy and preparedness, it’s called a journey for a reason. People who walk away with both low or perfect scores will still have something new on their radar to learn about. Focus on one step at a time. 

https://www.investopedia.com/terms/p/pipe-deal.asp

PIPE Deal: Definition, How It Works With Stocks, History

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-pipe-deal"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a PIPE Deal? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Private investment in public equity deal (PIPE Deal) refers to the practice of private investors buying a publicly-traded stock at a price below the current price available to the public. Mutual funds and other large institutional investors can strike deals to buy large chunks of stock at a preferred price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> PIPE deals are often offered by companies looking to raise a large amount of capital quickly. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Private investment in public equity deals (PIPE) is when a private investor, like a mutual fund or large institution, buys a chunk of shares at a below-market price.</li><li>PIPE deals are a way for companies to raise a large amount of money quickly.</li><li>They can be unpopular with existing shareholders because they dilute the existing pool of shares and reduce its value.</li><li>PIPE deals have similarities to some of the massive government bailouts seen in recent years, but they typically involve smaller, less systemically important companies. </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-pipe-deals"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding PIPE Deals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> In a traditional PIPE deal, a company will privately sell equity in publicly traded common or preferred shares at a discounted rate relative to the market price to an<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accreditedinvestor.asp" rel="noopener noreferrer"> accredited investor</a>. In a structured PIPE deal, the issuing company issues convertible debt, which can usually be converted to the issuing company's stock at the purchaser's will. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Usually, the offering company is trying to raise capital, either because they need it quickly or because they could not acquire it through other means. The purchasing company (usually a mutual fund or<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedgefund.asp" rel="noopener noreferrer"> hedge fund</a>) has the advantage of buying at a discounted price; because these directly sold shares are relatively illiquid, the purchaser is only interested if it can get the shares at a discount. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> PIPE deals are popular because of their efficiency—especially compared to other kinds of secondary offerings—and because they are subject to fewer regulations from the Securities and Exchange Commission (SEC). Any publicly-traded company can initiate a PIPE deal with an accredited investor. This is especially useful for smaller or lesser-known companies that might have trouble raising capital otherwise. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-history-of-pipe-deals"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> History of PIPE Deals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Interest in PIPE deals has varied over time. In 2017, a total of $45.3 billion was raised over 1,461 deals. In 2016, 1,199 deals raised $51.6 billion. However, that is less than the $88.3 billion closed over 980 transactions in the first 9 months of 2008. PIPE deals tend to occur in markets or industries for which it is difficult to raise capital; thus, PIPE deals were popular at the height of the<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/great-recession.asp" rel="noopener noreferrer"> 2008 banking crisis</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> PIPE deals are somewhat less popular with shareholders, as the issuance of new stock for these sales dilutes the value of existing shares. In some instances, investors or companies with inside knowledge of the trade have shorted the issuing firm stock in anticipation. Some regulators have called for more intensive regulations to prevent such insider trading opportunities, arguing additionally that the generally small offering firms have little choice but to take bad deals with hedge funds to raise sorely needed capital. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-subheading__text"> PIPE Deals and Government Bailouts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> PIPE deals can be akin to the kind of deals that occur with government bailouts of distressed companies or industries. In these deals the government purchases a chunk of equity in the form of stock, warrants, or convertible debt in return for the liquid capital a company needs to remain in operation, restructure, or avoid bankruptcy. A PIPE deals likewise often involve distressed companies that have run out of other options on the market to raise needed capital quickly, trading a chunk of equity to an institutional investor at a discount which can leave the buyer in a powerful position to influence the company or even a controlling interest.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> An example of a similar government bailout deal would be the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/12/auto-industry.asp">auto industry bailout of 2009</a>, where the Treasury took over GM and Chrysler. These types of bailouts are generally more extreme than the typical PIPE deal, since the companies that seek them are more desperate and may have already tried and failed to negotiate a PIPE deal with a private institution. Private PIPE deals are also more likely to be pursued as a last resort by smaller companies who are not considered systemically important enough to warrant government action. </p></div>

## What Is a PIPE Deal? Private investment in public equity deal (PIPE Deal) refers to the practice of private investors buying a publicly-traded stock at a price below the current price available to the public. Mutual funds and other large institutional investors can strike deals to buy large chunks of stock at a preferred price. PIPE deals are often offered by companies looking to raise a large amount of capital quickly. ### Key Takeaways * Private investment in public equity deals (PIPE) is when a private investor, like a mutual fund or large institution, buys a chunk of shares at a below-market price. * PIPE deals are a way for companies to raise a large amount of money quickly. * They can be unpopular with existing shareholders because they dilute the existing pool of shares and reduce its value. * PIPE deals have similarities to some of the massive government bailouts seen in recent years, but they typically involve smaller, less systemically important companies. ## Understanding PIPE Deals In a traditional PIPE deal, a company will privately sell equity in publicly traded common or preferred shares at a discounted rate relative to the market price to an [accredited investor](https://www.investopedia.com/terms/a/accreditedinvestor.asp). In a structured PIPE deal, the issuing company issues convertible debt, which can usually be converted to the issuing company's stock at the purchaser's will. Usually, the offering company is trying to raise capital, either because they need it quickly or because they could not acquire it through other means. The purchasing company (usually a mutual fund or [hedge fund](https://www.investopedia.com/terms/h/hedgefund.asp)) has the advantage of buying at a discounted price; because these directly sold shares are relatively illiquid, the purchaser is only interested if it can get the shares at a discount. PIPE deals are popular because of their efficiency—especially compared to other kinds of secondary offerings—and because they are subject to fewer regulations from the Securities and Exchange Commission (SEC). Any publicly-traded company can initiate a PIPE deal with an accredited investor. This is especially useful for smaller or lesser-known companies that might have trouble raising capital otherwise. ## History of PIPE Deals Interest in PIPE deals has varied over time. In 2017, a total of $45.3 billion was raised over 1,461 deals. In 2016, 1,199 deals raised $51.6 billion. However, that is less than the $88.3 billion closed over 980 transactions in the first 9 months of 2008. PIPE deals tend to occur in markets or industries for which it is difficult to raise capital; thus, PIPE deals were popular at the height of the [2008 banking crisis](https://www.investopedia.com/terms/g/great-recession.asp). PIPE deals are somewhat less popular with shareholders, as the issuance of new stock for these sales dilutes the value of existing shares. In some instances, investors or companies with inside knowledge of the trade have shorted the issuing firm stock in anticipation. Some regulators have called for more intensive regulations to prevent such insider trading opportunities, arguing additionally that the generally small offering firms have little choice but to take bad deals with hedge funds to raise sorely needed capital. ## Special Considerations ### PIPE Deals and Government Bailouts PIPE deals can be akin to the kind of deals that occur with government bailouts of distressed companies or industries. In these deals the government purchases a chunk of equity in the form of stock, warrants, or convertible debt in return for the liquid capital a company needs to remain in operation, restructure, or avoid bankruptcy. A PIPE deals likewise often involve distressed companies that have run out of other options on the market to raise needed capital quickly, trading a chunk of equity to an institutional investor at a discount which can leave the buyer in a powerful position to influence the company or even a controlling interest.  An example of a similar government bailout deal would be the [auto industry bailout of 2009](https://www.investopedia.com/articles/pf/12/auto-industry.asp), where the Treasury took over GM and Chrysler. These types of bailouts are generally more extreme than the typical PIPE deal, since the companies that seek them are more desperate and may have already tried and failed to negotiate a PIPE deal with a private institution. Private PIPE deals are also more likely to be pursued as a last resort by smaller companies who are not considered systemically important enough to warrant government action.

What Is a PIPE Deal? Private investment in public equity deal (PIPE Deal) refers to the practice of private investors buying a publicly-traded stock at a price below the current price available to the public. Mutual funds and other large institutional investors can strike deals to buy large chunks of stock at a preferred price. PIPE deals are often offered by companies looking to raise a large amount of capital quickly. Key Takeaways Private investment in public equity deals (PIPE) is when a private investor, like a mutual fund or large institution, buys a chunk of shares at a below-market price.PIPE deals are a way for companies to raise a large amount of money quickly.They can be unpopular with existing shareholders because they dilute the existing pool of shares and reduce its value.PIPE deals have similarities to some of the massive government bailouts seen in recent years, but they typically involve smaller, less systemically important companies.  Understanding PIPE Deals In a traditional PIPE deal, a company will privately sell equity in publicly traded common or preferred shares at a discounted rate relative to the market price to an accredited investor. In a structured PIPE deal, the issuing company issues convertible debt, which can usually be converted to the issuing company's stock at the purchaser's will. Usually, the offering company is trying to raise capital, either because they need it quickly or because they could not acquire it through other means. The purchasing company (usually a mutual fund or hedge fund) has the advantage of buying at a discounted price; because these directly sold shares are relatively illiquid, the purchaser is only interested if it can get the shares at a discount. PIPE deals are popular because of their efficiency—especially compared to other kinds of secondary offerings—and because they are subject to fewer regulations from the Securities and Exchange Commission (SEC). Any publicly-traded company can initiate a PIPE deal with an accredited investor. This is especially useful for smaller or lesser-known companies that might have trouble raising capital otherwise. History of PIPE Deals Interest in PIPE deals has varied over time. In 2017, a total of $45.3 billion was raised over 1,461 deals. In 2016, 1,199 deals raised $51.6 billion. However, that is less than the $88.3 billion closed over 980 transactions in the first 9 months of 2008. PIPE deals tend to occur in markets or industries for which it is difficult to raise capital; thus, PIPE deals were popular at the height of the 2008 banking crisis. PIPE deals are somewhat less popular with shareholders, as the issuance of new stock for these sales dilutes the value of existing shares. In some instances, investors or companies with inside knowledge of the trade have shorted the issuing firm stock in anticipation. Some regulators have called for more intensive regulations to prevent such insider trading opportunities, arguing additionally that the generally small offering firms have little choice but to take bad deals with hedge funds to raise sorely needed capital. Special Considerations PIPE Deals and Government Bailouts PIPE deals can be akin to the kind of deals that occur with government bailouts of distressed companies or industries. In these deals the government purchases a chunk of equity in the form of stock, warrants, or convertible debt in return for the liquid capital a company needs to remain in operation, restructure, or avoid bankruptcy. A PIPE deals likewise often involve distressed companies that have run out of other options on the market to raise needed capital quickly, trading a chunk of equity to an institutional investor at a discount which can leave the buyer in a powerful position to influence the company or even a controlling interest.  An example of a similar government bailout deal would be the auto industry bailout of 2009, where the Treasury took over GM and Chrysler. These types of bailouts are generally more extreme than the typical PIPE deal, since the companies that seek them are more desperate and may have already tried and failed to negotiate a PIPE deal with a private institution. Private PIPE deals are also more likely to be pursued as a last resort by smaller companies who are not considered systemically important enough to warrant government action.

https://www.investopedia.com/terms/b/bulletrepayment.asp

Bullet Repayment: Definition, Examples, Vs. Amortization

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-bullet-repayment"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Bullet Repayment? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A bullet repayment is a <a class="CMY_Link CMY_Valid" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lump-sum-payment.asp">lump sum payment</a> made for the entirety of an outstanding loan amount, usually at maturity. It can also be a single payment of principal on a bond. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> In terms of banking and real estate, loans with bullet repayments are also referred to as balloon loans. These types of loans are commonly used in mortgage and business loans to reduce monthly payments during the term of the loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>A bullet repayment due at a loan’s maturity often necessitates advanced planning to have a refinancing facility in place, unless borrowers have the cash to pay off the large lump sum.</p></div></div></div> <span class="heading-toc" id="toc-how-bullet-repayments-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> How Bullet Repayments Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Bullet repayments and balloon loans are not normally amortized over the duration of the loan. The final balloon payment is often the <a class="CMY_Link CMY_Redirect CMY_Valid" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://content.next.westlaw.com/Document/I2104e09cef0811e28578f7ccc38dcbee/View/FullText.html?contextData=%28sc.Default%29&amp;transitionType=Default&amp;firstPage=true&amp;bhcp=1" rel="nofollow">only principal payment made</a>, but the balance might occasionally be amortized through other smaller, incremental payments before the balloon payment comes due. The final payment is nonetheless significantly larger than the others, and it retires the loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The deferral of principal payments until the loan matures results in lower monthly payments during the life of the loan because these payments usually represent only interest. But this presents a significant risk to borrowers who aren't prepared to make the large lump sum payment or who don't have other arrangements in place to deal with the bullet repayment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Bullet repayments have also been integrated with <a class="CMY_Link CMY_Valid" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond-etf.asp">fixed-income based exchange-traded-funds</a> (ETFs), giving them bond-like predictability for investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-bullet-repayment-vs-amortization"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Bullet Repayment vs. Amortization </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The difference between interest-only payments on a loan with a bullet<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/082415/schedule-loan-repayments-excel-formulas.asp"> repayment and amortizing</a> mortgage payments can be quite significant. For example, the yearly interest would be $9,600 and monthly payments would be $800 on a 15-year interest-only mortgage of $320,000 with a 3% interest rate. That same loan with amortization would have a monthly payment of $2,210. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The monthly payment schedule clearly favors the interest-only loan, but the interest-only borrower faces a bullet repayment of $320,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><ul><li>Loans with bullet repayments are commonly used to reduce monthly payments to interest-only payments during the term of the loans, but a large, final payment of principal eventually comes due.</li><li>Balloon lenders sometimes offer borrowers an option to convert loans to traditional amortizing loans rather than face a huge one-time payment.</li><li>Bullet repayments have also been integrated with fixed-income based exchange-traded-funds (ETFs), giving them bond-like predictability for investors.</li></ul></div></div></div> <span class="heading-toc" id="toc-example-of-etf-bullet-payments"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> Example of ETF Bullet Payments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The investors assume the role of lenders in ETFs with bullet repayment dates, while the funds act as the borrowers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Funds with bullet repayments are usually composed of bonds, notes, and fixed-income vehicles with maturities preceding the bullet repayment date. Investors receive regular interest payments on their shares during the term of the fund, and they're repaid the principal from the matured portfolio holdings on the bullet repayment date. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The key benefit of the bullet repayment for investors is the predictability of the return of principal on a specified date, much like the maturity of a bond. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> A borrower basically has two options if money is not available to pay a loan in full as the bullet repayment date approaches. The property can be sold, with the proceeds used to pay the loan principal, or the loan can be refinanced, taking out a new loan to cover the bullet repayment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Under certain circumstances, balloon lenders might offer borrowers the option to convert loans to traditional amortizing loans rather than face a huge one-time payment. </p></div>

## What Is a Bullet Repayment? A bullet repayment is a [lump sum payment](https://www.investopedia.com/terms/l/lump-sum-payment.asp) made for the entirety of an outstanding loan amount, usually at maturity. It can also be a single payment of principal on a bond. In terms of banking and real estate, loans with bullet repayments are also referred to as balloon loans. These types of loans are commonly used in mortgage and business loans to reduce monthly payments during the term of the loans. ### A bullet repayment due at a loan’s maturity often necessitates advanced planning to have a refinancing facility in place, unless borrowers have the cash to pay off the large lump sum. ## How Bullet Repayments Work Bullet repayments and balloon loans are not normally amortized over the duration of the loan. The final balloon payment is often the [only principal payment made](https://content.next.westlaw.com/Document/I2104e09cef0811e28578f7ccc38dcbee/View/FullText.html?contextData=%28sc.Default%29&transitionType=Default&firstPage=true&bhcp=1), but the balance might occasionally be amortized through other smaller, incremental payments before the balloon payment comes due. The final payment is nonetheless significantly larger than the others, and it retires the loan. The deferral of principal payments until the loan matures results in lower monthly payments during the life of the loan because these payments usually represent only interest. But this presents a significant risk to borrowers who aren't prepared to make the large lump sum payment or who don't have other arrangements in place to deal with the bullet repayment. Bullet repayments have also been integrated with [fixed-income based exchange-traded-funds](https://www.investopedia.com/terms/b/bond-etf.asp) (ETFs), giving them bond-like predictability for investors. ## Bullet Repayment vs. Amortization The difference between interest-only payments on a loan with a bullet [repayment and amortizing](https://www.investopedia.com/articles/personal-finance/082415/schedule-loan-repayments-excel-formulas.asp) mortgage payments can be quite significant. For example, the yearly interest would be $9,600 and monthly payments would be $800 on a 15-year interest-only mortgage of $320,000 with a 3% interest rate. That same loan with amortization would have a monthly payment of $2,210. The monthly payment schedule clearly favors the interest-only loan, but the interest-only borrower faces a bullet repayment of $320,000. ### Key Takeaways * Loans with bullet repayments are commonly used to reduce monthly payments to interest-only payments during the term of the loans, but a large, final payment of principal eventually comes due. * Balloon lenders sometimes offer borrowers an option to convert loans to traditional amortizing loans rather than face a huge one-time payment. * Bullet repayments have also been integrated with fixed-income based exchange-traded-funds (ETFs), giving them bond-like predictability for investors. ## Example of ETF Bullet Payments The investors assume the role of lenders in ETFs with bullet repayment dates, while the funds act as the borrowers. Funds with bullet repayments are usually composed of bonds, notes, and fixed-income vehicles with maturities preceding the bullet repayment date. Investors receive regular interest payments on their shares during the term of the fund, and they're repaid the principal from the matured portfolio holdings on the bullet repayment date. The key benefit of the bullet repayment for investors is the predictability of the return of principal on a specified date, much like the maturity of a bond. ## Special Considerations A borrower basically has two options if money is not available to pay a loan in full as the bullet repayment date approaches. The property can be sold, with the proceeds used to pay the loan principal, or the loan can be refinanced, taking out a new loan to cover the bullet repayment. Under certain circumstances, balloon lenders might offer borrowers the option to convert loans to traditional amortizing loans rather than face a huge one-time payment.

What Is a Bullet Repayment? A bullet repayment is a lump sum payment made for the entirety of an outstanding loan amount, usually at maturity. It can also be a single payment of principal on a bond. In terms of banking and real estate, loans with bullet repayments are also referred to as balloon loans. These types of loans are commonly used in mortgage and business loans to reduce monthly payments during the term of the loans. A bullet repayment due at a loan’s maturity often necessitates advanced planning to have a refinancing facility in place, unless borrowers have the cash to pay off the large lump sum. How Bullet Repayments Work Bullet repayments and balloon loans are not normally amortized over the duration of the loan. The final balloon payment is often the only principal payment made, but the balance might occasionally be amortized through other smaller, incremental payments before the balloon payment comes due. The final payment is nonetheless significantly larger than the others, and it retires the loan. The deferral of principal payments until the loan matures results in lower monthly payments during the life of the loan because these payments usually represent only interest. But this presents a significant risk to borrowers who aren't prepared to make the large lump sum payment or who don't have other arrangements in place to deal with the bullet repayment. Bullet repayments have also been integrated with fixed-income based exchange-traded-funds (ETFs), giving them bond-like predictability for investors. Bullet Repayment vs. Amortization The difference between interest-only payments on a loan with a bullet repayment and amortizing mortgage payments can be quite significant. For example, the yearly interest would be $9,600 and monthly payments would be $800 on a 15-year interest-only mortgage of $320,000 with a 3% interest rate. That same loan with amortization would have a monthly payment of $2,210. The monthly payment schedule clearly favors the interest-only loan, but the interest-only borrower faces a bullet repayment of $320,000. Key Takeaways Loans with bullet repayments are commonly used to reduce monthly payments to interest-only payments during the term of the loans, but a large, final payment of principal eventually comes due.Balloon lenders sometimes offer borrowers an option to convert loans to traditional amortizing loans rather than face a huge one-time payment.Bullet repayments have also been integrated with fixed-income based exchange-traded-funds (ETFs), giving them bond-like predictability for investors. Example of ETF Bullet Payments The investors assume the role of lenders in ETFs with bullet repayment dates, while the funds act as the borrowers. Funds with bullet repayments are usually composed of bonds, notes, and fixed-income vehicles with maturities preceding the bullet repayment date. Investors receive regular interest payments on their shares during the term of the fund, and they're repaid the principal from the matured portfolio holdings on the bullet repayment date. The key benefit of the bullet repayment for investors is the predictability of the return of principal on a specified date, much like the maturity of a bond. Special Considerations A borrower basically has two options if money is not available to pay a loan in full as the bullet repayment date approaches. The property can be sold, with the proceeds used to pay the loan principal, or the loan can be refinanced, taking out a new loan to cover the bullet repayment. Under certain circumstances, balloon lenders might offer borrowers the option to convert loans to traditional amortizing loans rather than face a huge one-time payment.

https://www.investopedia.com/terms/t/trendanalysis.asp

Understanding Trend Analysis and Trend Trading Strategies

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-trend-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Trend Analysis? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Trend analysis is a technique used in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technicalanalysis.asp">technical analysis</a> that attempts to predict future stock price movements based on recently observed trend data. Trend analysis uses historical data, such as price movements and trade volume, to forecast the long-term direction of market sentiment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Trend analysis tries to predict a trend, such as a bull market run, and then ride that trend until data suggests a trend reversal, such as a bull-to-bear market.</li><li>Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future.</li><li>Trend analysis focuses on three typical time horizons: short-; intermediate-; and long-term.</li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_6-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Trend Analysis" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/V6Og9ycYU20gDGaWPTp45eM80Ps=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Trendanalysis-587b2a1157474b069868ba7bd5306ac9.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/V6Og9ycYU20gDGaWPTp45eM80Ps=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Trendanalysis-587b2a1157474b069868ba7bd5306ac9.jpg" data-srcset="https://www.investopedia.com/thmb/Wer_b5Yzz6ily4R9NYLejTYXv6A=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Trendanalysis-587b2a1157474b069868ba7bd5306ac9.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Trend Analysis" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/V6Og9ycYU20gDGaWPTp45eM80Ps=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Trendanalysis-587b2a1157474b069868ba7bd5306ac9.jpg" srcset="https://www.investopedia.com/thmb/Wer_b5Yzz6ily4R9NYLejTYXv6A=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Trendanalysis-587b2a1157474b069868ba7bd5306ac9.jpg 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Michela Buttignol</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-trend-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Understanding Trend Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Trend analysis tries to predict a trend, such as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bullmarket.asp">bull market</a> run, and ride that trend until data suggests a trend <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reversal.asp">reversal</a>, such as a bull-to-bear market. Trend analysis is helpful because moving with trends, and not against them, will lead to profit for an investor. It is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. There are three main types of trends: short-, intermediate- and long-term. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trend.asp">trend</a> is a general direction the market is taking during a specified period of time. Trends can be both upward and downward, relating to bullish and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bearmarket.asp">bearish markets</a>, respectively. While there is no specified minimum amount of time required for a direction to be considered a trend, the longer the direction is maintained, the more notable the trend. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Trend analysis is the process of looking at current trends in order to predict future ones and is considered <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-alternative-data-6889002">a form of comparative analysis</a>. This can include attempting to determine whether a current market trend, such as gains in a particular market sector, is likely to continue, as well as whether a trend in one market area could result in a trend in another. Though a trend analysis may involve a large amount of data, there is no guarantee that the results will be correct. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_14-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_15-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">Types of Trends to Analyze</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>There are three main types of market trend for analysts to consider:</p> <ol> <li><strong>Upward trend: </strong>An upward trend, also known as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bullmarket.asp">bull market</a>, is a sustained period of rising prices in a particular security or market. Upward trends are generally seen as a sign of economic strength and can be driven by factors such as strong demand, rising profits, and favorable economic conditions.</li> <li><strong>Downward trend: </strong>A downward trend, also known as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bearmarket.asp">bear market</a>, is a sustained period of falling prices in a particular security or market. Downward trends are generally seen as a sign of economic weakness and can be driven by factors such as weak demand, declining profits, and unfavorable economic conditions.</li> <li><strong>Sideways trend: </strong>A <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sidewaysmarket.asp">sideways trend</a>, also known as a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rangeboundtrading.asp">rangebound</a> market, is a period of relatively stable prices in a particular security or market. Sideways trends can be characterized by a lack of clear direction, with prices fluctuating within a relatively narrow range.</li> </ol> <p><br/></p></div></div></div> <span class="heading-toc" id="toc-how-to-perform-a-trend-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> How to Perform a Trend Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> In order to begin analyzing applicable data, it is necessary to first determine which market segment will be analyzed. For instance, you could focus on a particular industry, such as the automotive or pharmaceuticals sector, as well as a particular type of investment, such as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondmarket.asp">bond market</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Once the sector has been selected, it is possible to examine its general performance. This can include how the sector was affected by internal and external forces. For example, changes in a similar industry or the creation of a new governmental regulation would qualify as forces impacting the market. Analysts then take this data and attempt to predict the direction the market will take moving forward.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-trend-trading-strategies"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Trend Trading Strategies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trendtrading.asp" rel="noopener noreferrer">Trend traders</a> attempt to isolate and extract profit from trends. There are many different trend trading strategies using a variety of technical <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indicator.asp" rel="noopener noreferrer">indicators</a>: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <li><strong>Moving Averages: </strong>These strategies involve entering into long positions when a short-term <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/movingaverage.asp" rel="noopener noreferrer">moving average</a> crosses above a long-term moving <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/071414/whats-difference-between-moving-average-and-weighted-moving-average.asp" rel="noopener noreferrer">average</a>, and entering short positions when a short-term moving average crosses below a long-term moving average.</li> <li><strong>Momentum Indicators: </strong>These strategies involve entering into <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/long.asp" rel="noopener noreferrer">long positions</a> when a security is trending with strong momentum and exiting long positions when a security loses momentum. Often, the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rsi.asp" rel="noopener noreferrer">relative strength index </a>(RSI) is used in these strategies.</li> <li><strong>Trendlines &amp; Chart Patterns: </strong>These strategies involve entering long positions when a security is trending higher and placing a <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stop-lossorder.asp" rel="noopener noreferrer">stop-loss</a> below key trendline <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/support.asp" rel="noopener noreferrer">support levels</a>. If the stock starts to reverse, the position is exited for a profit.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Indicators can simplify price information, as well as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/09/trade-with-the-trend.asp" rel="noopener noreferrer">provide trend trade signals</a> or warn of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reversal.asp" rel="noopener noreferrer">reversals</a>. They may be used on all time frames, and have variables that can be adjusted to suit each trader's specific preferences. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Usually, it is advisable to combine indicator strategies or come up with your own guidelines, so entry and exit criteria are clearly established for trades. Each indicator can be used in more ways than outlined. If you like an indicator, research it further, and most importantly, test it out before using it to make live trades. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_30-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_31-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Trend following is a trading system based on using trend analysis and following the recommendation produced to determine which investments to make. Often, the analysis is conducted via computer analysis and modeling of relevant data and is tied to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketmomentum.asp" rel="noopener noreferrer">market momentum</a>.</p></div></div></div> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-trend-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of Trend Analysis </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-subheading__text"> Advantages </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Trend analysis can offer several advantages for investors and traders. It is a powerful tool for investors and traders as it can help identify opportunities for buying or selling securities, minimize risk, improve decision-making, and enhance portfolio performance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Trend analysis can be based on a variety of data points, including financial statements, economic indicators, and market data, and there are several different methods that can be used to analyze trends, including technical analysis and fundamental analysis. By providing a deeper understanding of the factors that are driving trends in data, trend analysis can help investors and traders make more informed and confident decisions about their investments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-subheading__text"> Disadvantages </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Trend analysis can have some potential disadvantages as a tool for making investment decisions. One of these disadvantages is that the accuracy of the analysis depends on the quality of the data being used. If the data is incomplete, inaccurate, or otherwise flawed, the analysis may be misleading or inaccurate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Another potential disadvantage is that trend analysis is based on historical data, which means it can only provide a limited perspective on the future. While trends in data can provide useful insights, it's important to remember that the future is not necessarily predetermined by the past, and unexpected events or changes in market conditions can disrupt trends. Trend analysis is also focused on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/technical/02/052102.asp">identifying patterns in data</a> over a given period of time, which means it may not consider other important factors that could impact the performance of a security or market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Finally, trend analysis often relies on statistical measures to identify patterns in data, which can be subject to interpretation. Different statistical measures can yield different results, and it's important to be aware of the limitations and assumptions of the statistical methods being used. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Critics of trend analysis, and technical trading in general, argue that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp">markets are efficient</a>, and already priced in all available information. That means that history does not necessarily need to repeat itself and that the past does not predict the future. Adherents of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundamentalanalysis.asp">fundamental analysis</a>, for example, analyze the financial condition of companies using <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-statements.asp">financial statements</a> and economic models to predict future prices. For these types of investors, day-to-day stock movements follow a random walk that cannot be interpreted as patterns or trends. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_47-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_48-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Trend Analysis Pros and Cons</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Can help identify opportunities for buying or selling securities</p></li> <li><p>Can identify potential risks or warning signs that a security or market may be headed for a downturn</p></li> <li><p>Provides insight into market psychology and momentum</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>If markets are efficient, trend analysis is not as useful</p></li> <li><p>If the data is incomplete, inaccurate, or otherwise flawed, the analysis may also be misleading or inaccurate</p></li> <li><p>May not take into account changes in a company's management, changes in industry regulations, or other external factors that could affect the security's performance</p></li> <li><p>Different statistical measures can yield different results</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <span class="heading-toc" id="toc-example-of-a-trend-analysis"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-heading__text"> Example of a Trend Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Say that an investor is considering buying shares of a particular company, and they want to use trend analysis to determine whether the stock is likely to rise in value. To conduct their analysis, the investor gathers data on the company's financial performance over the past five years, including its revenues, expenses, profits, and other key metrics. They also gather data on the overall performance of the stock market and on the company's industry. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Using this data, the investor creates charts to visualize the trends in the data. They notice that the company's revenues have been steadily increasing over the past five years, and that its profits have also been trending upward. They also notice that the stock market has been generally trending upward over the same period. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> The investor then uses linear regression to model the relationship between the company's profits and its stock price, and they find that there is a strong positive correlation between the two variables. This suggests that as the company's profits have increased, its stock price has also tended to rise. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Based on their analysis, the investor concludes that the company's stock is likely to continue trending upward in the future, and they decide to buy shares of the stock. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_59-0"><span class="heading-toc" id="toc-what-is-a-trend"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Trend?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A trend is the overall direction of a market during a specified period of time. Trends can be both upward and downward, relating to bullish and bearish markets, respectively. While there is no specified minimum amount of time required for a direction to be considered a trend, the longer the direction is maintained, the more notable the trend. Trends are identified by drawing lines, known as trendlines, that connect price action making higher highs and higher lows for an uptrend, or lower lows and lower highs for a downtrend.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_61-0"><span class="heading-toc" id="toc-what-is-the-formula-or-model-for-trend-analysis"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Formula or Model for Trend Analysis?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There is no one formula for trend analysis, as the specific methods used to analyze trends can vary depending on the data being analyzed and the goals of the analysis. However, there are several statistical measures that are commonly used in trend analysis to identify patterns and trends in data.</p><p>Here are a few examples of statistical measures that might be used in trend analysis:</p><ul><li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/071414/whats-difference-between-moving-average-and-weighted-moving-average.asp">Moving averages</a>: A moving average is a statistical measure that is used to smooth out fluctuations in data over time. A simple moving average (SMA) is calculated by taking the average of a set of data points over a given period of time, such as the past 10 days or the past 50 weeks. Moving averages can be used to identify trends by smoothing out short-term fluctuations in data and highlighting longer-term patterns.</li><li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regression.asp">Linear regression</a>: Linear regression is a statistical method that is used to model the relationship between two variables. It can be used to identify trends by fitting a line to the data and determining the slope of the line, which can indicate the direction and strength of the trend.</li><li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/correlation.asp">Correlation</a>: Correlation is a statistical measure that indicates the strength and direction of the relationship between two variables. A positive correlation means that the variables are moving in the same direction, while a negative correlation means that they are moving in opposite directions. Correlation can be used to identify trends by analyzing the relationship between two variables over time.</li></ul><p>It's important to note that these are just a few examples of statistical measures that might be used in trend analysis, and there are many other methods and measures that could also be used depending on the specific needs of the analysis.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_63-0"><span class="heading-toc" id="toc-what-are-examples-of-trend-trading-strategies"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Examples of Trend Trading Strategies?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Trend trading strategies attempt to isolate and extract profit from trends by combining a variety of technical indicators along with the financial instrument's price action. Typically, these include moving averages, momentum indicators, and trendlines, and chart patterns.</p><p>Moving averages strategies involve entering into long, or short, positions when the short-term moving average crosses above, or below, a long-term moving average. Momentum indicator strategies involve entering into positions when a security is exhibiting strong momentum and exiting when that wanes. Trendlines and chart pattern strategies involve entering long, or short, positions when a security is trending higher, or lower, and placing a stop-loss below, or above, key trendline support levels to exit the trade.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_65-0"><span class="heading-toc" id="toc-how-do-you-prepare-a-trend-analysis"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Prepare a Trend Analysis?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>To prepare a trend analysis as a trader, you will typically need to follow these steps:</p><ol><li><em>Identify the security or market you want to analyze:</em> Decide which security or market you want to analyze in order to identify trends that could inform your trading decisions. This could be a specific stock, bond, currency, commodity, or other financial instrument, or it could be a broader market index or sector.</li><li><em>Gather the data</em>: Collect data on the security or market you have identified. This may involve accessing financial statements, downloading market data, or accessing databases or other sources of data.</li><li><em>Organize the data</em>: Organize the data in a way that makes it easy to analyze. This could involve creating spreadsheets, charts, or graphs to visualize the data.</li><li><em>Analyze the data: </em>Use your chosen method of analysis to identify trends in the data. This could involve looking for patterns in the data, calculating statistical measures such as averages or standard deviations, or using graphical tools such as charts to identify trends.</li><li><em>Interpret the results:</em> Once you have identified trends in the data, interpret the results to determine what they mean for your trading decisions. This could involve making predictions about the future direction of the security or market, identifying risks or opportunities, or making recommendations for buying, selling, or holding the security.</li><li><em>Use the results to inform your trading decisions</em>: Use the insights gained from your trend analysis to inform your trading decisions. This could involve adjusting your portfolio, placing trades, or making other decisions based on the trends you have identified.</li></ol><p><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_67-0"><span class="heading-toc" id="toc-what-are-some-criticisms-of-trend-analysis"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Some Criticisms of Trend Analysis?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Critics of trend analysis, and technical trading in general, argue that markets are efficient, and already price in all available information. That means that history does not necessarily need to repeat itself and that the past does not predict the future. Adherents of fundamental analysis, for example, analyze the financial condition of companies using financial statements and economic models to predict future prices. For these types of investors, day-to-day stock movements follow a random walk that cannot be interpreted as patterns or trends.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_69-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> Trend analysis is the study of data to identify patterns or trends that can be used to make investment decisions. This type of analysis is typically used to analyze the performance of a particular security, such as a stock or bond, over a given period of time. By studying trends in data, investors can make informed decisions about whether to buy, sell, or hold a particular security. There are several different methods that can be used to analyze trends, including technical analysis, which uses charts and other graphical tools to identify patterns in price and volume data, and fundamental analysis, which focuses on a company's financial health and industry conditions to make investment decisions. Trend analysis can thus incorporate a variety of data sources, including price charts, financial statements, economic indicators, and market data. </p></div>

## What Is Trend Analysis? Trend analysis is a technique used in [technical analysis](https://www.investopedia.com/terms/t/technicalanalysis.asp) that attempts to predict future stock price movements based on recently observed trend data. Trend analysis uses historical data, such as price movements and trade volume, to forecast the long-term direction of market sentiment. ### Key Takeaways * Trend analysis tries to predict a trend, such as a bull market run, and then ride that trend until data suggests a trend reversal, such as a bull-to-bear market. * Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. * Trend analysis focuses on three typical time horizons: short-; intermediate-; and long-term. ![Trend Analysis]() :max_bytes(150000):strip_icc()/Trendanalysis-587b2a1157474b069868ba7bd5306ac9.jpg) Investopedia / Michela Buttignol ## Understanding Trend Analysis Trend analysis tries to predict a trend, such as a [bull market](https://www.investopedia.com/terms/b/bullmarket.asp) run, and ride that trend until data suggests a trend [reversal](https://www.investopedia.com/terms/r/reversal.asp), such as a bull-to-bear market. Trend analysis is helpful because moving with trends, and not against them, will lead to profit for an investor. It is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. There are three main types of trends: short-, intermediate- and long-term. A [trend](https://www.investopedia.com/terms/t/trend.asp) is a general direction the market is taking during a specified period of time. Trends can be both upward and downward, relating to bullish and [bearish markets](https://www.investopedia.com/terms/b/bearmarket.asp), respectively. While there is no specified minimum amount of time required for a direction to be considered a trend, the longer the direction is maintained, the more notable the trend. Trend analysis is the process of looking at current trends in order to predict future ones and is considered [a form of comparative analysis](https://www.investopedia.com/what-is-alternative-data-6889002). This can include attempting to determine whether a current market trend, such as gains in a particular market sector, is likely to continue, as well as whether a trend in one market area could result in a trend in another. Though a trend analysis may involve a large amount of data, there is no guarantee that the results will be correct. ### Types of Trends to Analyze There are three main types of market trend for analysts to consider: 1. **Upward trend:** An upward trend, also known as a [bull market](https://www.investopedia.com/terms/b/bullmarket.asp), is a sustained period of rising prices in a particular security or market. Upward trends are generally seen as a sign of economic strength and can be driven by factors such as strong demand, rising profits, and favorable economic conditions. 2. **Downward trend:** A downward trend, also known as a [bear market](https://www.investopedia.com/terms/b/bearmarket.asp), is a sustained period of falling prices in a particular security or market. Downward trends are generally seen as a sign of economic weakness and can be driven by factors such as weak demand, declining profits, and unfavorable economic conditions. 3. **Sideways trend:** A [sideways trend](https://www.investopedia.com/terms/s/sidewaysmarket.asp), also known as a [rangebound](https://www.investopedia.com/terms/r/rangeboundtrading.asp) market, is a period of relatively stable prices in a particular security or market. Sideways trends can be characterized by a lack of clear direction, with prices fluctuating within a relatively narrow range. ## How to Perform a Trend Analysis In order to begin analyzing applicable data, it is necessary to first determine which market segment will be analyzed. For instance, you could focus on a particular industry, such as the automotive or pharmaceuticals sector, as well as a particular type of investment, such as the [bond market](https://www.investopedia.com/terms/b/bondmarket.asp). Once the sector has been selected, it is possible to examine its general performance. This can include how the sector was affected by internal and external forces. For example, changes in a similar industry or the creation of a new governmental regulation would qualify as forces impacting the market. Analysts then take this data and attempt to predict the direction the market will take moving forward. ## Trend Trading Strategies [Trend traders](https://www.investopedia.com/terms/t/trendtrading.asp) attempt to isolate and extract profit from trends. There are many different trend trading strategies using a variety of technical [indicators](https://www.investopedia.com/terms/i/indicator.asp): * **Moving Averages:** These strategies involve entering into long positions when a short-term [moving average](https://www.investopedia.com/terms/m/movingaverage.asp) crosses above a long-term moving [average](https://www.investopedia.com/ask/answers/071414/whats-difference-between-moving-average-and-weighted-moving-average.asp), and entering short positions when a short-term moving average crosses below a long-term moving average. * **Momentum Indicators:** These strategies involve entering into [long positions](https://www.investopedia.com/terms/l/long.asp) when a security is trending with strong momentum and exiting long positions when a security loses momentum. Often, the [relative strength index](https://www.investopedia.com/terms/r/rsi.asp) (RSI) is used in these strategies. * **Trendlines & Chart Patterns:** These strategies involve entering long positions when a security is trending higher and placing a [stop-loss](https://www.investopedia.com/terms/s/stop-lossorder.asp) below key trendline [support levels](https://www.investopedia.com/terms/s/support.asp). If the stock starts to reverse, the position is exited for a profit. Indicators can simplify price information, as well as [provide trend trade signals](https://www.investopedia.com/articles/forex/09/trade-with-the-trend.asp) or warn of [reversals](https://www.investopedia.com/terms/r/reversal.asp). They may be used on all time frames, and have variables that can be adjusted to suit each trader's specific preferences. Usually, it is advisable to combine indicator strategies or come up with your own guidelines, so entry and exit criteria are clearly established for trades. Each indicator can be used in more ways than outlined. If you like an indicator, research it further, and most importantly, test it out before using it to make live trades. ### Trend following is a trading system based on using trend analysis and following the recommendation produced to determine which investments to make. Often, the analysis is conducted via computer analysis and modeling of relevant data and is tied to [market momentum](https://www.investopedia.com/terms/m/marketmomentum.asp). ## Advantages and Disadvantages of Trend Analysis ### Advantages Trend analysis can offer several advantages for investors and traders. It is a powerful tool for investors and traders as it can help identify opportunities for buying or selling securities, minimize risk, improve decision-making, and enhance portfolio performance. Trend analysis can be based on a variety of data points, including financial statements, economic indicators, and market data, and there are several different methods that can be used to analyze trends, including technical analysis and fundamental analysis. By providing a deeper understanding of the factors that are driving trends in data, trend analysis can help investors and traders make more informed and confident decisions about their investments. ### Disadvantages Trend analysis can have some potential disadvantages as a tool for making investment decisions. One of these disadvantages is that the accuracy of the analysis depends on the quality of the data being used. If the data is incomplete, inaccurate, or otherwise flawed, the analysis may be misleading or inaccurate. Another potential disadvantage is that trend analysis is based on historical data, which means it can only provide a limited perspective on the future. While trends in data can provide useful insights, it's important to remember that the future is not necessarily predetermined by the past, and unexpected events or changes in market conditions can disrupt trends. Trend analysis is also focused on [identifying patterns in data](https://www.investopedia.com/articles/technical/02/052102.asp) over a given period of time, which means it may not consider other important factors that could impact the performance of a security or market. Finally, trend analysis often relies on statistical measures to identify patterns in data, which can be subject to interpretation. Different statistical measures can yield different results, and it's important to be aware of the limitations and assumptions of the statistical methods being used. Critics of trend analysis, and technical trading in general, argue that [markets are efficient](https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp), and already priced in all available information. That means that history does not necessarily need to repeat itself and that the past does not predict the future. Adherents of [fundamental analysis](https://www.investopedia.com/terms/f/fundamentalanalysis.asp), for example, analyze the financial condition of companies using [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp) and economic models to predict future prices. For these types of investors, day-to-day stock movements follow a random walk that cannot be interpreted as patterns or trends. ### Trend Analysis Pros and Cons Pros * Can help identify opportunities for buying or selling securities * Can identify potential risks or warning signs that a security or market may be headed for a downturn * Provides insight into market psychology and momentum Cons * If markets are efficient, trend analysis is not as useful * If the data is incomplete, inaccurate, or otherwise flawed, the analysis may also be misleading or inaccurate * May not take into account changes in a company's management, changes in industry regulations, or other external factors that could affect the security's performance * Different statistical measures can yield different results ## Example of a Trend Analysis Say that an investor is considering buying shares of a particular company, and they want to use trend analysis to determine whether the stock is likely to rise in value. To conduct their analysis, the investor gathers data on the company's financial performance over the past five years, including its revenues, expenses, profits, and other key metrics. They also gather data on the overall performance of the stock market and on the company's industry. Using this data, the investor creates charts to visualize the trends in the data. They notice that the company's revenues have been steadily increasing over the past five years, and that its profits have also been trending upward. They also notice that the stock market has been generally trending upward over the same period. The investor then uses linear regression to model the relationship between the company's profits and its stock price, and they find that there is a strong positive correlation between the two variables. This suggests that as the company's profits have increased, its stock price has also tended to rise. Based on their analysis, the investor concludes that the company's stock is likely to continue trending upward in the future, and they decide to buy shares of the stock. ## What Is a Trend? A trend is the overall direction of a market during a specified period of time. Trends can be both upward and downward, relating to bullish and bearish markets, respectively. While there is no specified minimum amount of time required for a direction to be considered a trend, the longer the direction is maintained, the more notable the trend. Trends are identified by drawing lines, known as trendlines, that connect price action making higher highs and higher lows for an uptrend, or lower lows and lower highs for a downtrend. ## What Is the Formula or Model for Trend Analysis? There is no one formula for trend analysis, as the specific methods used to analyze trends can vary depending on the data being analyzed and the goals of the analysis. However, there are several statistical measures that are commonly used in trend analysis to identify patterns and trends in data. Here are a few examples of statistical measures that might be used in trend analysis: * [Moving averages](https://www.investopedia.com/ask/answers/071414/whats-difference-between-moving-average-and-weighted-moving-average.asp): A moving average is a statistical measure that is used to smooth out fluctuations in data over time. A simple moving average (SMA) is calculated by taking the average of a set of data points over a given period of time, such as the past 10 days or the past 50 weeks. Moving averages can be used to identify trends by smoothing out short-term fluctuations in data and highlighting longer-term patterns. * [Linear regression](https://www.investopedia.com/terms/r/regression.asp): Linear regression is a statistical method that is used to model the relationship between two variables. It can be used to identify trends by fitting a line to the data and determining the slope of the line, which can indicate the direction and strength of the trend. * [Correlation](https://www.investopedia.com/terms/c/correlation.asp): Correlation is a statistical measure that indicates the strength and direction of the relationship between two variables. A positive correlation means that the variables are moving in the same direction, while a negative correlation means that they are moving in opposite directions. Correlation can be used to identify trends by analyzing the relationship between two variables over time. It's important to note that these are just a few examples of statistical measures that might be used in trend analysis, and there are many other methods and measures that could also be used depending on the specific needs of the analysis. ## What Are Examples of Trend Trading Strategies? Trend trading strategies attempt to isolate and extract profit from trends by combining a variety of technical indicators along with the financial instrument's price action. Typically, these include moving averages, momentum indicators, and trendlines, and chart patterns. Moving averages strategies involve entering into long, or short, positions when the short-term moving average crosses above, or below, a long-term moving average. Momentum indicator strategies involve entering into positions when a security is exhibiting strong momentum and exiting when that wanes. Trendlines and chart pattern strategies involve entering long, or short, positions when a security is trending higher, or lower, and placing a stop-loss below, or above, key trendline support levels to exit the trade. ## How Do You Prepare a Trend Analysis? To prepare a trend analysis as a trader, you will typically need to follow these steps: 1. *Identify the security or market you want to analyze:* Decide which security or market you want to analyze in order to identify trends that could inform your trading decisions. This could be a specific stock, bond, currency, commodity, or other financial instrument, or it could be a broader market index or sector. 2. *Gather the data*: Collect data on the security or market you have identified. This may involve accessing financial statements, downloading market data, or accessing databases or other sources of data. 3. *Organize the data*: Organize the data in a way that makes it easy to analyze. This could involve creating spreadsheets, charts, or graphs to visualize the data. 4. *Analyze the data:* Use your chosen method of analysis to identify trends in the data. This could involve looking for patterns in the data, calculating statistical measures such as averages or standard deviations, or using graphical tools such as charts to identify trends. 5. *Interpret the results:* Once you have identified trends in the data, interpret the results to determine what they mean for your trading decisions. This could involve making predictions about the future direction of the security or market, identifying risks or opportunities, or making recommendations for buying, selling, or holding the security. 6. *Use the results to inform your trading decisions*: Use the insights gained from your trend analysis to inform your trading decisions. This could involve adjusting your portfolio, placing trades, or making other decisions based on the trends you have identified. ## What Are Some Criticisms of Trend Analysis? Critics of trend analysis, and technical trading in general, argue that markets are efficient, and already price in all available information. That means that history does not necessarily need to repeat itself and that the past does not predict the future. Adherents of fundamental analysis, for example, analyze the financial condition of companies using financial statements and economic models to predict future prices. For these types of investors, day-to-day stock movements follow a random walk that cannot be interpreted as patterns or trends. ## The Bottom Line Trend analysis is the study of data to identify patterns or trends that can be used to make investment decisions. This type of analysis is typically used to analyze the performance of a particular security, such as a stock or bond, over a given period of time. By studying trends in data, investors can make informed decisions about whether to buy, sell, or hold a particular security. There are several different methods that can be used to analyze trends, including technical analysis, which uses charts and other graphical tools to identify patterns in price and volume data, and fundamental analysis, which focuses on a company's financial health and industry conditions to make investment decisions. Trend analysis can thus incorporate a variety of data sources, including price charts, financial statements, economic indicators, and market data.

What Is Trend Analysis? Trend analysis is a technique used in technical analysis that attempts to predict future stock price movements based on recently observed trend data. Trend analysis uses historical data, such as price movements and trade volume, to forecast the long-term direction of market sentiment. Key Takeaways Trend analysis tries to predict a trend, such as a bull market run, and then ride that trend until data suggests a trend reversal, such as a bull-to-bear market.Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future.Trend analysis focuses on three typical time horizons: short-; intermediate-; and long-term. Investopedia / Michela Buttignol Understanding Trend Analysis Trend analysis tries to predict a trend, such as a bull market run, and ride that trend until data suggests a trend reversal, such as a bull-to-bear market. Trend analysis is helpful because moving with trends, and not against them, will lead to profit for an investor. It is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. There are three main types of trends: short-, intermediate- and long-term. A trend is a general direction the market is taking during a specified period of time. Trends can be both upward and downward, relating to bullish and bearish markets, respectively. While there is no specified minimum amount of time required for a direction to be considered a trend, the longer the direction is maintained, the more notable the trend. Trend analysis is the process of looking at current trends in order to predict future ones and is considered a form of comparative analysis. This can include attempting to determine whether a current market trend, such as gains in a particular market sector, is likely to continue, as well as whether a trend in one market area could result in a trend in another. Though a trend analysis may involve a large amount of data, there is no guarantee that the results will be correct. Types of Trends to Analyze There are three main types of market trend for analysts to consider: Upward trend: An upward trend, also known as a bull market, is a sustained period of rising prices in a particular security or market. Upward trends are generally seen as a sign of economic strength and can be driven by factors such as strong demand, rising profits, and favorable economic conditions. Downward trend: A downward trend, also known as a bear market, is a sustained period of falling prices in a particular security or market. Downward trends are generally seen as a sign of economic weakness and can be driven by factors such as weak demand, declining profits, and unfavorable economic conditions. Sideways trend: A sideways trend, also known as a rangebound market, is a period of relatively stable prices in a particular security or market. Sideways trends can be characterized by a lack of clear direction, with prices fluctuating within a relatively narrow range. How to Perform a Trend Analysis In order to begin analyzing applicable data, it is necessary to first determine which market segment will be analyzed. For instance, you could focus on a particular industry, such as the automotive or pharmaceuticals sector, as well as a particular type of investment, such as the bond market. Once the sector has been selected, it is possible to examine its general performance. This can include how the sector was affected by internal and external forces. For example, changes in a similar industry or the creation of a new governmental regulation would qualify as forces impacting the market. Analysts then take this data and attempt to predict the direction the market will take moving forward. Trend Trading Strategies Trend traders attempt to isolate and extract profit from trends. There are many different trend trading strategies using a variety of technical indicators: Moving Averages: These strategies involve entering into long positions when a short-term moving average crosses above a long-term moving average, and entering short positions when a short-term moving average crosses below a long-term moving average. Momentum Indicators: These strategies involve entering into long positions when a security is trending with strong momentum and exiting long positions when a security loses momentum. Often, the relative strength index (RSI) is used in these strategies. Trendlines & Chart Patterns: These strategies involve entering long positions when a security is trending higher and placing a stop-loss below key trendline support levels. If the stock starts to reverse, the position is exited for a profit. Indicators can simplify price information, as well as provide trend trade signals or warn of reversals. They may be used on all time frames, and have variables that can be adjusted to suit each trader's specific preferences. Usually, it is advisable to combine indicator strategies or come up with your own guidelines, so entry and exit criteria are clearly established for trades. Each indicator can be used in more ways than outlined. If you like an indicator, research it further, and most importantly, test it out before using it to make live trades. Trend following is a trading system based on using trend analysis and following the recommendation produced to determine which investments to make. Often, the analysis is conducted via computer analysis and modeling of relevant data and is tied to market momentum. Advantages and Disadvantages of Trend Analysis Advantages Trend analysis can offer several advantages for investors and traders. It is a powerful tool for investors and traders as it can help identify opportunities for buying or selling securities, minimize risk, improve decision-making, and enhance portfolio performance. Trend analysis can be based on a variety of data points, including financial statements, economic indicators, and market data, and there are several different methods that can be used to analyze trends, including technical analysis and fundamental analysis. By providing a deeper understanding of the factors that are driving trends in data, trend analysis can help investors and traders make more informed and confident decisions about their investments. Disadvantages Trend analysis can have some potential disadvantages as a tool for making investment decisions. One of these disadvantages is that the accuracy of the analysis depends on the quality of the data being used. If the data is incomplete, inaccurate, or otherwise flawed, the analysis may be misleading or inaccurate. Another potential disadvantage is that trend analysis is based on historical data, which means it can only provide a limited perspective on the future. While trends in data can provide useful insights, it's important to remember that the future is not necessarily predetermined by the past, and unexpected events or changes in market conditions can disrupt trends. Trend analysis is also focused on identifying patterns in data over a given period of time, which means it may not consider other important factors that could impact the performance of a security or market. Finally, trend analysis often relies on statistical measures to identify patterns in data, which can be subject to interpretation. Different statistical measures can yield different results, and it's important to be aware of the limitations and assumptions of the statistical methods being used. Critics of trend analysis, and technical trading in general, argue that markets are efficient, and already priced in all available information. That means that history does not necessarily need to repeat itself and that the past does not predict the future. Adherents of fundamental analysis, for example, analyze the financial condition of companies using financial statements and economic models to predict future prices. For these types of investors, day-to-day stock movements follow a random walk that cannot be interpreted as patterns or trends. Trend Analysis Pros and Cons Pros Can help identify opportunities for buying or selling securities Can identify potential risks or warning signs that a security or market may be headed for a downturn Provides insight into market psychology and momentum Cons If markets are efficient, trend analysis is not as useful If the data is incomplete, inaccurate, or otherwise flawed, the analysis may also be misleading or inaccurate May not take into account changes in a company's management, changes in industry regulations, or other external factors that could affect the security's performance Different statistical measures can yield different results Example of a Trend Analysis Say that an investor is considering buying shares of a particular company, and they want to use trend analysis to determine whether the stock is likely to rise in value. To conduct their analysis, the investor gathers data on the company's financial performance over the past five years, including its revenues, expenses, profits, and other key metrics. They also gather data on the overall performance of the stock market and on the company's industry. Using this data, the investor creates charts to visualize the trends in the data. They notice that the company's revenues have been steadily increasing over the past five years, and that its profits have also been trending upward. They also notice that the stock market has been generally trending upward over the same period. The investor then uses linear regression to model the relationship between the company's profits and its stock price, and they find that there is a strong positive correlation between the two variables. This suggests that as the company's profits have increased, its stock price has also tended to rise. Based on their analysis, the investor concludes that the company's stock is likely to continue trending upward in the future, and they decide to buy shares of the stock. What Is a Trend? A trend is the overall direction of a market during a specified period of time. Trends can be both upward and downward, relating to bullish and bearish markets, respectively. While there is no specified minimum amount of time required for a direction to be considered a trend, the longer the direction is maintained, the more notable the trend. Trends are identified by drawing lines, known as trendlines, that connect price action making higher highs and higher lows for an uptrend, or lower lows and lower highs for a downtrend. What Is the Formula or Model for Trend Analysis? There is no one formula for trend analysis, as the specific methods used to analyze trends can vary depending on the data being analyzed and the goals of the analysis. However, there are several statistical measures that are commonly used in trend analysis to identify patterns and trends in data.Here are a few examples of statistical measures that might be used in trend analysis:Moving averages: A moving average is a statistical measure that is used to smooth out fluctuations in data over time. A simple moving average (SMA) is calculated by taking the average of a set of data points over a given period of time, such as the past 10 days or the past 50 weeks. Moving averages can be used to identify trends by smoothing out short-term fluctuations in data and highlighting longer-term patterns.Linear regression: Linear regression is a statistical method that is used to model the relationship between two variables. It can be used to identify trends by fitting a line to the data and determining the slope of the line, which can indicate the direction and strength of the trend.Correlation: Correlation is a statistical measure that indicates the strength and direction of the relationship between two variables. A positive correlation means that the variables are moving in the same direction, while a negative correlation means that they are moving in opposite directions. Correlation can be used to identify trends by analyzing the relationship between two variables over time.It's important to note that these are just a few examples of statistical measures that might be used in trend analysis, and there are many other methods and measures that could also be used depending on the specific needs of the analysis. What Are Examples of Trend Trading Strategies? Trend trading strategies attempt to isolate and extract profit from trends by combining a variety of technical indicators along with the financial instrument's price action. Typically, these include moving averages, momentum indicators, and trendlines, and chart patterns.Moving averages strategies involve entering into long, or short, positions when the short-term moving average crosses above, or below, a long-term moving average. Momentum indicator strategies involve entering into positions when a security is exhibiting strong momentum and exiting when that wanes. Trendlines and chart pattern strategies involve entering long, or short, positions when a security is trending higher, or lower, and placing a stop-loss below, or above, key trendline support levels to exit the trade. How Do You Prepare a Trend Analysis? To prepare a trend analysis as a trader, you will typically need to follow these steps:Identify the security or market you want to analyze: Decide which security or market you want to analyze in order to identify trends that could inform your trading decisions. This could be a specific stock, bond, currency, commodity, or other financial instrument, or it could be a broader market index or sector.Gather the data: Collect data on the security or market you have identified. This may involve accessing financial statements, downloading market data, or accessing databases or other sources of data.Organize the data: Organize the data in a way that makes it easy to analyze. This could involve creating spreadsheets, charts, or graphs to visualize the data.Analyze the data: Use your chosen method of analysis to identify trends in the data. This could involve looking for patterns in the data, calculating statistical measures such as averages or standard deviations, or using graphical tools such as charts to identify trends.Interpret the results: Once you have identified trends in the data, interpret the results to determine what they mean for your trading decisions. This could involve making predictions about the future direction of the security or market, identifying risks or opportunities, or making recommendations for buying, selling, or holding the security.Use the results to inform your trading decisions: Use the insights gained from your trend analysis to inform your trading decisions. This could involve adjusting your portfolio, placing trades, or making other decisions based on the trends you have identified. What Are Some Criticisms of Trend Analysis? Critics of trend analysis, and technical trading in general, argue that markets are efficient, and already price in all available information. That means that history does not necessarily need to repeat itself and that the past does not predict the future. Adherents of fundamental analysis, for example, analyze the financial condition of companies using financial statements and economic models to predict future prices. For these types of investors, day-to-day stock movements follow a random walk that cannot be interpreted as patterns or trends. The Bottom Line Trend analysis is the study of data to identify patterns or trends that can be used to make investment decisions. This type of analysis is typically used to analyze the performance of a particular security, such as a stock or bond, over a given period of time. By studying trends in data, investors can make informed decisions about whether to buy, sell, or hold a particular security. There are several different methods that can be used to analyze trends, including technical analysis, which uses charts and other graphical tools to identify patterns in price and volume data, and fundamental analysis, which focuses on a company's financial health and industry conditions to make investment decisions. Trend analysis can thus incorporate a variety of data sources, including price charts, financial statements, economic indicators, and market data.

https://www.investopedia.com/terms/h/hotmoney.asp

What Is 'Hot Money'? Definition and Economic Impact

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-hot-money"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Hot Money? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Hot money signifies currency that quickly and regularly moves between <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-market.asp" rel="noopener noreferrer">financial markets</a>, that ensures investors lock in the highest available short-term interest rates. Hot money continuously shifts from countries with low-interest rates to those with higher rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> These financial transfers affect the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchangerate.asp" rel="noopener noreferrer">exchange rate</a> and potentially impact a country's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bop.asp" rel="noopener noreferrer">balance of payments</a>. In law enforcement and banking regulatory circles, the phrase "hot money" can also refer to stolen money that has been specially marked, so that it may be traced and identified. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Hot money is capital that investors regularly move between economies and financial markets to profit from highest short-term interest rates.</li><li>Banks bring hot money into an economy by providing short-term certificates of deposit with higher-than-average rates.</li><li>The Chinese economy is an example of a hot money market that turned cold following investor flight.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-hot-money"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Hot Money </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Hot money not only relates to currencies of different countries, but it may also refer to capital invested in competing businesses. Banks seek to bring in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/09/hot-money.asp">hot money</a> by offering short-term <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificates of deposit</a> (CDs) with higher-than-average interest rates. If the bank lowers its interest rates, or if a rival financial institution offers higher rates, investors are apt to move hot money funds to the bank offering the better deal. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> In a global context, hot money can flow between economies only after trade barriers are removed and sophisticated financial infrastructures are established. Against this backdrop, money flows into high-growth areas that offer the potential for outsized returns. Conversely, hot money flows out of underperforming countries and economic sectors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-china-as-a-hot-and-cold-money-market"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> China as a Hot-and-Cold Money Market </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> China's economy provides a clear example of the ebb and flow of hot money. Since the turn of the century, the country's rapidly expanding economy, accompanied by an epic rise in Chinese stock prices, established China as one of the hottest hot money markets in history. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> However, the flood of money into China quickly reversed direction following substantial devaluation of the Chinese yuan, coupled with a major correction in the Chinese stock market. The Royal Bank of Scotland's chief China economy analyst, Louis Kuijs, estimates that during the brief six months from September 2014 to March 2015, the country lost an estimated $300 billion in hot money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The reversal of China's money market is historic. From 2006 to 2014, the country's foreign currency reserves multiplied, creating a $4 trillion balance, partially accrued from long-term foreign investment in Chinese businesses.<span class="ql-inline-citation" data-cite="1"></span> But a significant chunk came from hot money, when investors bought bonds with attractive interest rates and accumulated stocks with high return potential. Furthermore, investors borrowed heaps of money in China, at cheap rates, in order to purchase higher interest-rate bonds from other countries. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Although the Chinese market became an attractive destination for hot money, thanks to a booming stock market and strong currency, the influx of cash slowed to a trickle in 2016 because stock prices peaked to the extent that there was little upside to be had. Additionally, since 2013, the fluctuating yuan also caused broad divestments. During the nine-month period between June 2014 and March 2015, the foreign exchange reserves of the country plummeted more than $250 billion. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Similar events occurred in 2019, when according to estimates by the Institute of International Finance, more than $60 billion in capital was taken out of China's economy between May and June of that year, due to increased capital controls, plus the devaluation of the yuan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Hot money activity is generally funneled towards investments with short horizons.</p></div></div></div></div>

## What Is Hot Money? Hot money signifies currency that quickly and regularly moves between [financial markets](https://www.investopedia.com/terms/f/financial-market.asp), that ensures investors lock in the highest available short-term interest rates. Hot money continuously shifts from countries with low-interest rates to those with higher rates. These financial transfers affect the [exchange rate](https://www.investopedia.com/terms/e/exchangerate.asp) and potentially impact a country's [balance of payments](https://www.investopedia.com/terms/b/bop.asp). In law enforcement and banking regulatory circles, the phrase "hot money" can also refer to stolen money that has been specially marked, so that it may be traced and identified. ### Key Takeaways * Hot money is capital that investors regularly move between economies and financial markets to profit from highest short-term interest rates. * Banks bring hot money into an economy by providing short-term certificates of deposit with higher-than-average rates. * The Chinese economy is an example of a hot money market that turned cold following investor flight. ## Understanding Hot Money Hot money not only relates to currencies of different countries, but it may also refer to capital invested in competing businesses. Banks seek to bring in [hot money](https://www.investopedia.com/ask/answers/09/hot-money.asp) by offering short-term [certificates of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp) (CDs) with higher-than-average interest rates. If the bank lowers its interest rates, or if a rival financial institution offers higher rates, investors are apt to move hot money funds to the bank offering the better deal. In a global context, hot money can flow between economies only after trade barriers are removed and sophisticated financial infrastructures are established. Against this backdrop, money flows into high-growth areas that offer the potential for outsized returns. Conversely, hot money flows out of underperforming countries and economic sectors. ## China as a Hot-and-Cold Money Market China's economy provides a clear example of the ebb and flow of hot money. Since the turn of the century, the country's rapidly expanding economy, accompanied by an epic rise in Chinese stock prices, established China as one of the hottest hot money markets in history. However, the flood of money into China quickly reversed direction following substantial devaluation of the Chinese yuan, coupled with a major correction in the Chinese stock market. The Royal Bank of Scotland's chief China economy analyst, Louis Kuijs, estimates that during the brief six months from September 2014 to March 2015, the country lost an estimated $300 billion in hot money. The reversal of China's money market is historic. From 2006 to 2014, the country's foreign currency reserves multiplied, creating a $4 trillion balance, partially accrued from long-term foreign investment in Chinese businesses. But a significant chunk came from hot money, when investors bought bonds with attractive interest rates and accumulated stocks with high return potential. Furthermore, investors borrowed heaps of money in China, at cheap rates, in order to purchase higher interest-rate bonds from other countries. Although the Chinese market became an attractive destination for hot money, thanks to a booming stock market and strong currency, the influx of cash slowed to a trickle in 2016 because stock prices peaked to the extent that there was little upside to be had. Additionally, since 2013, the fluctuating yuan also caused broad divestments. During the nine-month period between June 2014 and March 2015, the foreign exchange reserves of the country plummeted more than $250 billion. Similar events occurred in 2019, when according to estimates by the Institute of International Finance, more than $60 billion in capital was taken out of China's economy between May and June of that year, due to increased capital controls, plus the devaluation of the yuan. ### Hot money activity is generally funneled towards investments with short horizons.

What Is Hot Money? Hot money signifies currency that quickly and regularly moves between financial markets, that ensures investors lock in the highest available short-term interest rates. Hot money continuously shifts from countries with low-interest rates to those with higher rates. These financial transfers affect the exchange rate and potentially impact a country's balance of payments. In law enforcement and banking regulatory circles, the phrase "hot money" can also refer to stolen money that has been specially marked, so that it may be traced and identified. Key Takeaways Hot money is capital that investors regularly move between economies and financial markets to profit from highest short-term interest rates.Banks bring hot money into an economy by providing short-term certificates of deposit with higher-than-average rates.The Chinese economy is an example of a hot money market that turned cold following investor flight. Understanding Hot Money Hot money not only relates to currencies of different countries, but it may also refer to capital invested in competing businesses. Banks seek to bring in hot money by offering short-term certificates of deposit (CDs) with higher-than-average interest rates. If the bank lowers its interest rates, or if a rival financial institution offers higher rates, investors are apt to move hot money funds to the bank offering the better deal. In a global context, hot money can flow between economies only after trade barriers are removed and sophisticated financial infrastructures are established. Against this backdrop, money flows into high-growth areas that offer the potential for outsized returns. Conversely, hot money flows out of underperforming countries and economic sectors. China as a Hot-and-Cold Money Market China's economy provides a clear example of the ebb and flow of hot money. Since the turn of the century, the country's rapidly expanding economy, accompanied by an epic rise in Chinese stock prices, established China as one of the hottest hot money markets in history. However, the flood of money into China quickly reversed direction following substantial devaluation of the Chinese yuan, coupled with a major correction in the Chinese stock market. The Royal Bank of Scotland's chief China economy analyst, Louis Kuijs, estimates that during the brief six months from September 2014 to March 2015, the country lost an estimated $300 billion in hot money. The reversal of China's money market is historic. From 2006 to 2014, the country's foreign currency reserves multiplied, creating a $4 trillion balance, partially accrued from long-term foreign investment in Chinese businesses. But a significant chunk came from hot money, when investors bought bonds with attractive interest rates and accumulated stocks with high return potential. Furthermore, investors borrowed heaps of money in China, at cheap rates, in order to purchase higher interest-rate bonds from other countries. Although the Chinese market became an attractive destination for hot money, thanks to a booming stock market and strong currency, the influx of cash slowed to a trickle in 2016 because stock prices peaked to the extent that there was little upside to be had. Additionally, since 2013, the fluctuating yuan also caused broad divestments. During the nine-month period between June 2014 and March 2015, the foreign exchange reserves of the country plummeted more than $250 billion. Similar events occurred in 2019, when according to estimates by the Institute of International Finance, more than $60 billion in capital was taken out of China's economy between May and June of that year, due to increased capital controls, plus the devaluation of the yuan. Hot money activity is generally funneled towards investments with short horizons.

https://www.investopedia.com/homeready-mortgage-5075882

What Is a HomeReady Mortgage? Benefits and Drawbacks

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-homeready-mortgage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a HomeReady Mortgage? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> If you are a low-to-moderate income borrower with good credit seeking a new home, it may be worth looking into the HomeReady mortgage sponsored by Fannie Mae. This mortgage, similar to the Home Possible program offered by Freddie Mac, allows for a 3% down payment versus the standard 20% one. The pricing provided on a HomeReady mortgage is better than or equal to standard pricing on a mortgage.<span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>HomeReady is a Fannie Mae program for low-income borrowers.</li> <li>It offers low down payments, low financing costs, and low mortgage insurance costs.</li> <li>Borrowers have flexibility in obtaining the funds for down payments.</li> <li>A broadly similar program from Freddie Mac is called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/homepossible-mortgage-5075915">Home Possible</a>.</li> <li>Eligible borrowers only need a 620 credit score to qualify, although scores of 680 or higher will earn them better price options.</li> <li>Down payment amounts are 3%, much lower than most mortgages.</li> </ul></div></div></div> <span class="heading-toc" id="toc-how-homeready-mortgages-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> How HomeReady Mortgages Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The HomeReady program is open to first-time and repeat homebuyers, plus those seeking to refinance an existing mortgage. Eligible borrowers need to have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit scores</a> of 620 or greater, and those with scores of 680 or more may receive even better pricing. HomeReady also offers affordable <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgage-insurance.asp">mortgage insurance</a> coverage.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Eligible borrowers are those whose income is 80% or less of the area median income (AMI) for the census tract in which the property is located as of July 20, 2019. This condition includes properties in low-income census tracts. A borrower under the HomeReady program may also have ownership interests in other residential properties. Still, only one of those other properties may be financed when closing on a HomeReady mortgage.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Community Seconds are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/secondmortgage.asp">second mortgages</a> that are used to fund down payments and closing costs on <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/first_mortgage.asp">first mortgages</a> that are delivered to Fannie Mae.<span class="ql-inline-citation" data-cite="10"></span></p></div></div></div> <span class="heading-toc" id="toc-benefits-of-a-homeready-mortgage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Benefits of a HomeReady Mortgage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> In addition to a low down payment of 3%, HomeReady mortgages offer better than or equal to standard loan pricing. The program also offers lower than standard mortgage insurance coverage requirements when the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loantovalue.asp">loan-to-value (LTV) ratio</a> is between 90% and 97%, plus the ability for the borrower to cancel monthly mortgage insurance payments when the LTV ratio drops below 80%. Additionally, the borrower is not required to use a minimum amount of personal funds for the down payment and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/mortgage-guide/closing-costs/">closing costs</a> but instead may tap other sources such as gifts, grants, and Community Seconds mortgages.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Another significant benefit of the HomeReady mortgage is the flexibility of its terms. While income limits may apply for all borrowers, a HomeReady mortgage doesn't have to be solely in the name of those who occupy the dwelling. Parents and other family members may be co-borrowers, even if they don't plan on living in the home. If a family plans to purchase a home with an attached rental unit, they can use the potential rental income as an equation in their eligibility to boost their qualification for the mortgage. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">$2,500 Credit for Very Low-Income Borrowers</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Fannie Mae announced in January 2024 that it is offering a $2,500 credit to borrowers with total qualifying income no greater than 50% of the applicable area median income. The funds can be applied to to the 3% minimum contribution. The credit is available for loans purchased between March 1, 2024 and Feb. 28, 2025.<span class="ql-inline-citation" data-cite="12"></span></p></div></div></div> <span class="heading-toc" id="toc-criticism-of-a-homeready-mortgage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Criticism of a HomeReady Mortgage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> While HomeReady mortgages have multiple benefits, there are a few drawbacks. When you purchase a home using HomeReady, you will have limits on the amount you can borrow. This program (via Fannie Mae) uses FHFA's conforming loan limit, which in 2024 is $766,550 for a single-unit property in the contiguous United States. If you buy a property in Hawaii, Alaska, Guam, or the U.S. Virgin Islands, the amount jumps to $1,149,825. The challenge of the conforming loan limit is that in some parts of the U.S., especially on the coasts, housing prices are much higher than the conforming limit set by the FHFA. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> However, it is worth noting that in some areas where 115% of the median home value exceeds the conforming loan limit, it will be higher than the baseline limit. The loan ceiling in these areas for one-unit properties in high-cost areas rises to $1,149,825.<span class="ql-inline-citation" data-cite="9"></span> However, just because you can borrow this amount if you are living on a low-to-moderate income, it may be risky to take out a loan that you may not be able to afford, even if you qualify for it on paper.<br/><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> There are also benefits for lenders who participate in HomeReady mortgages. For example, Fannie Mae's Desktop Underwriter (DU) system automatically identifies loans eligible for HomeReady while offering a credit risk assessment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Lenders can also receive risk-based pricing waivers for borrowers with credit scores of 680 or greater and LTV ratios over 80%. HomeReady loans can also be combined with standard loans in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp">mortgage-backed security</a> (MBS) pools and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wholeloan.asp">whole loan</a> commitments.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_30-0"><span class="heading-toc" id="toc-what-is-the-interest-rate-on-a-homeready-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Interest Rate on a HomeReady Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Interest rates on HomeReady mortgages vary just as they do for most loans. While those with credit scores as low as 620 can qualify for the HomeReady program, those with higher credit scores will get better rates.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_32-0"><span class="heading-toc" id="toc-can-you-put-20-down-with-a-homeready-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Put 20% Down With a HomeReady Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>HomeReady is designed for borrowers who are less likely to have 20% available to apply to the purchase of a home. However, there is no specific restriction preventing a 20% down payment.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_34-0"><span class="heading-toc" id="toc-does-homeready-require-mortgage-insurance"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does HomeReady Require Mortgage Insurance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes. Those who apply less than 20% toward a down payment will be required to pay mortgage insurance for as long as the loan-to-value ratio is greater than 80%.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> HomeReady is designed to be a path to homeownership for low-income borrowers and is offered by Fannie Mae. Those eligible for the program can purchase homes with as little as 3% down, and those with very low income can earn a $2,500 credit that can be applied to that 3% requirement. The minimum credit score for the program is only 620, and the program is more flexible than traditional mortgages when it comes to the source of funds used for a down payment. </p></div>

## What Is a HomeReady Mortgage? If you are a low-to-moderate income borrower with good credit seeking a new home, it may be worth looking into the HomeReady mortgage sponsored by Fannie Mae. This mortgage, similar to the Home Possible program offered by Freddie Mac, allows for a 3% down payment versus the standard 20% one. The pricing provided on a HomeReady mortgage is better than or equal to standard pricing on a mortgage. ### Key Takeaways * HomeReady is a Fannie Mae program for low-income borrowers. * It offers low down payments, low financing costs, and low mortgage insurance costs. * Borrowers have flexibility in obtaining the funds for down payments. * A broadly similar program from Freddie Mac is called [Home Possible](https://www.investopedia.com/homepossible-mortgage-5075915). * Eligible borrowers only need a 620 credit score to qualify, although scores of 680 or higher will earn them better price options. * Down payment amounts are 3%, much lower than most mortgages. ## How HomeReady Mortgages Work The HomeReady program is open to first-time and repeat homebuyers, plus those seeking to refinance an existing mortgage. Eligible borrowers need to have [credit scores](https://www.investopedia.com/terms/c/credit_score.asp) of 620 or greater, and those with scores of 680 or more may receive even better pricing. HomeReady also offers affordable [mortgage insurance](https://www.investopedia.com/terms/m/mortgage-insurance.asp) coverage. Eligible borrowers are those whose income is 80% or less of the area median income (AMI) for the census tract in which the property is located as of July 20, 2019. This condition includes properties in low-income census tracts. A borrower under the HomeReady program may also have ownership interests in other residential properties. Still, only one of those other properties may be financed when closing on a HomeReady mortgage. ### Community Seconds are [second mortgages](https://www.investopedia.com/terms/s/secondmortgage.asp) that are used to fund down payments and closing costs on [first mortgages](https://www.investopedia.com/terms/f/first_mortgage.asp) that are delivered to Fannie Mae. ## Benefits of a HomeReady Mortgage In addition to a low down payment of 3%, HomeReady mortgages offer better than or equal to standard loan pricing. The program also offers lower than standard mortgage insurance coverage requirements when the [loan-to-value (LTV) ratio](https://www.investopedia.com/terms/l/loantovalue.asp) is between 90% and 97%, plus the ability for the borrower to cancel monthly mortgage insurance payments when the LTV ratio drops below 80%. Additionally, the borrower is not required to use a minimum amount of personal funds for the down payment and [closing costs](https://www.investopedia.com/mortgage/mortgage-guide/closing-costs/) but instead may tap other sources such as gifts, grants, and Community Seconds mortgages. Another significant benefit of the HomeReady mortgage is the flexibility of its terms. While income limits may apply for all borrowers, a HomeReady mortgage doesn't have to be solely in the name of those who occupy the dwelling. Parents and other family members may be co-borrowers, even if they don't plan on living in the home. If a family plans to purchase a home with an attached rental unit, they can use the potential rental income as an equation in their eligibility to boost their qualification for the mortgage. ### $2,500 Credit for Very Low-Income Borrowers Fannie Mae announced in January 2024 that it is offering a $2,500 credit to borrowers with total qualifying income no greater than 50% of the applicable area median income. The funds can be applied to to the 3% minimum contribution. The credit is available for loans purchased between March 1, 2024 and Feb. 28, 2025. ## Criticism of a HomeReady Mortgage While HomeReady mortgages have multiple benefits, there are a few drawbacks. When you purchase a home using HomeReady, you will have limits on the amount you can borrow. This program (via Fannie Mae) uses FHFA's conforming loan limit, which in 2024 is $766,550 for a single-unit property in the contiguous United States. If you buy a property in Hawaii, Alaska, Guam, or the U.S. Virgin Islands, the amount jumps to $1,149,825. The challenge of the conforming loan limit is that in some parts of the U.S., especially on the coasts, housing prices are much higher than the conforming limit set by the FHFA. However, it is worth noting that in some areas where 115% of the median home value exceeds the conforming loan limit, it will be higher than the baseline limit. The loan ceiling in these areas for one-unit properties in high-cost areas rises to $1,149,825. However, just because you can borrow this amount if you are living on a low-to-moderate income, it may be risky to take out a loan that you may not be able to afford, even if you qualify for it on paper. ## Special Considerations There are also benefits for lenders who participate in HomeReady mortgages. For example, Fannie Mae's Desktop Underwriter (DU) system automatically identifies loans eligible for HomeReady while offering a credit risk assessment. Lenders can also receive risk-based pricing waivers for borrowers with credit scores of 680 or greater and LTV ratios over 80%. HomeReady loans can also be combined with standard loans in [mortgage-backed security](https://www.investopedia.com/terms/m/mbs.asp) (MBS) pools and [whole loan](https://www.investopedia.com/terms/w/wholeloan.asp) commitments. ## What Is the Interest Rate on a HomeReady Loan? Interest rates on HomeReady mortgages vary just as they do for most loans. While those with credit scores as low as 620 can qualify for the HomeReady program, those with higher credit scores will get better rates. ## Can You Put 20% Down With a HomeReady Loan? HomeReady is designed for borrowers who are less likely to have 20% available to apply to the purchase of a home. However, there is no specific restriction preventing a 20% down payment. ## Does HomeReady Require Mortgage Insurance? Yes. Those who apply less than 20% toward a down payment will be required to pay mortgage insurance for as long as the loan-to-value ratio is greater than 80%. ## The Bottom Line HomeReady is designed to be a path to homeownership for low-income borrowers and is offered by Fannie Mae. Those eligible for the program can purchase homes with as little as 3% down, and those with very low income can earn a $2,500 credit that can be applied to that 3% requirement. The minimum credit score for the program is only 620, and the program is more flexible than traditional mortgages when it comes to the source of funds used for a down payment.

What Is a HomeReady Mortgage? If you are a low-to-moderate income borrower with good credit seeking a new home, it may be worth looking into the HomeReady mortgage sponsored by Fannie Mae. This mortgage, similar to the Home Possible program offered by Freddie Mac, allows for a 3% down payment versus the standard 20% one. The pricing provided on a HomeReady mortgage is better than or equal to standard pricing on a mortgage. Key Takeaways HomeReady is a Fannie Mae program for low-income borrowers. It offers low down payments, low financing costs, and low mortgage insurance costs. Borrowers have flexibility in obtaining the funds for down payments. A broadly similar program from Freddie Mac is called Home Possible. Eligible borrowers only need a 620 credit score to qualify, although scores of 680 or higher will earn them better price options. Down payment amounts are 3%, much lower than most mortgages. How HomeReady Mortgages Work The HomeReady program is open to first-time and repeat homebuyers, plus those seeking to refinance an existing mortgage. Eligible borrowers need to have credit scores of 620 or greater, and those with scores of 680 or more may receive even better pricing. HomeReady also offers affordable mortgage insurance coverage. Eligible borrowers are those whose income is 80% or less of the area median income (AMI) for the census tract in which the property is located as of July 20, 2019. This condition includes properties in low-income census tracts. A borrower under the HomeReady program may also have ownership interests in other residential properties. Still, only one of those other properties may be financed when closing on a HomeReady mortgage. Community Seconds are second mortgages that are used to fund down payments and closing costs on first mortgages that are delivered to Fannie Mae. Benefits of a HomeReady Mortgage In addition to a low down payment of 3%, HomeReady mortgages offer better than or equal to standard loan pricing. The program also offers lower than standard mortgage insurance coverage requirements when the loan-to-value (LTV) ratio is between 90% and 97%, plus the ability for the borrower to cancel monthly mortgage insurance payments when the LTV ratio drops below 80%. Additionally, the borrower is not required to use a minimum amount of personal funds for the down payment and closing costs but instead may tap other sources such as gifts, grants, and Community Seconds mortgages. Another significant benefit of the HomeReady mortgage is the flexibility of its terms. While income limits may apply for all borrowers, a HomeReady mortgage doesn't have to be solely in the name of those who occupy the dwelling. Parents and other family members may be co-borrowers, even if they don't plan on living in the home. If a family plans to purchase a home with an attached rental unit, they can use the potential rental income as an equation in their eligibility to boost their qualification for the mortgage. $2,500 Credit for Very Low-Income Borrowers Fannie Mae announced in January 2024 that it is offering a $2,500 credit to borrowers with total qualifying income no greater than 50% of the applicable area median income. The funds can be applied to to the 3% minimum contribution. The credit is available for loans purchased between March 1, 2024 and Feb. 28, 2025. Criticism of a HomeReady Mortgage While HomeReady mortgages have multiple benefits, there are a few drawbacks. When you purchase a home using HomeReady, you will have limits on the amount you can borrow. This program (via Fannie Mae) uses FHFA's conforming loan limit, which in 2024 is $766,550 for a single-unit property in the contiguous United States. If you buy a property in Hawaii, Alaska, Guam, or the U.S. Virgin Islands, the amount jumps to $1,149,825. The challenge of the conforming loan limit is that in some parts of the U.S., especially on the coasts, housing prices are much higher than the conforming limit set by the FHFA. However, it is worth noting that in some areas where 115% of the median home value exceeds the conforming loan limit, it will be higher than the baseline limit. The loan ceiling in these areas for one-unit properties in high-cost areas rises to $1,149,825. However, just because you can borrow this amount if you are living on a low-to-moderate income, it may be risky to take out a loan that you may not be able to afford, even if you qualify for it on paper. Special Considerations There are also benefits for lenders who participate in HomeReady mortgages. For example, Fannie Mae's Desktop Underwriter (DU) system automatically identifies loans eligible for HomeReady while offering a credit risk assessment. Lenders can also receive risk-based pricing waivers for borrowers with credit scores of 680 or greater and LTV ratios over 80%. HomeReady loans can also be combined with standard loans in mortgage-backed security (MBS) pools and whole loan commitments. What Is the Interest Rate on a HomeReady Loan? Interest rates on HomeReady mortgages vary just as they do for most loans. While those with credit scores as low as 620 can qualify for the HomeReady program, those with higher credit scores will get better rates. Can You Put 20% Down With a HomeReady Loan? HomeReady is designed for borrowers who are less likely to have 20% available to apply to the purchase of a home. However, there is no specific restriction preventing a 20% down payment. Does HomeReady Require Mortgage Insurance? Yes. Those who apply less than 20% toward a down payment will be required to pay mortgage insurance for as long as the loan-to-value ratio is greater than 80%. The Bottom Line HomeReady is designed to be a path to homeownership for low-income borrowers and is offered by Fannie Mae. Those eligible for the program can purchase homes with as little as 3% down, and those with very low income can earn a $2,500 credit that can be applied to that 3% requirement. The minimum credit score for the program is only 620, and the program is more flexible than traditional mortgages when it comes to the source of funds used for a down payment.

https://www.investopedia.com/4-key-takeaways-from-microsoft-q3-2024-earnings-call-8639281

4 Key Takeaways From Microsoft's Earnings Call

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> After Microsoft (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>) reported <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-q3-fy-2024-earnings-8639160">earnings for the third quarter</a> of the 2024 fiscal year that beat analysts' estimates, Chief Executive Officer Satya Nadella and Chief Financial Officer Amy Hood provided investors with updates on the company's <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI)</a> and cloud businesses.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> The executives shared increased expenditure expectations to invest in AI and cloud infrastructure, highlighted strong cloud segment growth, and commented on how Copilot stacks up against other AI assistants as Azure AI capacity lags behind demand.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <span class="heading-toc" id="toc-ai-and-cloud-investments-drive-increased-spending"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> AI and Cloud Investments Drive Increased Spending </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Microsoft expects "capital expenditures to increase materially on a sequential basis driven by cloud and AI infrastructure investments," Hood said. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> The CFO said that the company expects capital expenditures to be higher in the 2025 fiscal year than they have been in fiscal 2024, but noted that "these expenditures over the course of the next year are dependent on demand signals and adoption of our services." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Hood noted that Microsoft expects its operating margin to decline "only one point year-over-year, even with [its] significant cloud and AI investments." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The day before Microsoft's earnings call, Meta Platforms (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>) shares <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/meta-spending-plans-sent-stock-tumbling-but-seen-boosting-long-term-ai-leadership-8638994">tumbled</a> after the company announced it would be increasing expenditures to invest in AI.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-despite-ai-hype-cloud-segment-drives-earnings-beat"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-heading__text"> Despite AI Hype, Cloud Segment Drives Earnings Beat </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Since Microsoft has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-becomes-second-company-ever-to-hit-usd3-trillion-market-cap-amid-ai-optimism-8549133">established</a> itself as an early leader in the AI boom with its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-openai-partnership-draws-scrutiny-of-uk-competition-watchdog-8413335">partnership</a> with <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-chatgpt-7094342">ChatGPT</a> maker OpenAI, AI initiatives are top of mind for investors, but the company said cloud strength fueled its third-quarter earnings beat. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Microsoft's cloud revenue was $35.1 billion for the quarter, representing 23% growth versus the same period a year prior. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> When talking Azure growth, Lee discussed enterprise customers' migration to optimize their workloads on the cloud platforms, saying, "I know it isn't as exciting as talking about all the AI projects," but Azure "is still really foundational work to allow companies to take advantage of the cost savings" offered by the cloud platform. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> She explained that the workload optimization that Microsoft is seeing customers achieve with Azure is "super important" as "it's critical to customers being able to grow and get value out of that." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <span class="heading-toc" id="toc-copilots-integration-capabilities-make-it-stand-out-from-competition"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> Copilot's Integration Capabilities Make It Stand Out From Competition </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> When asked how Microsoft is thinking about <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-doubles-down-on-ai-with-copilot-expansion-and-vodafone-partnership-8426674">Copilot</a> as rivals come out with AI assistants, Nadella highlighted that the tool's horizontal integration sets it apart as the AI market heats up. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Mircosoft's Copilot has the ability to integrate data from Microsoft's Office offerings as well as other services like ServiceNow (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=now">NOW</a>) and Salesforce (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CRM">CRM</a>), Nadella said, adding that these horizontal tools are "underappreciated for the amount of work they do" helping streamline business processes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Microsoft <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-set-to-roll-out-its-ai-copilot-on-sept-26-7973035">introduced</a> Copilot in 2023 and later <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/microsoft-announces-usd30-ai-subscription-doubles-down-on-ai-partnerships-7562505">announced</a> a paid subscription service. Nadella reported that the company has more than 350,000 paid customers.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-azure-ai-demand-exceeds-supply"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> Azure AI Demand Exceeds Supply </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Microsoft said that demand for Azure AI, a service that helps enterprise customers develop AI applications, is higher than the company's capacity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> "Currently, near-term AI demand is a bit higher than [Microsoft's] available capacity," Hood said, later clarifying that this imbalance is in the Azure segment, not Copilot. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> She said it is "fair to say" that capacity falling below demand "could have been an impact on the number for the quarter" and is expected to affect the the company in the coming quarter.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Microsoft shares gained around 4.4% to $416.65 in after-hours trading on Thursday.<br> </br></p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

After Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) reported [earnings for the third quarter](https://www.investopedia.com/microsoft-q3-fy-2024-earnings-8639160) of the 2024 fiscal year that beat analysts' estimates, Chief Executive Officer Satya Nadella and Chief Financial Officer Amy Hood provided investors with updates on the company's [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) and cloud businesses. The executives shared increased expenditure expectations to invest in AI and cloud infrastructure, highlighted strong cloud segment growth, and commented on how Copilot stacks up against other AI assistants as Azure AI capacity lags behind demand. ## AI and Cloud Investments Drive Increased Spending Microsoft expects "capital expenditures to increase materially on a sequential basis driven by cloud and AI infrastructure investments," Hood said. The CFO said that the company expects capital expenditures to be higher in the 2025 fiscal year than they have been in fiscal 2024, but noted that "these expenditures over the course of the next year are dependent on demand signals and adoption of our services." Hood noted that Microsoft expects its operating margin to decline "only one point year-over-year, even with [its] significant cloud and AI investments." The day before Microsoft's earnings call, Meta Platforms ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)) shares [tumbled](https://www.investopedia.com/meta-spending-plans-sent-stock-tumbling-but-seen-boosting-long-term-ai-leadership-8638994) after the company announced it would be increasing expenditures to invest in AI. ## Despite AI Hype, Cloud Segment Drives Earnings Beat Since Microsoft has [established](https://www.investopedia.com/microsoft-becomes-second-company-ever-to-hit-usd3-trillion-market-cap-amid-ai-optimism-8549133) itself as an early leader in the AI boom with its [partnership](https://www.investopedia.com/microsoft-openai-partnership-draws-scrutiny-of-uk-competition-watchdog-8413335) with [ChatGPT](https://www.investopedia.com/what-is-chatgpt-7094342) maker OpenAI, AI initiatives are top of mind for investors, but the company said cloud strength fueled its third-quarter earnings beat. Microsoft's cloud revenue was $35.1 billion for the quarter, representing 23% growth versus the same period a year prior. When talking Azure growth, Lee discussed enterprise customers' migration to optimize their workloads on the cloud platforms, saying, "I know it isn't as exciting as talking about all the AI projects," but Azure "is still really foundational work to allow companies to take advantage of the cost savings" offered by the cloud platform. She explained that the workload optimization that Microsoft is seeing customers achieve with Azure is "super important" as "it's critical to customers being able to grow and get value out of that." ## Copilot's Integration Capabilities Make It Stand Out From Competition When asked how Microsoft is thinking about [Copilot](https://www.investopedia.com/microsoft-doubles-down-on-ai-with-copilot-expansion-and-vodafone-partnership-8426674) as rivals come out with AI assistants, Nadella highlighted that the tool's horizontal integration sets it apart as the AI market heats up. Mircosoft's Copilot has the ability to integrate data from Microsoft's Office offerings as well as other services like ServiceNow ([NOW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=now)) and Salesforce ([CRM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CRM)), Nadella said, adding that these horizontal tools are "underappreciated for the amount of work they do" helping streamline business processes. Microsoft [introduced](https://www.investopedia.com/microsoft-set-to-roll-out-its-ai-copilot-on-sept-26-7973035) Copilot in 2023 and later [announced](https://www.investopedia.com/microsoft-announces-usd30-ai-subscription-doubles-down-on-ai-partnerships-7562505) a paid subscription service. Nadella reported that the company has more than 350,000 paid customers. ## Azure AI Demand Exceeds Supply Microsoft said that demand for Azure AI, a service that helps enterprise customers develop AI applications, is higher than the company's capacity. "Currently, near-term AI demand is a bit higher than [Microsoft's] available capacity," Hood said, later clarifying that this imbalance is in the Azure segment, not Copilot. She said it is "fair to say" that capacity falling below demand "could have been an impact on the number for the quarter" and is expected to affect the the company in the coming quarter. Microsoft shares gained around 4.4% to $416.65 in after-hours trading on Thursday. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

After Microsoft (MSFT) reported earnings for the third quarter of the 2024 fiscal year that beat analysts' estimates, Chief Executive Officer Satya Nadella and Chief Financial Officer Amy Hood provided investors with updates on the company's artificial intelligence (AI) and cloud businesses. The executives shared increased expenditure expectations to invest in AI and cloud infrastructure, highlighted strong cloud segment growth, and commented on how Copilot stacks up against other AI assistants as Azure AI capacity lags behind demand. AI and Cloud Investments Drive Increased Spending Microsoft expects "capital expenditures to increase materially on a sequential basis driven by cloud and AI infrastructure investments," Hood said. The CFO said that the company expects capital expenditures to be higher in the 2025 fiscal year than they have been in fiscal 2024, but noted that "these expenditures over the course of the next year are dependent on demand signals and adoption of our services." Hood noted that Microsoft expects its operating margin to decline "only one point year-over-year, even with [its] significant cloud and AI investments." The day before Microsoft's earnings call, Meta Platforms (META) shares tumbled after the company announced it would be increasing expenditures to invest in AI. Despite AI Hype, Cloud Segment Drives Earnings Beat Since Microsoft has established itself as an early leader in the AI boom with its partnership with ChatGPT maker OpenAI, AI initiatives are top of mind for investors, but the company said cloud strength fueled its third-quarter earnings beat. Microsoft's cloud revenue was $35.1 billion for the quarter, representing 23% growth versus the same period a year prior. When talking Azure growth, Lee discussed enterprise customers' migration to optimize their workloads on the cloud platforms, saying, "I know it isn't as exciting as talking about all the AI projects," but Azure "is still really foundational work to allow companies to take advantage of the cost savings" offered by the cloud platform. She explained that the workload optimization that Microsoft is seeing customers achieve with Azure is "super important" as "it's critical to customers being able to grow and get value out of that." Copilot's Integration Capabilities Make It Stand Out From Competition When asked how Microsoft is thinking about Copilot as rivals come out with AI assistants, Nadella highlighted that the tool's horizontal integration sets it apart as the AI market heats up. Mircosoft's Copilot has the ability to integrate data from Microsoft's Office offerings as well as other services like ServiceNow (NOW) and Salesforce (CRM), Nadella said, adding that these horizontal tools are "underappreciated for the amount of work they do" helping streamline business processes. Microsoft introduced Copilot in 2023 and later announced a paid subscription service. Nadella reported that the company has more than 350,000 paid customers. Azure AI Demand Exceeds Supply Microsoft said that demand for Azure AI, a service that helps enterprise customers develop AI applications, is higher than the company's capacity. "Currently, near-term AI demand is a bit higher than [Microsoft's] available capacity," Hood said, later clarifying that this imbalance is in the Azure segment, not Copilot. She said it is "fair to say" that capacity falling below demand "could have been an impact on the number for the quarter" and is expected to affect the the company in the coming quarter. Microsoft shares gained around 4.4% to $416.65 in after-hours trading on Thursday. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/terms/e/edgar.asp

Electronic Data Gathering Analysis and Retrieval: Overview, FAQ

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-electronic-data-gathering-analysis-and-retrieval-edgar"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Electronic Data Gathering, Analysis and Retrieval (EDGAR)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> EDGAR—Electronic Data Gathering, Analysis, and Retrieval—is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/efile.asp">electronic filing</a> system created by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission</a> to increase the efficiency and accessibility of corporate filings. The system is used by all publicly traded companies when submitting required documents to the SEC. Corporate documents are time-sensitive, and the creation of EDGAR has greatly decreased the time it takes for corporate documents to become publicly available. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Electronic Data Gathering, Analysis, and Retrieval (EDGAR) is an online database of public filings maintained by the Securities and Exchange Commission.</li><li>Under the Securities Act of 1933, public companies are required to disclose certain information to the public.</li><li>In addition to equity information, EDGAR can also be used to search the public filings of mutual funds, variable insurance products, or other types of securities.</li><li>EDGAR was launched in 1992, but electronic filings did not become mandatory until 1995.</li><li>Today, EDGAR can be used to find annual or quarterly reports for public companies as far back as 1995 or even 1994.</li></ul><p><br/></p></div></div></div> <span class="heading-toc" id="toc-understanding-edgar"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding EDGAR </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Under the Securities Act of 1933, public companies are required to publish their financial data every three months. Although this information was theoretically available to all investors, it was difficult to access in the age of paper communication. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The SEC began developing an electronic reporting system in the early 1980s, launching the first pilot in 1984. The first operational EDGAR system was launched in 1992, but electronic reporting was still voluntary at that time. Beginning in 1993, the commission began to phase in the requirement for electronic filing.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Corporate documents filed with the SEC through EDGAR include annual and quarterly statements, information on the holdings of institutional investors, and many other forms. These filings include some of the most important information used by investors and analysts. Some public companies may be exempt from filing if they fall below certain "thresholds."<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/securitiesact1933.asp">Securities Act of 1933</a> requires all public companies to disclose certain financial data. EDGAR makes this information more accessible to retail investors.</p></div></div></div> <span class="heading-toc" id="toc-using-the-edgar-system"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Using the EDGAR System </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> EDGAR consists of a searchable database with more than twenty years of electronic filings. Users can search the database in the same manner as an online search, using either the name of a company or individual. Search results can be further narrowed down by date, location of the company's executive offices, or the type of file sought.<span class="ql-inline-citation" data-cite="2"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> In addition to company data, EDGAR can also be used to research mutual funds, variable insurance products, or confidential treatment orders. These are orders that restrict access to data that is otherwise required to be filed.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-edgar"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of EDGAR </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> A drawback of the EDGAR system is that the filings are highly stripped down and often difficult to read compared to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/annualreport.asp">annual reports</a> received by shareholders. All the information is contained in the filings, but details can be difficult to find in one huge text file. However, the information is always structured in the same way regardless of which company filed the information. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> For example, if an analyst is interested in knowing if a company made any changes to its accounting methods, the investor will find that information in Part II, Item 9, in the annual report (or <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/10-k.asp">10-K</a>). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Due to increased access to the Internet, most of the reports on EDGAR can be found on the websites of the company that reported them. This can be an easier user experience than the EDGAR database, where users might have to sift through many reports by similarly-named companies in order to find the document they want. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_27-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_28-0"> <h3 class="mntl-sc-block__comparison-list-heading mntl-sc-block-comparisonlist__comparison-list-heading">Pros and Cons of EDGAR</h3> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Provides a single repository for public filings.</p></li> <li><p>Allows easy access to 20+ years of corporate financial data, as well as mutual funds and variable investment products.</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Search function can be clumsy, and cluttered with similar-sounding companies.</p></li> <li><p>It may be easier to find reports on the webpage of the reporting company.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-documents-that-can-be-accessed-from-edgar"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> Documents That Can Be Accessed From EDGAR </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Documents that are accessed using EDGAR and filed with the SEC include quarterly and annual corporate reports and financial statements. Annual Reports (Form 10-K) include<strong> </strong>company history, audited financial statements, a description of products and services, and an annual review of the organization, its operations, and the company’s markets. Quarterly Reports (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/10q.asp">Form 10-Q</a>) include unaudited financial statements and information about the company’s operations in the previous three months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_33-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_34-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Documents filed before 1995 may not be available on EDGAR but can be requested through the Freedom of Information Act.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Other reports that are often searched by investors are Registration Statements, which are required before stock can be sold to the public; Form <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/8-k.asp">8-K</a>, which discloses notable events such as bankruptcy; Forms 3 and 4, which contain ownership information; and Form 5, which reports transactions not reported on <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/form4.asp">Form 4</a>.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-how-far-back-does-the-edgar-database-go"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Far Back Does the EDGAR Database Go?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>EDGAR documents are available as far back as 1995 or 1994. Paper filings from earlier dates may be available through the Freedom of Information Act.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_39-0"><span class="heading-toc" id="toc-how-did-hackers-access-edgar"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Did Hackers Access EDGAR?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In 2016, a Ukrainian hacker used stolen login credentials to access filings on the EDGAR system that had not yet been released. This information was then passed on to traders, who were able to trade on the advance knowledge of company reporting figures before they were published.<span class="ql-inline-citation" data-cite="3"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_41-0"><span class="heading-toc" id="toc-what-is-edgar-filer-management"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is EDGAR Filer Management?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Edgar Filer Management is a portal for companies and individuals who wish to submit electronic filings to the SEC. This is more complicated than searching the EDGAR database, and it requires Filers to submit a Form ID for authorization in order to create an access code.<span class="ql-inline-citation" data-cite="4"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_43-0"><span class="heading-toc" id="toc-how-do-you-find-a-proxy-document-in-the-edgar-database"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Find a Proxy Document in the EDGAR Database?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One can find a proxy filing, or any other public filing, by searching the EDGAR database by company name. The search results may need to be refined with additional specifications like filing date or category. Proxy statements are filed under form 14K.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-what-is-the-canadian-version-of-edgar"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Canadian Version of EDGAR?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sedar.asp">System for Electronic Document Analysis and Retrieval (SEDAR)</a> is an electronic reporting tool used by Canadian public companies and securities issuers. This is the Canadian equivalent to EDGAR, maintained by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/csa.asp">Canadian Securities Authority</a> (CSA).</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> EDGAR is a convenient way to access the electronic reports of any public company in the United States. However, the search function can be clumsy, and it is far from intuitive. In the age of the Internet, much of this data can be found just as easily on a company webpage. </p></div>

## What Is Electronic Data Gathering, Analysis and Retrieval (EDGAR)? EDGAR—Electronic Data Gathering, Analysis, and Retrieval—is the [electronic filing](https://www.investopedia.com/terms/e/efile.asp) system created by the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) to increase the efficiency and accessibility of corporate filings. The system is used by all publicly traded companies when submitting required documents to the SEC. Corporate documents are time-sensitive, and the creation of EDGAR has greatly decreased the time it takes for corporate documents to become publicly available. ### Key Takeaways * Electronic Data Gathering, Analysis, and Retrieval (EDGAR) is an online database of public filings maintained by the Securities and Exchange Commission. * Under the Securities Act of 1933, public companies are required to disclose certain information to the public. * In addition to equity information, EDGAR can also be used to search the public filings of mutual funds, variable insurance products, or other types of securities. * EDGAR was launched in 1992, but electronic filings did not become mandatory until 1995. * Today, EDGAR can be used to find annual or quarterly reports for public companies as far back as 1995 or even 1994. ## Understanding EDGAR Under the Securities Act of 1933, public companies are required to publish their financial data every three months. Although this information was theoretically available to all investors, it was difficult to access in the age of paper communication. The SEC began developing an electronic reporting system in the early 1980s, launching the first pilot in 1984. The first operational EDGAR system was launched in 1992, but electronic reporting was still voluntary at that time. Beginning in 1993, the commission began to phase in the requirement for electronic filing. Corporate documents filed with the SEC through EDGAR include annual and quarterly statements, information on the holdings of institutional investors, and many other forms. These filings include some of the most important information used by investors and analysts. Some public companies may be exempt from filing if they fall below certain "thresholds." ### The [Securities Act of 1933](https://www.investopedia.com/terms/s/securitiesact1933.asp) requires all public companies to disclose certain financial data. EDGAR makes this information more accessible to retail investors. ## Using the EDGAR System EDGAR consists of a searchable database with more than twenty years of electronic filings. Users can search the database in the same manner as an online search, using either the name of a company or individual. Search results can be further narrowed down by date, location of the company's executive offices, or the type of file sought. In addition to company data, EDGAR can also be used to research mutual funds, variable insurance products, or confidential treatment orders. These are orders that restrict access to data that is otherwise required to be filed. ## Advantages and Disadvantages of EDGAR A drawback of the EDGAR system is that the filings are highly stripped down and often difficult to read compared to [annual reports](https://www.investopedia.com/terms/a/annualreport.asp) received by shareholders. All the information is contained in the filings, but details can be difficult to find in one huge text file. However, the information is always structured in the same way regardless of which company filed the information. For example, if an analyst is interested in knowing if a company made any changes to its accounting methods, the investor will find that information in Part II, Item 9, in the annual report (or [10-K](https://www.investopedia.com/terms/1/10-k.asp)). Due to increased access to the Internet, most of the reports on EDGAR can be found on the websites of the company that reported them. This can be an easier user experience than the EDGAR database, where users might have to sift through many reports by similarly-named companies in order to find the document they want. ### Pros and Cons of EDGAR Pros * Provides a single repository for public filings. * Allows easy access to 20+ years of corporate financial data, as well as mutual funds and variable investment products. Cons * Search function can be clumsy, and cluttered with similar-sounding companies. * It may be easier to find reports on the webpage of the reporting company. ## Documents That Can Be Accessed From EDGAR Documents that are accessed using EDGAR and filed with the SEC include quarterly and annual corporate reports and financial statements. Annual Reports (Form 10-K) includecompany history, audited financial statements, a description of products and services, and an annual review of the organization, its operations, and the company’s markets. Quarterly Reports ([Form 10-Q](https://www.investopedia.com/terms/1/10q.asp)) include unaudited financial statements and information about the company’s operations in the previous three months. ### Documents filed before 1995 may not be available on EDGAR but can be requested through the Freedom of Information Act. Other reports that are often searched by investors are Registration Statements, which are required before stock can be sold to the public; Form [8-K](https://www.investopedia.com/terms/1/8-k.asp), which discloses notable events such as bankruptcy; Forms 3 and 4, which contain ownership information; and Form 5, which reports transactions not reported on [Form 4](https://www.investopedia.com/terms/f/form4.asp). ## How Far Back Does the EDGAR Database Go? EDGAR documents are available as far back as 1995 or 1994. Paper filings from earlier dates may be available through the Freedom of Information Act. ## How Did Hackers Access EDGAR? In 2016, a Ukrainian hacker used stolen login credentials to access filings on the EDGAR system that had not yet been released. This information was then passed on to traders, who were able to trade on the advance knowledge of company reporting figures before they were published. ## What Is EDGAR Filer Management? Edgar Filer Management is a portal for companies and individuals who wish to submit electronic filings to the SEC. This is more complicated than searching the EDGAR database, and it requires Filers to submit a Form ID for authorization in order to create an access code. ## How Do You Find a Proxy Document in the EDGAR Database? One can find a proxy filing, or any other public filing, by searching the EDGAR database by company name. The search results may need to be refined with additional specifications like filing date or category. Proxy statements are filed under form 14K. ## What Is the Canadian Version of EDGAR? The [System for Electronic Document Analysis and Retrieval (SEDAR)](https://www.investopedia.com/terms/s/sedar.asp) is an electronic reporting tool used by Canadian public companies and securities issuers. This is the Canadian equivalent to EDGAR, maintained by the [Canadian Securities Authority](https://www.investopedia.com/terms/c/csa.asp) (CSA). ## The Bottom Line EDGAR is a convenient way to access the electronic reports of any public company in the United States. However, the search function can be clumsy, and it is far from intuitive. In the age of the Internet, much of this data can be found just as easily on a company webpage.

What Is Electronic Data Gathering, Analysis and Retrieval (EDGAR)? EDGAR—Electronic Data Gathering, Analysis, and Retrieval—is the electronic filing system created by the Securities and Exchange Commission to increase the efficiency and accessibility of corporate filings. The system is used by all publicly traded companies when submitting required documents to the SEC. Corporate documents are time-sensitive, and the creation of EDGAR has greatly decreased the time it takes for corporate documents to become publicly available. Key Takeaways Electronic Data Gathering, Analysis, and Retrieval (EDGAR) is an online database of public filings maintained by the Securities and Exchange Commission.Under the Securities Act of 1933, public companies are required to disclose certain information to the public.In addition to equity information, EDGAR can also be used to search the public filings of mutual funds, variable insurance products, or other types of securities.EDGAR was launched in 1992, but electronic filings did not become mandatory until 1995.Today, EDGAR can be used to find annual or quarterly reports for public companies as far back as 1995 or even 1994. Understanding EDGAR Under the Securities Act of 1933, public companies are required to publish their financial data every three months. Although this information was theoretically available to all investors, it was difficult to access in the age of paper communication. The SEC began developing an electronic reporting system in the early 1980s, launching the first pilot in 1984. The first operational EDGAR system was launched in 1992, but electronic reporting was still voluntary at that time. Beginning in 1993, the commission began to phase in the requirement for electronic filing. Corporate documents filed with the SEC through EDGAR include annual and quarterly statements, information on the holdings of institutional investors, and many other forms. These filings include some of the most important information used by investors and analysts. Some public companies may be exempt from filing if they fall below certain "thresholds." The Securities Act of 1933 requires all public companies to disclose certain financial data. EDGAR makes this information more accessible to retail investors. Using the EDGAR System EDGAR consists of a searchable database with more than twenty years of electronic filings. Users can search the database in the same manner as an online search, using either the name of a company or individual. Search results can be further narrowed down by date, location of the company's executive offices, or the type of file sought. In addition to company data, EDGAR can also be used to research mutual funds, variable insurance products, or confidential treatment orders. These are orders that restrict access to data that is otherwise required to be filed. Advantages and Disadvantages of EDGAR A drawback of the EDGAR system is that the filings are highly stripped down and often difficult to read compared to annual reports received by shareholders. All the information is contained in the filings, but details can be difficult to find in one huge text file. However, the information is always structured in the same way regardless of which company filed the information. For example, if an analyst is interested in knowing if a company made any changes to its accounting methods, the investor will find that information in Part II, Item 9, in the annual report (or 10-K). Due to increased access to the Internet, most of the reports on EDGAR can be found on the websites of the company that reported them. This can be an easier user experience than the EDGAR database, where users might have to sift through many reports by similarly-named companies in order to find the document they want. Pros and Cons of EDGAR Pros Provides a single repository for public filings. Allows easy access to 20+ years of corporate financial data, as well as mutual funds and variable investment products. Cons Search function can be clumsy, and cluttered with similar-sounding companies. It may be easier to find reports on the webpage of the reporting company. Documents That Can Be Accessed From EDGAR Documents that are accessed using EDGAR and filed with the SEC include quarterly and annual corporate reports and financial statements. Annual Reports (Form 10-K) include company history, audited financial statements, a description of products and services, and an annual review of the organization, its operations, and the company’s markets. Quarterly Reports (Form 10-Q) include unaudited financial statements and information about the company’s operations in the previous three months. Documents filed before 1995 may not be available on EDGAR but can be requested through the Freedom of Information Act. Other reports that are often searched by investors are Registration Statements, which are required before stock can be sold to the public; Form 8-K, which discloses notable events such as bankruptcy; Forms 3 and 4, which contain ownership information; and Form 5, which reports transactions not reported on Form 4. How Far Back Does the EDGAR Database Go? EDGAR documents are available as far back as 1995 or 1994. Paper filings from earlier dates may be available through the Freedom of Information Act. How Did Hackers Access EDGAR? In 2016, a Ukrainian hacker used stolen login credentials to access filings on the EDGAR system that had not yet been released. This information was then passed on to traders, who were able to trade on the advance knowledge of company reporting figures before they were published. What Is EDGAR Filer Management? Edgar Filer Management is a portal for companies and individuals who wish to submit electronic filings to the SEC. This is more complicated than searching the EDGAR database, and it requires Filers to submit a Form ID for authorization in order to create an access code. How Do You Find a Proxy Document in the EDGAR Database? One can find a proxy filing, or any other public filing, by searching the EDGAR database by company name. The search results may need to be refined with additional specifications like filing date or category. Proxy statements are filed under form 14K. What Is the Canadian Version of EDGAR? The System for Electronic Document Analysis and Retrieval (SEDAR) is an electronic reporting tool used by Canadian public companies and securities issuers. This is the Canadian equivalent to EDGAR, maintained by the Canadian Securities Authority (CSA). The Bottom Line EDGAR is a convenient way to access the electronic reports of any public company in the United States. However, the search function can be clumsy, and it is far from intuitive. In the age of the Internet, much of this data can be found just as easily on a company webpage.

https://www.investopedia.com/terms/a/asset_backed_commercial_paper.asp

Asset-Backed Commercial Paper (ABCP): Definition and Uses

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-an-asset-backed-commercial-paper-abcp"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is an Asset-Backed Commercial Paper (ABCP)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> An asset-backed commercial paper (ABCP) is a short-term investment vehicle with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturitydate.asp">maturity date</a> that is typically between 90 and 270 days. A bank or other financial institution typically issues the security itself. The notes are backed by the company's physical assets such as trade receivables. Companies will use an asset-backed commercial paper to fund short-term financing needs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>An asset-backed commercial paper (ABCP) is a type of short-term investment with a maturity date of no more than 270 days.</li><li>A bank, financial institution, or large corporation typically issues ABCPs, which are notes backed by collateral.</li><li>The collateral often consists of the corporation's expected future payments or receivables.</li><li>These receivables might include payments the corporation expects to collect from loans it has made, such as auto loans, credit card debt, student loans, or residential mortgages.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-asset-backed-commercial-paper-abcp"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Asset-Backed Commercial Paper (ABCP) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Asset-backed commercial paper (ABCP) is a short-term money-market security that is issued by a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spv.asp">special purpose vehicle</a> (SPV) or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conduit-issuer.asp">conduit</a>, which is set up by a sponsoring financial institution. The maturity date of an ABCP is set at no more than 270 days and issued either on an interest-bearing or discount basis. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The note is backed by the corporation's collateral, which might include future payments to be made on credit cards, auto loans, student loans, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cdo.asp">collateralized debt obligations</a> (CDOs). These expected payments are collectively known as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accountsreceivable.asp">accounts receivables</a>. The proceeds of an ABCP issue is used primarily to obtain interests in various types of assets, either through asset purchase or secured lending transactions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>A company can create an ABCP from any type of asset-backed security, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subprime_mortgage.asp">subprime mortgages</a>, which are high-risk mortgages that were one of the main catalysts of the 2008 financial crisis.</p></div></div></div> <span class="heading-toc" id="toc-commercial-paper-cp-vs-asset-backed-commercial-paper-abcp"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Commercial Paper (CP) vs. Asset-Backed Commercial Paper (ABCP) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The primary difference between commercial paper (CP) and asset-backed commercial paper (ABCP) is that commercial paper is not backed by assets. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commercialpaper.asp">Commercial paper</a> (CP) is a money market security issued by large corporations to raise money to meet short-term obligations. With a fixed maturity of less than one year, the commercial paper acts as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/promissorynote.asp">promissory note</a> that is backed only by the high credit rating of the issuing company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Investors purchase the commercial paper <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/at-a-discount.asp">at a discount</a> to face value and are repaid the full <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/facevalue.asp">face value</a> of the security at maturity. Since standard commercial papers are not backed by collateral, only firms with excellent credit ratings from a recognized credit rating agency will be able to sell commercial papers at a reasonable price. A type of commercial paper that is backed by other financial assets is called an asset-backed commercial paper. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> A company or bank looking to enhance <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a> may sell receivables to an SPV or other conduits, which, in turn, will issue them to its investors as asset-backed commercial paper. The ABCP is backed by the expected cash inflows from the receivables. As the receivables are collected, the originators are expected to pass the funds to the conduit, which is responsible for disbursing the funds generated by the receivables to the ABCP noteholders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-abcp-interest-payments"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> ABCP Interest Payments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> During the life of the investment, the sponsoring financial institution that set up the conduit is responsible for monitoring developments that could affect the performance and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditquality.asp">credit quality</a> of the assets in the SPV. The sponsor ensures that ABCP investors receive their interest payments and principal repayments when the security matures. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The interest payments made to ABCP investors originate from the pool of assets backing the security, e.g., monthly car loan payments. When the collateralized paper matures, the investor receives a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal payment</a> that is funded either from the collection of the credit’s assets, from the issuance of new ABCP, or by accessing the credit’s liquidity facility. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_25-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> While most ABCP programs issue commercial paper as their primary liability, funding sources have been extensively diversified lately to include other types of debt. This includes <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mtn.asp">medium-term notes</a> (MTNs), extendible commercial paper, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subordinateddebt.asp">subordinated debt</a> to provide credit enhancement. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> One significant concern about ABCPs and related investments stems from the possibility of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidityrisk.asp">liquidity risk</a>. If the market value of the underlying assets decreases, then the safety and value of the ABCP might also suffer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> It's important for ABCP investors to understand the composition of the underlying assets and how the value of those assets might be impacted by market stresses, such as a downturn in the economy. The inability in some circumstances for investors to sell their investments quickly to minimize losses is just one of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/bonds/08/commercial-paper.asp">risks associated with asset-backed commercial paper</a>. </p></div>

## What Is an Asset-Backed Commercial Paper (ABCP)? An asset-backed commercial paper (ABCP) is a short-term investment vehicle with a [maturity date](https://www.investopedia.com/terms/m/maturitydate.asp) that is typically between 90 and 270 days. A bank or other financial institution typically issues the security itself. The notes are backed by the company's physical assets such as trade receivables. Companies will use an asset-backed commercial paper to fund short-term financing needs. ### Key Takeaways * An asset-backed commercial paper (ABCP) is a type of short-term investment with a maturity date of no more than 270 days. * A bank, financial institution, or large corporation typically issues ABCPs, which are notes backed by collateral. * The collateral often consists of the corporation's expected future payments or receivables. * These receivables might include payments the corporation expects to collect from loans it has made, such as auto loans, credit card debt, student loans, or residential mortgages. ## Understanding Asset-Backed Commercial Paper (ABCP) Asset-backed commercial paper (ABCP) is a short-term money-market security that is issued by a [special purpose vehicle](https://www.investopedia.com/terms/s/spv.asp) (SPV) or [conduit](https://www.investopedia.com/terms/c/conduit-issuer.asp), which is set up by a sponsoring financial institution. The maturity date of an ABCP is set at no more than 270 days and issued either on an interest-bearing or discount basis. The note is backed by the corporation's collateral, which might include future payments to be made on credit cards, auto loans, student loans, and [collateralized debt obligations](https://www.investopedia.com/terms/c/cdo.asp) (CDOs). These expected payments are collectively known as [accounts receivables](https://www.investopedia.com/terms/a/accountsreceivable.asp). The proceeds of an ABCP issue is used primarily to obtain interests in various types of assets, either through asset purchase or secured lending transactions. ### A company can create an ABCP from any type of asset-backed security, including [subprime mortgages](https://www.investopedia.com/terms/s/subprime_mortgage.asp), which are high-risk mortgages that were one of the main catalysts of the 2008 financial crisis. ## Commercial Paper (CP) vs. Asset-Backed Commercial Paper (ABCP) The primary difference between commercial paper (CP) and asset-backed commercial paper (ABCP) is that commercial paper is not backed by assets. [Commercial paper](https://www.investopedia.com/terms/c/commercialpaper.asp) (CP) is a money market security issued by large corporations to raise money to meet short-term obligations. With a fixed maturity of less than one year, the commercial paper acts as a [promissory note](https://www.investopedia.com/terms/p/promissorynote.asp) that is backed only by the high credit rating of the issuing company. Investors purchase the commercial paper [at a discount](https://www.investopedia.com/terms/a/at-a-discount.asp) to face value and are repaid the full [face value](https://www.investopedia.com/terms/f/facevalue.asp) of the security at maturity. Since standard commercial papers are not backed by collateral, only firms with excellent credit ratings from a recognized credit rating agency will be able to sell commercial papers at a reasonable price. A type of commercial paper that is backed by other financial assets is called an asset-backed commercial paper. A company or bank looking to enhance [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) may sell receivables to an SPV or other conduits, which, in turn, will issue them to its investors as asset-backed commercial paper. The ABCP is backed by the expected cash inflows from the receivables. As the receivables are collected, the originators are expected to pass the funds to the conduit, which is responsible for disbursing the funds generated by the receivables to the ABCP noteholders. ## ABCP Interest Payments During the life of the investment, the sponsoring financial institution that set up the conduit is responsible for monitoring developments that could affect the performance and [credit quality](https://www.investopedia.com/terms/c/creditquality.asp) of the assets in the SPV. The sponsor ensures that ABCP investors receive their interest payments and principal repayments when the security matures. The interest payments made to ABCP investors originate from the pool of assets backing the security, e.g., monthly car loan payments. When the collateralized paper matures, the investor receives a [principal payment](https://www.investopedia.com/terms/p/principal.asp) that is funded either from the collection of the credit’s assets, from the issuance of new ABCP, or by accessing the credit’s liquidity facility. ## Special Considerations While most ABCP programs issue commercial paper as their primary liability, funding sources have been extensively diversified lately to include other types of debt. This includes [medium-term notes](https://www.investopedia.com/terms/m/mtn.asp) (MTNs), extendible commercial paper, and [subordinated debt](https://www.investopedia.com/terms/s/subordinateddebt.asp) to provide credit enhancement. One significant concern about ABCPs and related investments stems from the possibility of [liquidity risk](https://www.investopedia.com/terms/l/liquidityrisk.asp). If the market value of the underlying assets decreases, then the safety and value of the ABCP might also suffer. It's important for ABCP investors to understand the composition of the underlying assets and how the value of those assets might be impacted by market stresses, such as a downturn in the economy. The inability in some circumstances for investors to sell their investments quickly to minimize losses is just one of the [risks associated with asset-backed commercial paper](https://www.investopedia.com/articles/bonds/08/commercial-paper.asp).

What Is an Asset-Backed Commercial Paper (ABCP)? An asset-backed commercial paper (ABCP) is a short-term investment vehicle with a maturity date that is typically between 90 and 270 days. A bank or other financial institution typically issues the security itself. The notes are backed by the company's physical assets such as trade receivables. Companies will use an asset-backed commercial paper to fund short-term financing needs. Key Takeaways An asset-backed commercial paper (ABCP) is a type of short-term investment with a maturity date of no more than 270 days.A bank, financial institution, or large corporation typically issues ABCPs, which are notes backed by collateral.The collateral often consists of the corporation's expected future payments or receivables.These receivables might include payments the corporation expects to collect from loans it has made, such as auto loans, credit card debt, student loans, or residential mortgages. Understanding Asset-Backed Commercial Paper (ABCP) Asset-backed commercial paper (ABCP) is a short-term money-market security that is issued by a special purpose vehicle (SPV) or conduit, which is set up by a sponsoring financial institution. The maturity date of an ABCP is set at no more than 270 days and issued either on an interest-bearing or discount basis. The note is backed by the corporation's collateral, which might include future payments to be made on credit cards, auto loans, student loans, and collateralized debt obligations (CDOs). These expected payments are collectively known as accounts receivables. The proceeds of an ABCP issue is used primarily to obtain interests in various types of assets, either through asset purchase or secured lending transactions. A company can create an ABCP from any type of asset-backed security, including subprime mortgages, which are high-risk mortgages that were one of the main catalysts of the 2008 financial crisis. Commercial Paper (CP) vs. Asset-Backed Commercial Paper (ABCP) The primary difference between commercial paper (CP) and asset-backed commercial paper (ABCP) is that commercial paper is not backed by assets. Commercial paper (CP) is a money market security issued by large corporations to raise money to meet short-term obligations. With a fixed maturity of less than one year, the commercial paper acts as a promissory note that is backed only by the high credit rating of the issuing company. Investors purchase the commercial paper at a discount to face value and are repaid the full face value of the security at maturity. Since standard commercial papers are not backed by collateral, only firms with excellent credit ratings from a recognized credit rating agency will be able to sell commercial papers at a reasonable price. A type of commercial paper that is backed by other financial assets is called an asset-backed commercial paper. A company or bank looking to enhance liquidity may sell receivables to an SPV or other conduits, which, in turn, will issue them to its investors as asset-backed commercial paper. The ABCP is backed by the expected cash inflows from the receivables. As the receivables are collected, the originators are expected to pass the funds to the conduit, which is responsible for disbursing the funds generated by the receivables to the ABCP noteholders. ABCP Interest Payments During the life of the investment, the sponsoring financial institution that set up the conduit is responsible for monitoring developments that could affect the performance and credit quality of the assets in the SPV. The sponsor ensures that ABCP investors receive their interest payments and principal repayments when the security matures. The interest payments made to ABCP investors originate from the pool of assets backing the security, e.g., monthly car loan payments. When the collateralized paper matures, the investor receives a principal payment that is funded either from the collection of the credit’s assets, from the issuance of new ABCP, or by accessing the credit’s liquidity facility. Special Considerations While most ABCP programs issue commercial paper as their primary liability, funding sources have been extensively diversified lately to include other types of debt. This includes medium-term notes (MTNs), extendible commercial paper, and subordinated debt to provide credit enhancement. One significant concern about ABCPs and related investments stems from the possibility of liquidity risk. If the market value of the underlying assets decreases, then the safety and value of the ABCP might also suffer. It's important for ABCP investors to understand the composition of the underlying assets and how the value of those assets might be impacted by market stresses, such as a downturn in the economy. The inability in some circumstances for investors to sell their investments quickly to minimize losses is just one of the risks associated with asset-backed commercial paper.

https://www.investopedia.com/terms/m/markowitzefficientset.asp

Markowitz Efficient Set: Meaning, Implementation, Diversification

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The Markowitz efficient set, also known as the efficient frontier, is a fundamental part of modern portfolio theory (MPT), developed by future Nobel laureate Harry Markowitz in 1952. It presents a set of portfolios with the highest expected returns for a given level of risk or, alternatively, the lowest risk for a certain amount of expected returns. At its heart, it seeks to answer basic questions facing any investor: how much in returns can I expect if I don’t want too much risk? And if I increase my risk tolerance, how much more in returns might I get? The portfolios in the Markowitz set are efficient because they offer, mathematically, the best balance of risk and reward. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_3-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Markowitz efficient set was developed by economist Harry Markowitz in 1952.</li><li>The goal of using the Markowitz efficient set is to maximize the returns of a portfolio for a given level of risk.</li><li>The efficient solution to a portfolio can be plotted on the Markowitz efficient frontier, giving a range of risk and reward values to choose from.</li><li>The efficient frontier is represented with returns on the Y-axis and risk on the X-axis.</li><li>The Markowitz efficient set highlights the diversification of assets in a portfolio, which lowers the portfolio's risk.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-markowitz-efficient-set"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Understanding the Markowitz Efficient Set </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Harry Markowitz (1927-2023), the Nobel Prize-winning economist, is considered a founder of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/modernportfoliotheory.asp">MPT</a>. His article, “Portfolio Selection,” in the <em>Journal of Finance</em> in 1952, took up the challenge of showing how the returns of a group of investments in a portfolio are linked to risk, along with concepts like variance and covariance used to measure potential risk and returns.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Markowitz noted that investors focus on two things: risk and return. He thought that investors choose among options that optimally balance the two. Some seek the highest returns and thus will take on more risk; others can’t afford such risk and thus are willing to stomach less in potential returns.<span class="ql-inline-citation" data-cite="2"></span> The best combination of investments in a portfolio can be charted along the “efficient frontier,” essentially a line on a graph that shows the highest possible returns you can expect from a portfolio for a specific level of risk.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-implementing-the-markowitz-efficient-set"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Implementing the Markowitz Efficient Set </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Because different combinations of assets have different levels of potential returns, the Markowitz efficient set is meant to show the best combinations to maximize returns at a chosen risk level.<span class="ql-inline-citation" data-cite="3"></span> In this way, the Markowitz efficient set reveals how returns vary given the amount of risk assumed. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The Markowitz efficient set is represented on a graph with returns on the Y-axis and risk (standard deviation) on the X-axis. The efficient set lies along the frontier line, representing that the higher the risk, the greater the potential returns. The task is to construct a set of portfolios to yield the highest returns at a given level of risk. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Individuals have different levels of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risktolerance.asp">risk tolerance</a>: some might stomach quite a bit of risk if it means greater rewards, while others are unwilling to take such chances. Moreover, you can’t assume you will be automatically rewarded with extra returns if you take greater risk. The set becomes inefficient when returns decrease at greater levels of risk. Once the risk reaches a certain point, there’s no increase in potential rewards (at one extreme, using your portfolio for lottery tickets), just as at the other end, once the risk gets so low, there’s no potential return (at the other extreme, keeping your money under your mattress).<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-diversification-in-the-markowitz-efficient-set"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Diversification in the Markowitz Efficient Set </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> At the core of a Markowitz efficient set is diversification of assets, which lowers portfolio risk.<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp"><span class="ql-inline-citation" data-cite="4"></span> Diversification</a> is the strategy of spreading investments across various types of assets to reduce the overall risk in your portfolio. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> MPT is premised on the idea that different assets react differently to the same market conditions. Diversification is at the heart of MPT because it means you can take advantage of the returns volatile sectors offer if you wish, but you should keep that balanced with other kinds of assets that won’t react the same way.<span class="ql-inline-citation" data-cite="1"></span> Some assets tend to move in the same direction, increasing or decreasing in value together (e.g., stocks in the same sector), while others tend to go in opposite directions (e.g., the value of gold and the U.S. dollar).<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The relationship between how two assets move in relation to each other is measured by covariance. When assets have a lower covariance, they are more likely to move in the opposite direction, which lowers the risk of the portfolio. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Variance, meanwhile, measures how much an investment’s returns differ from their average over time, indicating their risk.<span class="ql-inline-citation" data-cite="5"></span> High variance means your asset’s returns can fluctuate significantly, bringing greater risk, while lower variance suggests you’ll have more stable, predictable returns.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Given these principles, the efficient frontier of the Markowitz efficient set is curved, not straight, since these assets don’t move all in the same direction in the same market conditions.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_28-0"><span class="heading-toc" id="toc-what-is-an-efficient-set-portfolio"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is an Efficient Set Portfolio?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An efficient set portfolio is an investment portfolio that delivers the greatest expected return for a given level of risk. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cagr.asp">Compound annual growth rates</a> are commonly used as the return component and the standard deviation (annualized) is used for the risk metric.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_30-0"><span class="heading-toc" id="toc-what-is-the-difference-between-a-feasible-and-efficient-portfolio"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a Feasible and Efficient Portfolio?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A feasible portfolio is a portfolio that an investor can construct with the assets available, like poker players trying to make the best of the cards they're dealt and only certain poker hands are possible. The Markowitz efficient set, meanwhile, is a portfolio that seeks to maximize returns for a given level of risk.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_32-0"><span class="heading-toc" id="toc-who-is-markowitz"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Is Markowitz?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Harry Markowitz was the creator of the efficient set. He is a Nobel Prize-winning economist and is considered the father of modern portfolio theory. Markowitz’s research highlighted the importance of diversifying assets when investing, a view still widely shared today.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_34-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The Markowitz efficient set is a mathematical concept introduced by Nobel Laureate Harry Markowitz in 1952 to represent the returns of a portfolio for given levels of risk. It is represented on a graph that charts portfolios or investments on a scale of return (y-axis) versus risk (x-axis). Portfolios that are below the efficient frontier are judged unable to provide enough return for the level of risk and vice versa. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> While relatively simple in graphic form, this turned out to be an important invention in finance and investments. The Markowitz efficient set continues to show why diversification is crucial for balancing risk and reward while managing your portfolio. </p></div>

The Markowitz efficient set, also known as the efficient frontier, is a fundamental part of modern portfolio theory (MPT), developed by future Nobel laureate Harry Markowitz in 1952. It presents a set of portfolios with the highest expected returns for a given level of risk or, alternatively, the lowest risk for a certain amount of expected returns. At its heart, it seeks to answer basic questions facing any investor: how much in returns can I expect if I don’t want too much risk? And if I increase my risk tolerance, how much more in returns might I get? The portfolios in the Markowitz set are efficient because they offer, mathematically, the best balance of risk and reward. ### Key Takeaways * The Markowitz efficient set was developed by economist Harry Markowitz in 1952. * The goal of using the Markowitz efficient set is to maximize the returns of a portfolio for a given level of risk. * The efficient solution to a portfolio can be plotted on the Markowitz efficient frontier, giving a range of risk and reward values to choose from. * The efficient frontier is represented with returns on the Y-axis and risk on the X-axis. * The Markowitz efficient set highlights the diversification of assets in a portfolio, which lowers the portfolio's risk. ## Understanding the Markowitz Efficient Set Harry Markowitz (1927-2023), the Nobel Prize-winning economist, is considered a founder of [MPT](https://www.investopedia.com/terms/m/modernportfoliotheory.asp). His article, “Portfolio Selection,” in the *Journal of Finance* in 1952, took up the challenge of showing how the returns of a group of investments in a portfolio are linked to risk, along with concepts like variance and covariance used to measure potential risk and returns. Markowitz noted that investors focus on two things: risk and return. He thought that investors choose among options that optimally balance the two. Some seek the highest returns and thus will take on more risk; others can’t afford such risk and thus are willing to stomach less in potential returns. The best combination of investments in a portfolio can be charted along the “efficient frontier,” essentially a line on a graph that shows the highest possible returns you can expect from a portfolio for a specific level of risk. ## Implementing the Markowitz Efficient Set Because different combinations of assets have different levels of potential returns, the Markowitz efficient set is meant to show the best combinations to maximize returns at a chosen risk level. In this way, the Markowitz efficient set reveals how returns vary given the amount of risk assumed. The Markowitz efficient set is represented on a graph with returns on the Y-axis and risk (standard deviation) on the X-axis. The efficient set lies along the frontier line, representing that the higher the risk, the greater the potential returns. The task is to construct a set of portfolios to yield the highest returns at a given level of risk. Individuals have different levels of [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp): some might stomach quite a bit of risk if it means greater rewards, while others are unwilling to take such chances. Moreover, you can’t assume you will be automatically rewarded with extra returns if you take greater risk. The set becomes inefficient when returns decrease at greater levels of risk. Once the risk reaches a certain point, there’s no increase in potential rewards (at one extreme, using your portfolio for lottery tickets), just as at the other end, once the risk gets so low, there’s no potential return (at the other extreme, keeping your money under your mattress). ## Diversification in the Markowitz Efficient Set At the core of a Markowitz efficient set is diversification of assets, which lowers portfolio risk. [Diversification](https://www.investopedia.com/terms/d/diversification.asp) is the strategy of spreading investments across various types of assets to reduce the overall risk in your portfolio. MPT is premised on the idea that different assets react differently to the same market conditions. Diversification is at the heart of MPT because it means you can take advantage of the returns volatile sectors offer if you wish, but you should keep that balanced with other kinds of assets that won’t react the same way. Some assets tend to move in the same direction, increasing or decreasing in value together (e.g., stocks in the same sector), while others tend to go in opposite directions (e.g., the value of gold and the U.S. dollar). The relationship between how two assets move in relation to each other is measured by covariance. When assets have a lower covariance, they are more likely to move in the opposite direction, which lowers the risk of the portfolio. Variance, meanwhile, measures how much an investment’s returns differ from their average over time, indicating their risk. High variance means your asset’s returns can fluctuate significantly, bringing greater risk, while lower variance suggests you’ll have more stable, predictable returns. Given these principles, the efficient frontier of the Markowitz efficient set is curved, not straight, since these assets don’t move all in the same direction in the same market conditions. ## What Is an Efficient Set Portfolio? An efficient set portfolio is an investment portfolio that delivers the greatest expected return for a given level of risk. [Compound annual growth rates](https://www.investopedia.com/terms/c/cagr.asp) are commonly used as the return component and the standard deviation (annualized) is used for the risk metric. ## What Is the Difference Between a Feasible and Efficient Portfolio? A feasible portfolio is a portfolio that an investor can construct with the assets available, like poker players trying to make the best of the cards they're dealt and only certain poker hands are possible. The Markowitz efficient set, meanwhile, is a portfolio that seeks to maximize returns for a given level of risk. ## Who Is Markowitz? Harry Markowitz was the creator of the efficient set. He is a Nobel Prize-winning economist and is considered the father of modern portfolio theory. Markowitz’s research highlighted the importance of diversifying assets when investing, a view still widely shared today. ## The Bottom Line The Markowitz efficient set is a mathematical concept introduced by Nobel Laureate Harry Markowitz in 1952 to represent the returns of a portfolio for given levels of risk. It is represented on a graph that charts portfolios or investments on a scale of return (y-axis) versus risk (x-axis). Portfolios that are below the efficient frontier are judged unable to provide enough return for the level of risk and vice versa. While relatively simple in graphic form, this turned out to be an important invention in finance and investments. The Markowitz efficient set continues to show why diversification is crucial for balancing risk and reward while managing your portfolio.

The Markowitz efficient set, also known as the efficient frontier, is a fundamental part of modern portfolio theory (MPT), developed by future Nobel laureate Harry Markowitz in 1952. It presents a set of portfolios with the highest expected returns for a given level of risk or, alternatively, the lowest risk for a certain amount of expected returns. At its heart, it seeks to answer basic questions facing any investor: how much in returns can I expect if I don’t want too much risk? And if I increase my risk tolerance, how much more in returns might I get? The portfolios in the Markowitz set are efficient because they offer, mathematically, the best balance of risk and reward. Key Takeaways The Markowitz efficient set was developed by economist Harry Markowitz in 1952.The goal of using the Markowitz efficient set is to maximize the returns of a portfolio for a given level of risk.The efficient solution to a portfolio can be plotted on the Markowitz efficient frontier, giving a range of risk and reward values to choose from.The efficient frontier is represented with returns on the Y-axis and risk on the X-axis.The Markowitz efficient set highlights the diversification of assets in a portfolio, which lowers the portfolio's risk. Understanding the Markowitz Efficient Set Harry Markowitz (1927-2023), the Nobel Prize-winning economist, is considered a founder of MPT. His article, “Portfolio Selection,” in the Journal of Finance in 1952, took up the challenge of showing how the returns of a group of investments in a portfolio are linked to risk, along with concepts like variance and covariance used to measure potential risk and returns. Markowitz noted that investors focus on two things: risk and return. He thought that investors choose among options that optimally balance the two. Some seek the highest returns and thus will take on more risk; others can’t afford such risk and thus are willing to stomach less in potential returns. The best combination of investments in a portfolio can be charted along the “efficient frontier,” essentially a line on a graph that shows the highest possible returns you can expect from a portfolio for a specific level of risk. Implementing the Markowitz Efficient Set Because different combinations of assets have different levels of potential returns, the Markowitz efficient set is meant to show the best combinations to maximize returns at a chosen risk level. In this way, the Markowitz efficient set reveals how returns vary given the amount of risk assumed. The Markowitz efficient set is represented on a graph with returns on the Y-axis and risk (standard deviation) on the X-axis. The efficient set lies along the frontier line, representing that the higher the risk, the greater the potential returns. The task is to construct a set of portfolios to yield the highest returns at a given level of risk. Individuals have different levels of risk tolerance: some might stomach quite a bit of risk if it means greater rewards, while others are unwilling to take such chances. Moreover, you can’t assume you will be automatically rewarded with extra returns if you take greater risk. The set becomes inefficient when returns decrease at greater levels of risk. Once the risk reaches a certain point, there’s no increase in potential rewards (at one extreme, using your portfolio for lottery tickets), just as at the other end, once the risk gets so low, there’s no potential return (at the other extreme, keeping your money under your mattress). Diversification in the Markowitz Efficient Set At the core of a Markowitz efficient set is diversification of assets, which lowers portfolio risk. Diversification is the strategy of spreading investments across various types of assets to reduce the overall risk in your portfolio. MPT is premised on the idea that different assets react differently to the same market conditions. Diversification is at the heart of MPT because it means you can take advantage of the returns volatile sectors offer if you wish, but you should keep that balanced with other kinds of assets that won’t react the same way. Some assets tend to move in the same direction, increasing or decreasing in value together (e.g., stocks in the same sector), while others tend to go in opposite directions (e.g., the value of gold and the U.S. dollar). The relationship between how two assets move in relation to each other is measured by covariance. When assets have a lower covariance, they are more likely to move in the opposite direction, which lowers the risk of the portfolio. Variance, meanwhile, measures how much an investment’s returns differ from their average over time, indicating their risk. High variance means your asset’s returns can fluctuate significantly, bringing greater risk, while lower variance suggests you’ll have more stable, predictable returns. Given these principles, the efficient frontier of the Markowitz efficient set is curved, not straight, since these assets don’t move all in the same direction in the same market conditions. What Is an Efficient Set Portfolio? An efficient set portfolio is an investment portfolio that delivers the greatest expected return for a given level of risk. Compound annual growth rates are commonly used as the return component and the standard deviation (annualized) is used for the risk metric. What Is the Difference Between a Feasible and Efficient Portfolio? A feasible portfolio is a portfolio that an investor can construct with the assets available, like poker players trying to make the best of the cards they're dealt and only certain poker hands are possible. The Markowitz efficient set, meanwhile, is a portfolio that seeks to maximize returns for a given level of risk. Who Is Markowitz? Harry Markowitz was the creator of the efficient set. He is a Nobel Prize-winning economist and is considered the father of modern portfolio theory. Markowitz’s research highlighted the importance of diversifying assets when investing, a view still widely shared today. The Bottom Line The Markowitz efficient set is a mathematical concept introduced by Nobel Laureate Harry Markowitz in 1952 to represent the returns of a portfolio for given levels of risk. It is represented on a graph that charts portfolios or investments on a scale of return (y-axis) versus risk (x-axis). Portfolios that are below the efficient frontier are judged unable to provide enough return for the level of risk and vice versa. While relatively simple in graphic form, this turned out to be an important invention in finance and investments. The Markowitz efficient set continues to show why diversification is crucial for balancing risk and reward while managing your portfolio.

https://www.investopedia.com/ask/answers/07/margin_interest.asp

How Is Margin Interest Calculated?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Trading on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margin.asp">margin</a> is a common strategy employed in the financial world; however, it is a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/041315/why-purchasing-stocks-margin-considered-more-risky-traditional-investing.asp">risky</a> one. Margin is the money borrowed from a broker to buy or short an asset and allows the trader to pay a percentage of the asset's value while the rest of the money is borrowed. Like any form of borrowed money, interest is incurred. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <span class="heading-toc" id="toc-trading-on-margin"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> Trading on Margin </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Trading on margin makes it easier for traders to enter into trading opportunities as they don't have to be concerned about a large outlay of cash to acquire an asset. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Margin interest is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> that is due on loans made between you and your broker concerning your portfolio's assets. For instance, if you <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortselling.asp">short sell</a> a stock, you must first borrow it on margin and then sell it to a buyer. Or, if you purchase on margin, you will be offered the ability to leverage your money to purchase more shares than the cash you outlay. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> For example, with a 10% margin, you may buy $1,000 worth of shares while putting up just $100. That extra $900 is granted to you in the form of a margin loan, for which you will have to pay interest. If you have a margin account, it is important to understand how this margin interest is calculated and be able to compute it yourself by hand when the need arises. It's just as important as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp">interest on your savings account</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Before running a calculation, you must first find out what margin interest rate your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker-dealer.asp">broker-dealer</a> is charging to borrow money. The broker should be able to answer this question. Alternatively, the firm's website may be a valuable source for this information, as should account confirmation statements and/or monthly and quarterly <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/account-statement.asp">account statements</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> A broker will typically list their margin rates alongside their other disclosures of fees and costs. Often, the margin interest rate will depend on the number of assets you have held with your broker, where the more money you have with them the lower the margin interest you will be responsible to pay. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-margin-interest-calculation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-heading__text"> Margin Interest Calculation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Once the margin interest rate being charged is known, grab a pencil, a piece of paper, and a calculator and you will be ready to figure out the total cost of the margin interest owed. Here is a hypothetical example: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Suppose you want to borrow $30,000 to buy a stock that you intend to hold for a period of 10 days where the margin interest rate is 6% <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stated-annual-interest-rate.asp">annually</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> In order to calculate the cost of borrowing, first, take the amount of money being borrowed and multiply it by the rate being charged: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <li>$30,000 x .06 (6%) = $1,800</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Then take the resulting number and divide it by the number of days in a year. The brokerage industry typically uses 360 days and not the expected 365 days. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <li>$1,800 / 360 = 5</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Next, multiply this number by the total number of days you have borrowed, or expect to borrow, the money on margin: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <li>5 x 10 = $50</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Using this example, it will cost you $50 in margin interest to borrow $30,000 for 10 days. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> While margin can be used to amplify profits in the case that a stock goes up and you make a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">leveraged</a> purchase, it can also magnify losses if the price of your investment drops, resulting in a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margincall.asp">margin call</a>, or the requirement to add more cash to your account to cover those paper losses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Remember that whether or not you gain or lose on a trade, you will still owe the same margin interest that was calculated on the original transaction. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Trading on margin is a risky business, but can be profitable if managed properly, and more importantly, if a trader does not overleverage themself. It also makes accessing certain asset values easier as a trader doesn't need to put up the total cost of an asset when they see an interesting trading opportunity. When entering a trade on margin, it's important to calculate the borrowing cost to determine what the true cost of the trade will be, which will accurately depict the profit or loss. </p></div>

Trading on [margin](https://www.investopedia.com/terms/m/margin.asp) is a common strategy employed in the financial world; however, it is a [risky](https://www.investopedia.com/ask/answers/041315/why-purchasing-stocks-margin-considered-more-risky-traditional-investing.asp) one. Margin is the money borrowed from a broker to buy or short an asset and allows the trader to pay a percentage of the asset's value while the rest of the money is borrowed. Like any form of borrowed money, interest is incurred. ## Trading on Margin Trading on margin makes it easier for traders to enter into trading opportunities as they don't have to be concerned about a large outlay of cash to acquire an asset. Margin interest is the [interest](https://www.investopedia.com/terms/i/interest.asp) that is due on loans made between you and your broker concerning your portfolio's assets. For instance, if you [short sell](https://www.investopedia.com/terms/s/shortselling.asp) a stock, you must first borrow it on margin and then sell it to a buyer. Or, if you purchase on margin, you will be offered the ability to leverage your money to purchase more shares than the cash you outlay. For example, with a 10% margin, you may buy $1,000 worth of shares while putting up just $100. That extra $900 is granted to you in the form of a margin loan, for which you will have to pay interest. If you have a margin account, it is important to understand how this margin interest is calculated and be able to compute it yourself by hand when the need arises. It's just as important as the [interest on your savings account](https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp). Before running a calculation, you must first find out what margin interest rate your [broker-dealer](https://www.investopedia.com/terms/b/broker-dealer.asp) is charging to borrow money. The broker should be able to answer this question. Alternatively, the firm's website may be a valuable source for this information, as should account confirmation statements and/or monthly and quarterly [account statements](https://www.investopedia.com/terms/a/account-statement.asp). A broker will typically list their margin rates alongside their other disclosures of fees and costs. Often, the margin interest rate will depend on the number of assets you have held with your broker, where the more money you have with them the lower the margin interest you will be responsible to pay. ## Margin Interest Calculation Once the margin interest rate being charged is known, grab a pencil, a piece of paper, and a calculator and you will be ready to figure out the total cost of the margin interest owed. Here is a hypothetical example: Suppose you want to borrow $30,000 to buy a stock that you intend to hold for a period of 10 days where the margin interest rate is 6% [annually](https://www.investopedia.com/terms/s/stated-annual-interest-rate.asp). In order to calculate the cost of borrowing, first, take the amount of money being borrowed and multiply it by the rate being charged: * $30,000 x .06 (6%) = $1,800 Then take the resulting number and divide it by the number of days in a year. The brokerage industry typically uses 360 days and not the expected 365 days. * $1,800 / 360 = 5 Next, multiply this number by the total number of days you have borrowed, or expect to borrow, the money on margin: * 5 x 10 = $50 Using this example, it will cost you $50 in margin interest to borrow $30,000 for 10 days. While margin can be used to amplify profits in the case that a stock goes up and you make a [leveraged](https://www.investopedia.com/terms/l/leverage.asp) purchase, it can also magnify losses if the price of your investment drops, resulting in a [margin call](https://www.investopedia.com/terms/m/margincall.asp), or the requirement to add more cash to your account to cover those paper losses. Remember that whether or not you gain or lose on a trade, you will still owe the same margin interest that was calculated on the original transaction. ## The Bottom Line Trading on margin is a risky business, but can be profitable if managed properly, and more importantly, if a trader does not overleverage themself. It also makes accessing certain asset values easier as a trader doesn't need to put up the total cost of an asset when they see an interesting trading opportunity. When entering a trade on margin, it's important to calculate the borrowing cost to determine what the true cost of the trade will be, which will accurately depict the profit or loss.

Trading on margin is a common strategy employed in the financial world; however, it is a risky one. Margin is the money borrowed from a broker to buy or short an asset and allows the trader to pay a percentage of the asset's value while the rest of the money is borrowed. Like any form of borrowed money, interest is incurred. Trading on Margin Trading on margin makes it easier for traders to enter into trading opportunities as they don't have to be concerned about a large outlay of cash to acquire an asset. Margin interest is the interest that is due on loans made between you and your broker concerning your portfolio's assets. For instance, if you short sell a stock, you must first borrow it on margin and then sell it to a buyer. Or, if you purchase on margin, you will be offered the ability to leverage your money to purchase more shares than the cash you outlay. For example, with a 10% margin, you may buy $1,000 worth of shares while putting up just $100. That extra $900 is granted to you in the form of a margin loan, for which you will have to pay interest. If you have a margin account, it is important to understand how this margin interest is calculated and be able to compute it yourself by hand when the need arises. It's just as important as the interest on your savings account. Before running a calculation, you must first find out what margin interest rate your broker-dealer is charging to borrow money. The broker should be able to answer this question. Alternatively, the firm's website may be a valuable source for this information, as should account confirmation statements and/or monthly and quarterly account statements. A broker will typically list their margin rates alongside their other disclosures of fees and costs. Often, the margin interest rate will depend on the number of assets you have held with your broker, where the more money you have with them the lower the margin interest you will be responsible to pay. Margin Interest Calculation Once the margin interest rate being charged is known, grab a pencil, a piece of paper, and a calculator and you will be ready to figure out the total cost of the margin interest owed. Here is a hypothetical example: Suppose you want to borrow $30,000 to buy a stock that you intend to hold for a period of 10 days where the margin interest rate is 6% annually. In order to calculate the cost of borrowing, first, take the amount of money being borrowed and multiply it by the rate being charged: $30,000 x .06 (6%) = $1,800 Then take the resulting number and divide it by the number of days in a year. The brokerage industry typically uses 360 days and not the expected 365 days. $1,800 / 360 = 5 Next, multiply this number by the total number of days you have borrowed, or expect to borrow, the money on margin: 5 x 10 = $50 Using this example, it will cost you $50 in margin interest to borrow $30,000 for 10 days. While margin can be used to amplify profits in the case that a stock goes up and you make a leveraged purchase, it can also magnify losses if the price of your investment drops, resulting in a margin call, or the requirement to add more cash to your account to cover those paper losses. Remember that whether or not you gain or lose on a trade, you will still owe the same margin interest that was calculated on the original transaction. The Bottom Line Trading on margin is a risky business, but can be profitable if managed properly, and more importantly, if a trader does not overleverage themself. It also makes accessing certain asset values easier as a trader doesn't need to put up the total cost of an asset when they see an interesting trading opportunity. When entering a trade on margin, it's important to calculate the borrowing cost to determine what the true cost of the trade will be, which will accurately depict the profit or loss.

https://www.investopedia.com/terms/h/hotellings-theory.asp

Hotelling's Theory: Definition, How It Works, and History

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-hotellings-theory"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Hotelling's Theory? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Hotelling's theory, or Hotelling's rule, posits that owners of nonrenewable resources will only produce basic commodities if doing so can yield more than could be earned from available financial instruments, such as U.S. Treasury or other similar interest-bearing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">securities</a>. The theory assumes that markets are efficient and that the owners of the nonrenewable resources are motivated only by profit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Hotelling's theory is used by economists to attempt to predict the price of oil and other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nonrenewableresource.asp">nonrenewable resources</a>, based on prevailing interest rates. Hotelling's rule was named after American statistician Harold Hotelling. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Hotelling's Theory defines the price or yield at which the owner of a nonrenewable resource will extract it and sell it, rather than leave it and wait.</li><li>It bases the relative price on U.S. Treasury bonds or some similar interest-bearing security.</li><li>The rule was devised by American statistician Harold Hotelling.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-hotellings-theory"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding Hotelling's Theory </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Hotelling's theory addresses a fundamental decision for an owner of a nonrenewable resource: Keep the resource in the ground and hope for a better price the next year, or extract and sell it and invest the proceeds in an interest-bearing security. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Consider an owner of iron ore deposits. If this miner expects a 10% appreciation of iron ore over the next 12 months, and the prevailing real interest rate (nominal rate less inflation) at which he can invest is only 5% per year, he will choose not to extract the iron ore. Extraction costs are ignored in his theory. If the numbers were switched, with a price appreciation expectation of 5% and an interest rate of 10%, the owner would mine the iron ore, sell it, and invest the sales proceeds at a 10% yield. The miner will be indifferent at 5% and 5%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-theory-and-practice"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Theory and Practice </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The difference between the marginal extraction costs of natural resources and their price is called the Hotelling rent. It follows that the rate of change in the price of a depletable resource must equal the interest rate that a miner or extractor uses to discount the future; this is known as the Hotelling <em>r</em>-percent growth rule. Whenever marginal extraction costs are zero, the price of the resource in stock and that of the unmined resource are equivalent and the Hotelling rule applies equally to both. If, however, extraction costs increase over time, the price of the resource should rise at a rate that is lower than the discount interest. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Thus, all else being equal, an increase in the discount rate implies a higher price for the unextracted resource and would incentivize a faster rate of extraction. In theory, then, the price increase rates of nonrenewable resources like oil, copper, coal, iron ore, zinc, nickel, etc. should track the pace of real interest rate increases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> In practice, the Federal Reserve Bank of Minneapolis concluded in a 2014 study that Hotelling's theory fails. The price appreciation rates of all the basic commodities examined by authors fell short—some far short—of the annual average rate of U.S. Treasury securities. The authors suspected that extraction costs explained the difference. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-who-was-harold-hotelling"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> Who Was Harold Hotelling? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Harold Hotelling (1895 - 1973) was an American statistician and economist affiliated with Stanford University and Columbia University in his early and mid-career years, and later with the University of North Carolina-Chapel Hill until his retirement. Aside from the eponymous theory on prices of nonrenewable resources, he is known for Hotelling's T-square distribution, Hotelling's law, and Hotelling's lemma. </p></div>

## What Is Hotelling's Theory? Hotelling's theory, or Hotelling's rule, posits that owners of nonrenewable resources will only produce basic commodities if doing so can yield more than could be earned from available financial instruments, such as U.S. Treasury or other similar interest-bearing [securities](https://www.investopedia.com/terms/s/security.asp). The theory assumes that markets are efficient and that the owners of the nonrenewable resources are motivated only by profit. Hotelling's theory is used by economists to attempt to predict the price of oil and other [nonrenewable resources](https://www.investopedia.com/terms/n/nonrenewableresource.asp), based on prevailing interest rates. Hotelling's rule was named after American statistician Harold Hotelling. ### Key Takeaways * Hotelling's Theory defines the price or yield at which the owner of a nonrenewable resource will extract it and sell it, rather than leave it and wait. * It bases the relative price on U.S. Treasury bonds or some similar interest-bearing security. * The rule was devised by American statistician Harold Hotelling. ## Understanding Hotelling's Theory Hotelling's theory addresses a fundamental decision for an owner of a nonrenewable resource: Keep the resource in the ground and hope for a better price the next year, or extract and sell it and invest the proceeds in an interest-bearing security. Consider an owner of iron ore deposits. If this miner expects a 10% appreciation of iron ore over the next 12 months, and the prevailing real interest rate (nominal rate less inflation) at which he can invest is only 5% per year, he will choose not to extract the iron ore. Extraction costs are ignored in his theory. If the numbers were switched, with a price appreciation expectation of 5% and an interest rate of 10%, the owner would mine the iron ore, sell it, and invest the sales proceeds at a 10% yield. The miner will be indifferent at 5% and 5%. ## Theory and Practice The difference between the marginal extraction costs of natural resources and their price is called the Hotelling rent. It follows that the rate of change in the price of a depletable resource must equal the interest rate that a miner or extractor uses to discount the future; this is known as the Hotelling *r*-percent growth rule. Whenever marginal extraction costs are zero, the price of the resource in stock and that of the unmined resource are equivalent and the Hotelling rule applies equally to both. If, however, extraction costs increase over time, the price of the resource should rise at a rate that is lower than the discount interest. Thus, all else being equal, an increase in the discount rate implies a higher price for the unextracted resource and would incentivize a faster rate of extraction. In theory, then, the price increase rates of nonrenewable resources like oil, copper, coal, iron ore, zinc, nickel, etc. should track the pace of real interest rate increases. In practice, the Federal Reserve Bank of Minneapolis concluded in a 2014 study that Hotelling's theory fails. The price appreciation rates of all the basic commodities examined by authors fell short—some far short—of the annual average rate of U.S. Treasury securities. The authors suspected that extraction costs explained the difference. ## Who Was Harold Hotelling? Harold Hotelling (1895 - 1973) was an American statistician and economist affiliated with Stanford University and Columbia University in his early and mid-career years, and later with the University of North Carolina-Chapel Hill until his retirement. Aside from the eponymous theory on prices of nonrenewable resources, he is known for Hotelling's T-square distribution, Hotelling's law, and Hotelling's lemma.

What Is Hotelling's Theory? Hotelling's theory, or Hotelling's rule, posits that owners of nonrenewable resources will only produce basic commodities if doing so can yield more than could be earned from available financial instruments, such as U.S. Treasury or other similar interest-bearing securities. The theory assumes that markets are efficient and that the owners of the nonrenewable resources are motivated only by profit. Hotelling's theory is used by economists to attempt to predict the price of oil and other nonrenewable resources, based on prevailing interest rates. Hotelling's rule was named after American statistician Harold Hotelling. Key Takeaways Hotelling's Theory defines the price or yield at which the owner of a nonrenewable resource will extract it and sell it, rather than leave it and wait.It bases the relative price on U.S. Treasury bonds or some similar interest-bearing security.The rule was devised by American statistician Harold Hotelling. Understanding Hotelling's Theory Hotelling's theory addresses a fundamental decision for an owner of a nonrenewable resource: Keep the resource in the ground and hope for a better price the next year, or extract and sell it and invest the proceeds in an interest-bearing security. Consider an owner of iron ore deposits. If this miner expects a 10% appreciation of iron ore over the next 12 months, and the prevailing real interest rate (nominal rate less inflation) at which he can invest is only 5% per year, he will choose not to extract the iron ore. Extraction costs are ignored in his theory. If the numbers were switched, with a price appreciation expectation of 5% and an interest rate of 10%, the owner would mine the iron ore, sell it, and invest the sales proceeds at a 10% yield. The miner will be indifferent at 5% and 5%. Theory and Practice The difference between the marginal extraction costs of natural resources and their price is called the Hotelling rent. It follows that the rate of change in the price of a depletable resource must equal the interest rate that a miner or extractor uses to discount the future; this is known as the Hotelling r-percent growth rule. Whenever marginal extraction costs are zero, the price of the resource in stock and that of the unmined resource are equivalent and the Hotelling rule applies equally to both. If, however, extraction costs increase over time, the price of the resource should rise at a rate that is lower than the discount interest. Thus, all else being equal, an increase in the discount rate implies a higher price for the unextracted resource and would incentivize a faster rate of extraction. In theory, then, the price increase rates of nonrenewable resources like oil, copper, coal, iron ore, zinc, nickel, etc. should track the pace of real interest rate increases. In practice, the Federal Reserve Bank of Minneapolis concluded in a 2014 study that Hotelling's theory fails. The price appreciation rates of all the basic commodities examined by authors fell short—some far short—of the annual average rate of U.S. Treasury securities. The authors suspected that extraction costs explained the difference. Who Was Harold Hotelling? Harold Hotelling (1895 - 1973) was an American statistician and economist affiliated with Stanford University and Columbia University in his early and mid-career years, and later with the University of North Carolina-Chapel Hill until his retirement. Aside from the eponymous theory on prices of nonrenewable resources, he is known for Hotelling's T-square distribution, Hotelling's law, and Hotelling's lemma.

https://www.investopedia.com/articles/personal-finance/091615/best-places-exchange-currency-los-angeles.asp

Best Places to Exchange Currency in Los Angeles

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> If you're traveling to the U.S. and plan on arriving in Los Angeles (LA) at LAX airport, you'll likely need U.S. currency for cash purchases, such as a coffee or bottle of water. If you're traveling abroad from the U.S, you may want to have foreign currency on hand to pay for taxis and small purchases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Whether you plan on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency-exchange.asp">exchanging currency</a> at the airport, an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/atm.asp">ATM</a>, or a local foreign currency provider, we've outlined several options located in Los Angeles. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <span class="heading-toc" id="toc-best-places-to-exchange-currency-in-los-angeles"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Best Places to Exchange Currency in Los Angeles </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Los Angeles hosted more than 50 million visitors in 2018. LA saw record numbers of visitors from China with 1.2 million and 1.7 million people from Mexico. International tourists represented more than 23% of total overnight visitors and generated 49% of overall spending.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Whether you're traveling for business or pleasure, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditcard.asp">credit card</a> is usually the best option for many purchases–especially larger ones, such as your hotel. More and more banks are offering credit cards with no <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreign-transaction-fee.asp">foreign transaction fees</a>, so if you travel frequently, it’s a good idea to get one. However, some cards impose a 2% to 3% fee on international transactions, which can add to the overall cost of your trip. Please check the fee listings with your financial services provider or your credit card company. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-the-airport"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> The Airport </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> You won’t get the best <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchangerate.asp">exchange rates</a> at LAX–or any other airport, for that matter. However, if you only need a small amount of cash in your pocket to get your trip started, the convenience may be worth it. If you want a larger amount, an ATM or one of the currency exchange stores located in town will likely give you a better deal. To find out the current exchange rate for your currency, use an online currency converter.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> ICE Currency Exchange operates 13 locations within the LAX airport:<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-subheading__text"> Terminal 2 </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <li>Departures: Hours: Monday – Sunday, 5:00 a.m. to 11:45 p.m. </li><li>Arrivals: Hours: Monday – Sunday, 11:15 a.m. to 8:45 p.m.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-subheading__text"> Terminal 3 </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> <li>Currently closed </li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-subheading__text"> Terminal 4 </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li>Departures: Hours: Monday – Sunday, 5:45 a.m. to 11:30 p.m.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-subheading__text"> Terminal 5 </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <li>Departures: Hours: Monday – Sunday, 5:30 a.m. to 11:15 p.m.</li><li>Arrivals: Hours: Monday – Sunday, 6:30 a.m. to 2:15 p.m.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-subheading__text"> Terminal 6 </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <li>Departures: Hours: Monday – Sunday, 5:15 a.m. to 10:45 p.m.</li><li>Arrivals: Hours: Monday – Sunday, 11:15 a.m. to 6:45 p.m.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-subheading__text"> Terminal 7 </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> <li>Departures: Hours: Monday – Sunday, 5:15 a.m. to 10:45 p.m.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-subheading__text"> Tom Bradley International </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <li>Departures, South Entrance: Hours: 6:00 a.m. to 12:15 a.m.</li><li>Departures, North Entrance: Hours: 6:00 a.m. to 12:15 a.m.</li><li>Departures, Hall: Hours: 7:45 a.m. to 11:15 p.m.</li><li>Arrivals: Hours: 6:15 a.m. to 12:00 a.m.  </li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> For more information, call 310-417-0364. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-atms"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> ATMs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Using an ATM is one of the easiest and cheapest methods to get cash while traveling abroad. All international withdrawals via an ATM typically provide a better exchange rate than you would at a currency exchange store or airport <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/k/kiosk.asp">kiosk</a>. If your home bank has an agreement with a U.S. bank, you can avoid paying any extra fees (ask your bank for policy details). If you will be charged a per-transaction fee, it’s better to take one or two larger withdrawals, instead of several smaller ones. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Within LAX, Bank of America operates an ATM in the arrival level of Terminal 7.<strong><span class="ql-inline-citation" data-cite="3"></span></strong> Other ATMs that are close to the airport include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <li><strong>Citibank: </strong>8800 South Sepulveda Blvd.<span class="ql-inline-citation" data-cite="4"></span></li><li><strong>Wells Fargo Bank:</strong> 8814 S Sepulveda Blvd.<span class="ql-inline-citation" data-cite="5"></span></li><li><strong>Chase Bank: </strong>8813 South Sepulveda Blvd.<span class="ql-inline-citation" data-cite="6"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> As in any large city, you can find a wide variety of ATMs throughout the Los Angeles metropolitan area at banks, shopping centers, and near tourist attractions. If you need help finding an ATM, check with your bank to see if it offers an ATM locator app, or search your smart phone’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apple-app-store.asp">app store</a>. You can also check your bank's website on your smartphone. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-currency-exchange-stores"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> Currency Exchange Stores </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> In addition to the ICE Currency Exchange stores located inside the airport, you can find many other stores throughout Los Angeles, offering a range of services aimed at travelers entering the country and U.S. travelers headed overseas. While the exchange rate you’ll get at a bank is generally fixed, meaning it doesn’t fluctuate throughout the day, other currency exchange stores may change rates with the market. Call ahead to find out rates, but keep in mind the rate you are told over the phone and the rate you might receive could be different since rates are periodically updated. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Some of the currency exchange stores in Los Angeles include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_52-0"> <a class="mntl-sc-block-subheading__link" href="http://brettonwoodsfx.com/" rel="noopener nofollow nocaes" target="_blank">Bretton Woods</a> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> <li>11659 San Vicente Blvd., (310) 447-6234</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_55-0"> <a class="mntl-sc-block-subheading__link" href="http://ceifx.com/locations" rel="noopener nocaes" target="_blank">Currency Exchange International</a> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> <li>Citadel Outlets, 100 Citadel Dr., (323) 721-2500</li><li>Santa Monica Place, 395 Santa Monica Place, Level 2, (310) 393-7444  </li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_58-0"> <a class="mntl-sc-block-subheading__link" href="http://foreigncurrencyexpress.com/" rel="noopener nofollow nocaes" target="_blank">Foreign Currency Express</a> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> <li>350 S Figueroa St. #134, (213) 624-3693</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_61-0"> <a class="mntl-sc-block-subheading__link" href="https://lacurrency.com/" rel="noopener nofollow nocaes" target="_blank">LA Currency</a> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> <li>7095 Hollywood Blvd. #204, (323) 878-0555</li><li>6582 Van Nuys Blvd., (818) 785-0999</li><li>340 N Camden Drive, Beverly Hills (310) 859-8888</li><li>506 W Broadway, Glendale (818) 551-9555</li><li>406 W 6 Street Unit A, Los Angeles (213) 228-0000</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_64-0"> <a class="mntl-sc-block-subheading__link" href="http://currencymoneyexchangelosangeles.com/currency-exchange.html" rel="noopener nofollow nocaes" target="_blank">World Banknotes Exchange</a> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> <li>520 S Grand Ave., (213) 446-3380</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_67-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> Any time you travel overseas–for business or pleasure–you’ll need a way to pay for goods and services in the local currency.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> When you do need to exchange money, be sure to ask how much money you’ll get in exchange for the amount you’re handing over. Just because a place advertises <em>no commissions </em>or <em>no fees</em>, doesn’t mean you’ll get a good rate–and it doesn’t mean there won’t be “hidden” charges, either. Find out what you’re getting before you give the store your money. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> A currency converting app can help you figure out how much you should be getting. Enter the type and amount of currency you want to exchange, and the app calculates how much of the “new” currency you can buy at today’s rates. </p></div>

If you're traveling to the U.S. and plan on arriving in Los Angeles (LA) at LAX airport, you'll likely need U.S. currency for cash purchases, such as a coffee or bottle of water. If you're traveling abroad from the U.S, you may want to have foreign currency on hand to pay for taxis and small purchases. Whether you plan on [exchanging currency](https://www.investopedia.com/terms/c/currency-exchange.asp) at the airport, an [ATM](https://www.investopedia.com/terms/a/atm.asp), or a local foreign currency provider, we've outlined several options located in Los Angeles. ## Best Places to Exchange Currency in Los Angeles Los Angeles hosted more than 50 million visitors in 2018. LA saw record numbers of visitors from China with 1.2 million and 1.7 million people from Mexico. International tourists represented more than 23% of total overnight visitors and generated 49% of overall spending. Whether you're traveling for business or pleasure, a [credit card](https://www.investopedia.com/terms/c/creditcard.asp) is usually the best option for many purchases–especially larger ones, such as your hotel. More and more banks are offering credit cards with no [foreign transaction fees](https://www.investopedia.com/terms/f/foreign-transaction-fee.asp), so if you travel frequently, it’s a good idea to get one. However, some cards impose a 2% to 3% fee on international transactions, which can add to the overall cost of your trip. Please check the fee listings with your financial services provider or your credit card company. ## The Airport You won’t get the best [exchange rates](https://www.investopedia.com/terms/e/exchangerate.asp) at LAX–or any other airport, for that matter. However, if you only need a small amount of cash in your pocket to get your trip started, the convenience may be worth it. If you want a larger amount, an ATM or one of the currency exchange stores located in town will likely give you a better deal. To find out the current exchange rate for your currency, use an online currency converter.  ICE Currency Exchange operates 13 locations within the LAX airport: ### Terminal 2 * Departures: Hours: Monday – Sunday, 5:00 a.m. to 11:45 p.m. * Arrivals: Hours: Monday – Sunday, 11:15 a.m. to 8:45 p.m. ### Terminal 3 * Currently closed ### Terminal 4 * Departures: Hours: Monday – Sunday, 5:45 a.m. to 11:30 p.m. ### Terminal 5 * Departures: Hours: Monday – Sunday, 5:30 a.m. to 11:15 p.m. * Arrivals: Hours: Monday – Sunday, 6:30 a.m. to 2:15 p.m. ### Terminal 6 * Departures: Hours: Monday – Sunday, 5:15 a.m. to 10:45 p.m. * Arrivals: Hours: Monday – Sunday, 11:15 a.m. to 6:45 p.m. ### Terminal 7 * Departures: Hours: Monday – Sunday, 5:15 a.m. to 10:45 p.m. ### Tom Bradley International * Departures, South Entrance: Hours: 6:00 a.m. to 12:15 a.m. * Departures, North Entrance: Hours: 6:00 a.m. to 12:15 a.m. * Departures, Hall: Hours: 7:45 a.m. to 11:15 p.m. * Arrivals: Hours: 6:15 a.m. to 12:00 a.m. For more information, call 310-417-0364. ## ATMs Using an ATM is one of the easiest and cheapest methods to get cash while traveling abroad. All international withdrawals via an ATM typically provide a better exchange rate than you would at a currency exchange store or airport [kiosk](https://www.investopedia.com/terms/k/kiosk.asp). If your home bank has an agreement with a U.S. bank, you can avoid paying any extra fees (ask your bank for policy details). If you will be charged a per-transaction fee, it’s better to take one or two larger withdrawals, instead of several smaller ones. Within LAX, Bank of America operates an ATM in the arrival level of Terminal 7. Other ATMs that are close to the airport include: * **Citibank:** 8800 South Sepulveda Blvd. * **Wells Fargo Bank:** 8814 S Sepulveda Blvd. * **Chase Bank:** 8813 South Sepulveda Blvd. As in any large city, you can find a wide variety of ATMs throughout the Los Angeles metropolitan area at banks, shopping centers, and near tourist attractions. If you need help finding an ATM, check with your bank to see if it offers an ATM locator app, or search your smart phone’s [app store](https://www.investopedia.com/terms/a/apple-app-store.asp). You can also check your bank's website on your smartphone. ## Currency Exchange Stores In addition to the ICE Currency Exchange stores located inside the airport, you can find many other stores throughout Los Angeles, offering a range of services aimed at travelers entering the country and U.S. travelers headed overseas. While the exchange rate you’ll get at a bank is generally fixed, meaning it doesn’t fluctuate throughout the day, other currency exchange stores may change rates with the market. Call ahead to find out rates, but keep in mind the rate you are told over the phone and the rate you might receive could be different since rates are periodically updated. Some of the currency exchange stores in Los Angeles include: ### [Bretton Woods](http://brettonwoodsfx.com/) * 11659 San Vicente Blvd., (310) 447-6234 ### [Currency Exchange International](http://ceifx.com/locations) * Citadel Outlets, 100 Citadel Dr., (323) 721-2500 * Santa Monica Place, 395 Santa Monica Place, Level 2, (310) 393-7444 ### [Foreign Currency Express](http://foreigncurrencyexpress.com/) * 350 S Figueroa St. #134, (213) 624-3693 ### [LA Currency](https://lacurrency.com/) * 7095 Hollywood Blvd. #204, (323) 878-0555 * 6582 Van Nuys Blvd., (818) 785-0999 * 340 N Camden Drive, Beverly Hills (310) 859-8888 * 506 W Broadway, Glendale (818) 551-9555 * 406 W 6 Street Unit A, Los Angeles (213) 228-0000 ### [World Banknotes Exchange](http://currencymoneyexchangelosangeles.com/currency-exchange.html) * 520 S Grand Ave., (213) 446-3380 ## The Bottom Line Any time you travel overseas–for business or pleasure–you’ll need a way to pay for goods and services in the local currency.  When you do need to exchange money, be sure to ask how much money you’ll get in exchange for the amount you’re handing over. Just because a place advertises *no commissions* or *no fees*, doesn’t mean you’ll get a good rate–and it doesn’t mean there won’t be “hidden” charges, either. Find out what you’re getting before you give the store your money. A currency converting app can help you figure out how much you should be getting. Enter the type and amount of currency you want to exchange, and the app calculates how much of the “new” currency you can buy at today’s rates.

If you're traveling to the U.S. and plan on arriving in Los Angeles (LA) at LAX airport, you'll likely need U.S. currency for cash purchases, such as a coffee or bottle of water. If you're traveling abroad from the U.S, you may want to have foreign currency on hand to pay for taxis and small purchases. Whether you plan on exchanging currency at the airport, an ATM, or a local foreign currency provider, we've outlined several options located in Los Angeles. Best Places to Exchange Currency in Los Angeles Los Angeles hosted more than 50 million visitors in 2018. LA saw record numbers of visitors from China with 1.2 million and 1.7 million people from Mexico. International tourists represented more than 23% of total overnight visitors and generated 49% of overall spending. Whether you're traveling for business or pleasure, a credit card is usually the best option for many purchases–especially larger ones, such as your hotel. More and more banks are offering credit cards with no foreign transaction fees, so if you travel frequently, it’s a good idea to get one. However, some cards impose a 2% to 3% fee on international transactions, which can add to the overall cost of your trip. Please check the fee listings with your financial services provider or your credit card company. The Airport You won’t get the best exchange rates at LAX–or any other airport, for that matter. However, if you only need a small amount of cash in your pocket to get your trip started, the convenience may be worth it. If you want a larger amount, an ATM or one of the currency exchange stores located in town will likely give you a better deal. To find out the current exchange rate for your currency, use an online currency converter.  ICE Currency Exchange operates 13 locations within the LAX airport: Terminal 2 Departures: Hours: Monday – Sunday, 5:00 a.m. to 11:45 p.m. Arrivals: Hours: Monday – Sunday, 11:15 a.m. to 8:45 p.m. Terminal 3 Currently closed Terminal 4 Departures: Hours: Monday – Sunday, 5:45 a.m. to 11:30 p.m. Terminal 5 Departures: Hours: Monday – Sunday, 5:30 a.m. to 11:15 p.m.Arrivals: Hours: Monday – Sunday, 6:30 a.m. to 2:15 p.m. Terminal 6 Departures: Hours: Monday – Sunday, 5:15 a.m. to 10:45 p.m.Arrivals: Hours: Monday – Sunday, 11:15 a.m. to 6:45 p.m. Terminal 7 Departures: Hours: Monday – Sunday, 5:15 a.m. to 10:45 p.m. Tom Bradley International Departures, South Entrance: Hours: 6:00 a.m. to 12:15 a.m.Departures, North Entrance: Hours: 6:00 a.m. to 12:15 a.m.Departures, Hall: Hours: 7:45 a.m. to 11:15 p.m.Arrivals: Hours: 6:15 a.m. to 12:00 a.m.   For more information, call 310-417-0364. ATMs Using an ATM is one of the easiest and cheapest methods to get cash while traveling abroad. All international withdrawals via an ATM typically provide a better exchange rate than you would at a currency exchange store or airport kiosk. If your home bank has an agreement with a U.S. bank, you can avoid paying any extra fees (ask your bank for policy details). If you will be charged a per-transaction fee, it’s better to take one or two larger withdrawals, instead of several smaller ones. Within LAX, Bank of America operates an ATM in the arrival level of Terminal 7. Other ATMs that are close to the airport include: Citibank: 8800 South Sepulveda Blvd.Wells Fargo Bank: 8814 S Sepulveda Blvd.Chase Bank: 8813 South Sepulveda Blvd. As in any large city, you can find a wide variety of ATMs throughout the Los Angeles metropolitan area at banks, shopping centers, and near tourist attractions. If you need help finding an ATM, check with your bank to see if it offers an ATM locator app, or search your smart phone’s app store. You can also check your bank's website on your smartphone. Currency Exchange Stores In addition to the ICE Currency Exchange stores located inside the airport, you can find many other stores throughout Los Angeles, offering a range of services aimed at travelers entering the country and U.S. travelers headed overseas. While the exchange rate you’ll get at a bank is generally fixed, meaning it doesn’t fluctuate throughout the day, other currency exchange stores may change rates with the market. Call ahead to find out rates, but keep in mind the rate you are told over the phone and the rate you might receive could be different since rates are periodically updated. Some of the currency exchange stores in Los Angeles include: Bretton Woods 11659 San Vicente Blvd., (310) 447-6234 Currency Exchange International Citadel Outlets, 100 Citadel Dr., (323) 721-2500Santa Monica Place, 395 Santa Monica Place, Level 2, (310) 393-7444   Foreign Currency Express 350 S Figueroa St. #134, (213) 624-3693 LA Currency 7095 Hollywood Blvd. #204, (323) 878-05556582 Van Nuys Blvd., (818) 785-0999340 N Camden Drive, Beverly Hills (310) 859-8888506 W Broadway, Glendale (818) 551-9555406 W 6 Street Unit A, Los Angeles (213) 228-0000 World Banknotes Exchange 520 S Grand Ave., (213) 446-3380 The Bottom Line Any time you travel overseas–for business or pleasure–you’ll need a way to pay for goods and services in the local currency.  When you do need to exchange money, be sure to ask how much money you’ll get in exchange for the amount you’re handing over. Just because a place advertises no commissions or no fees, doesn’t mean you’ll get a good rate–and it doesn’t mean there won’t be “hidden” charges, either. Find out what you’re getting before you give the store your money. A currency converting app can help you figure out how much you should be getting. Enter the type and amount of currency you want to exchange, and the app calculates how much of the “new” currency you can buy at today’s rates.

https://www.investopedia.com/articles/personal-finance/082416/going-law-school-worth-it-anymore.asp

Is Going to Law School Worth It Anymore?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-is-law-school-worth-it"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> Is Law School Worth It? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> According to a Gallup-commissioned poll of 10,715 adults who obtained a law degree between 1941 and 2017, 88% said obtaining a law degree was 'very valuable' and 'valuable.'<span class="ql-inline-citation" data-cite="1"></span> With the average law school debt coming in around $145,500, according to the most recent data from the National Center for Education Statistics.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> With many law school graduates somewhat regretting their decision to attend, it makes sense to examine whether going to law school is still worth it. Keeping in mind the high tuition costs, interest rates, and potential salaries, another good metric to consider would be its return on investment (ROI), calculated as its salary-to-debt ratio in a study by online lender <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sofi-personal-loans-review-4797398">SoFi</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The majority of law school graduates (over 80%) feel that their degree is valuable to very valuable.</li><li>The average law school graduate debt is $145,500, while their starting salary comes in much less. </li><li>According to a SoFi survey, the school with the best salary-to-debt ratio is Brigham Young University, which comes in at 1.7x. </li></ul></div></div></div> <span class="heading-toc" id="toc-average-law-school-debt-and-costs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Average Law School Debt and Costs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Going to law school full-time requires a three-year commitment, and the average tuition and fees for just one of those years at an American Bar Association-accredited institution are already high. The average tuition at private law school was $55,993 in 2023, compared to an average of $30,554 at a public school.<span class="ql-inline-citation" data-cite="13"></span> This cost does not include rent, food, transportation, and other living expenses. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> As the law school workload does not permit most students to hold jobs, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/042415/earn-credit-card-rewards-paying-student-loans.asp">student loans</a> represent the most common method of paying these costs. Consequently, the average law school graduate has over $145,500 in student debt.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> For many students, student loan debt accumulates on top of debt they already carry from undergraduate school. While most lenders allow the deferment of undergraduate loan payments while attending law school, any unsubsidized portion of such debt continues to accrue interest.<span class="ql-inline-citation" data-cite="14"></span> All told, it is not uncommon for a law school graduate to enter the working world with a sizable negative net worth.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">$30,554 </h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The average cost of law school per year at a public institution.<span class="ql-inline-citation" data-cite="13"></span></p></div></div></div> <span class="heading-toc" id="toc-expected-salary-after-law-school"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Expected Salary After Law School </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Taking on such debt might be a smart investment if a law degree provided reasonable assurance of a high-paying job. Ideally, recent graduates should earn yearly salaries equal to or greater than their total student debt. This level of pay usually allows for paying off student loans within 10 years without materially affecting a person's lifestyle. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Stories abound, however, of law school graduates struggling to find any sort of legal job, much less one that enables the repayment of student debt in a timely manner.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> The New York Times revealed in 2015 that more than 20% of graduates from the class of 2010 held jobs that did not require law degrees. Only 40% worked in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/010715/worlds-top-10-law-firms.asp">law firms</a>, compared to 60% from the class of 2000. The remainder operated solo practices, with varying degrees of success, or performed contract work.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The SoFi study, the latest which incorporates data from student-loan refinancing applications between 2014 and 2016, shows that some schools do better than others when it comes to both job placements and salaries. Looking at students three years out of law school, Cornell University, Columbia University, and New York University take the top three spots in the SoFi study with average salary paid in excess of $177,000.<span class="ql-inline-citation" data-cite="3"></span> Consider that the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bls.asp">Bureau of Labor Statistics</a> in 2023 had a median income of $145,760.<span class="ql-inline-citation" data-cite="4"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> For the class of 2023, Columbia University saw 97.66% of its graduates find full-time jobs, 10 months after graduation.<span class="ql-inline-citation" data-cite="5"></span> At New York University, 97.06% of the class of 2023 is employed 10 months after graduation.<span class="ql-inline-citation" data-cite="6"></span> In some cases, of course, students may choose to put off those high-money jobs for prestigious public service spots: In 2023, 57 of 205 Yale Law School graduates were employed in clerkships.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Graduates of second-tier programs often settle for work outside of top law firms, where the pay is much lower. The 2022 median pay for law school graduates across the board was only $85,000.<span class="ql-inline-citation" data-cite="8"></span> Idealistic young attorneys who choose public service fare even worse financially. Entry-level prosecuting attorneys earn a median pay of $56,200; public defenders do slightly better at $58,300.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-schools-with-the-best-salary-to-debt-ratio"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> Schools with the Best Salary-to-Debt Ratio </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Even new lawyers who land good jobs rarely receive paychecks commensurate with their debt levels. The SoFi analysis also ranks law schools based on which offer the best value defined by their salary-to-debt ratio. That figure is an indication of how much more your potential salary could exceed your potential debt and help make a more informed decision about whether law school is worth it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Brigham Young University takes the number-one spot. With students expecting an average salary of $108,000 and holding an average debt just below $65,000, the school has an impressive 1.7x salary-to-debt ratio, making it a good value-for-money bet. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Tied for second are the University of Texas at Austin, Yale University, and the University of Houston. The University of Texas at Austin comes with the ratio at 1.4x on the back of lower debt burden thanks to its relatively cheaper tuition. Yale Law School also ranks second with graduates' higher salaries of $177,771 compared to BYU at $64,873 and $147,44 at UT, but also because of its generosity with financial aid. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Opting for schools that fare poorly on this metric could cost you. Take, for example, Florida Coastal School of Law, which ranked lowest on the SoFi ROI list, with a salary-to-debt ratio of 0.5x. Let's break down the numbers: The school's tuition, $43,000, is on par with some of the top schools in the country. Students graduate with $158,427 in debt—considerably higher than the $123,793 Yale grads have—but the average annual salary for graduates is only $84,664.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <span class="heading-toc" id="toc-other-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-heading__text"> Other Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The numbers do not consider the financial risk of being a law school dropout. The first-year law school attrition rate nationwide is 17.3% (for 2019-2020 academic year).<span class="ql-inline-citation" data-cite="10"></span> Enrolling in law school but failing to finish offers no greater marketability than a bachelor's degree. It does, however, substantially add to a person's debt load. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> All told, the decision to attend law school is one that should be approached with great consideration. Indeed, most attorneys have successful, high-paying careers. Supply and demand dynamics, however, have changed considerably since the 1980s, with fewer high-paying, entry-level jobs, and many more law school graduates chasing those jobs. Pile on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/younginvestors/09/private-or-federal-student-loans.asp">tuition costs</a>—which, for decades, have risen at nearly three times the inflation rate—and going to law school is not the financial no-brainer that it once was.<span class="ql-inline-citation" data-cite="11"></span>  </p></div>

## Is Law School Worth It? According to a Gallup-commissioned poll of 10,715 adults who obtained a law degree between 1941 and 2017, 88% said obtaining a law degree was 'very valuable' and 'valuable.' With the average law school debt coming in around $145,500, according to the most recent data from the National Center for Education Statistics. With many law school graduates somewhat regretting their decision to attend, it makes sense to examine whether going to law school is still worth it. Keeping in mind the high tuition costs, interest rates, and potential salaries, another good metric to consider would be its return on investment (ROI), calculated as its salary-to-debt ratio in a study by online lender [SoFi](https://www.investopedia.com/sofi-personal-loans-review-4797398). ### Key Takeaways * The majority of law school graduates (over 80%) feel that their degree is valuable to very valuable. * The average law school graduate debt is $145,500, while their starting salary comes in much less. * According to a SoFi survey, the school with the best salary-to-debt ratio is Brigham Young University, which comes in at 1.7x. ## Average Law School Debt and Costs Going to law school full-time requires a three-year commitment, and the average tuition and fees for just one of those years at an American Bar Association-accredited institution are already high. The average tuition at private law school was $55,993 in 2023, compared to an average of $30,554 at a public school. This cost does not include rent, food, transportation, and other living expenses. As the law school workload does not permit most students to hold jobs, [student loans](https://www.investopedia.com/articles/personal-finance/042415/earn-credit-card-rewards-paying-student-loans.asp) represent the most common method of paying these costs. Consequently, the average law school graduate has over $145,500 in student debt. For many students, student loan debt accumulates on top of debt they already carry from undergraduate school. While most lenders allow the deferment of undergraduate loan payments while attending law school, any unsubsidized portion of such debt continues to accrue interest. All told, it is not uncommon for a law school graduate to enter the working world with a sizable negative net worth.  ### $30,554 The average cost of law school per year at a public institution. ## Expected Salary After Law School Taking on such debt might be a smart investment if a law degree provided reasonable assurance of a high-paying job. Ideally, recent graduates should earn yearly salaries equal to or greater than their total student debt. This level of pay usually allows for paying off student loans within 10 years without materially affecting a person's lifestyle. Stories abound, however, of law school graduates struggling to find any sort of legal job, much less one that enables the repayment of student debt in a timely manner.  The New York Times revealed in 2015 that more than 20% of graduates from the class of 2010 held jobs that did not require law degrees. Only 40% worked in [law firms](https://www.investopedia.com/articles/personal-finance/010715/worlds-top-10-law-firms.asp), compared to 60% from the class of 2000. The remainder operated solo practices, with varying degrees of success, or performed contract work. The SoFi study, the latest which incorporates data from student-loan refinancing applications between 2014 and 2016, shows that some schools do better than others when it comes to both job placements and salaries. Looking at students three years out of law school, Cornell University, Columbia University, and New York University take the top three spots in the SoFi study with average salary paid in excess of $177,000. Consider that the [Bureau of Labor Statistics](https://www.investopedia.com/terms/b/bls.asp) in 2023 had a median income of $145,760.  For the class of 2023, Columbia University saw 97.66% of its graduates find full-time jobs, 10 months after graduation. At New York University, 97.06% of the class of 2023 is employed 10 months after graduation. In some cases, of course, students may choose to put off those high-money jobs for prestigious public service spots: In 2023, 57 of 205 Yale Law School graduates were employed in clerkships. Graduates of second-tier programs often settle for work outside of top law firms, where the pay is much lower. The 2022 median pay for law school graduates across the board was only $85,000. Idealistic young attorneys who choose public service fare even worse financially. Entry-level prosecuting attorneys earn a median pay of $56,200; public defenders do slightly better at $58,300. ## Schools with the Best Salary-to-Debt Ratio Even new lawyers who land good jobs rarely receive paychecks commensurate with their debt levels. The SoFi analysis also ranks law schools based on which offer the best value defined by their salary-to-debt ratio. That figure is an indication of how much more your potential salary could exceed your potential debt and help make a more informed decision about whether law school is worth it. Brigham Young University takes the number-one spot. With students expecting an average salary of $108,000 and holding an average debt just below $65,000, the school has an impressive 1.7x salary-to-debt ratio, making it a good value-for-money bet. Tied for second are the University of Texas at Austin, Yale University, and the University of Houston. The University of Texas at Austin comes with the ratio at 1.4x on the back of lower debt burden thanks to its relatively cheaper tuition. Yale Law School also ranks second with graduates' higher salaries of $177,771 compared to BYU at $64,873 and $147,44 at UT, but also because of its generosity with financial aid. Opting for schools that fare poorly on this metric could cost you. Take, for example, Florida Coastal School of Law, which ranked lowest on the SoFi ROI list, with a salary-to-debt ratio of 0.5x. Let's break down the numbers: The school's tuition, $43,000, is on par with some of the top schools in the country. Students graduate with $158,427 in debt—considerably higher than the $123,793 Yale grads have—but the average annual salary for graduates is only $84,664. ## Other Considerations The numbers do not consider the financial risk of being a law school dropout. The first-year law school attrition rate nationwide is 17.3% (for 2019-2020 academic year). Enrolling in law school but failing to finish offers no greater marketability than a bachelor's degree. It does, however, substantially add to a person's debt load. All told, the decision to attend law school is one that should be approached with great consideration. Indeed, most attorneys have successful, high-paying careers. Supply and demand dynamics, however, have changed considerably since the 1980s, with fewer high-paying, entry-level jobs, and many more law school graduates chasing those jobs. Pile on [tuition costs](https://www.investopedia.com/articles/younginvestors/09/private-or-federal-student-loans.asp)—which, for decades, have risen at nearly three times the inflation rate—and going to law school is not the financial no-brainer that it once was. 

Is Law School Worth It? According to a Gallup-commissioned poll of 10,715 adults who obtained a law degree between 1941 and 2017, 88% said obtaining a law degree was 'very valuable' and 'valuable.' With the average law school debt coming in around $145,500, according to the most recent data from the National Center for Education Statistics. With many law school graduates somewhat regretting their decision to attend, it makes sense to examine whether going to law school is still worth it. Keeping in mind the high tuition costs, interest rates, and potential salaries, another good metric to consider would be its return on investment (ROI), calculated as its salary-to-debt ratio in a study by online lender SoFi. Key Takeaways The majority of law school graduates (over 80%) feel that their degree is valuable to very valuable.The average law school graduate debt is $145,500, while their starting salary comes in much less. According to a SoFi survey, the school with the best salary-to-debt ratio is Brigham Young University, which comes in at 1.7x.  Average Law School Debt and Costs Going to law school full-time requires a three-year commitment, and the average tuition and fees for just one of those years at an American Bar Association-accredited institution are already high. The average tuition at private law school was $55,993 in 2023, compared to an average of $30,554 at a public school. This cost does not include rent, food, transportation, and other living expenses. As the law school workload does not permit most students to hold jobs, student loans represent the most common method of paying these costs. Consequently, the average law school graduate has over $145,500 in student debt. For many students, student loan debt accumulates on top of debt they already carry from undergraduate school. While most lenders allow the deferment of undergraduate loan payments while attending law school, any unsubsidized portion of such debt continues to accrue interest. All told, it is not uncommon for a law school graduate to enter the working world with a sizable negative net worth.  $30,554 The average cost of law school per year at a public institution. Expected Salary After Law School Taking on such debt might be a smart investment if a law degree provided reasonable assurance of a high-paying job. Ideally, recent graduates should earn yearly salaries equal to or greater than their total student debt. This level of pay usually allows for paying off student loans within 10 years without materially affecting a person's lifestyle. Stories abound, however, of law school graduates struggling to find any sort of legal job, much less one that enables the repayment of student debt in a timely manner.  The New York Times revealed in 2015 that more than 20% of graduates from the class of 2010 held jobs that did not require law degrees. Only 40% worked in law firms, compared to 60% from the class of 2000. The remainder operated solo practices, with varying degrees of success, or performed contract work. The SoFi study, the latest which incorporates data from student-loan refinancing applications between 2014 and 2016, shows that some schools do better than others when it comes to both job placements and salaries. Looking at students three years out of law school, Cornell University, Columbia University, and New York University take the top three spots in the SoFi study with average salary paid in excess of $177,000. Consider that the Bureau of Labor Statistics in 2023 had a median income of $145,760.  For the class of 2023, Columbia University saw 97.66% of its graduates find full-time jobs, 10 months after graduation. At New York University, 97.06% of the class of 2023 is employed 10 months after graduation. In some cases, of course, students may choose to put off those high-money jobs for prestigious public service spots: In 2023, 57 of 205 Yale Law School graduates were employed in clerkships. Graduates of second-tier programs often settle for work outside of top law firms, where the pay is much lower. The 2022 median pay for law school graduates across the board was only $85,000. Idealistic young attorneys who choose public service fare even worse financially. Entry-level prosecuting attorneys earn a median pay of $56,200; public defenders do slightly better at $58,300. Schools with the Best Salary-to-Debt Ratio Even new lawyers who land good jobs rarely receive paychecks commensurate with their debt levels. The SoFi analysis also ranks law schools based on which offer the best value defined by their salary-to-debt ratio. That figure is an indication of how much more your potential salary could exceed your potential debt and help make a more informed decision about whether law school is worth it. Brigham Young University takes the number-one spot. With students expecting an average salary of $108,000 and holding an average debt just below $65,000, the school has an impressive 1.7x salary-to-debt ratio, making it a good value-for-money bet. Tied for second are the University of Texas at Austin, Yale University, and the University of Houston. The University of Texas at Austin comes with the ratio at 1.4x on the back of lower debt burden thanks to its relatively cheaper tuition. Yale Law School also ranks second with graduates' higher salaries of $177,771 compared to BYU at $64,873 and $147,44 at UT, but also because of its generosity with financial aid. Opting for schools that fare poorly on this metric could cost you. Take, for example, Florida Coastal School of Law, which ranked lowest on the SoFi ROI list, with a salary-to-debt ratio of 0.5x. Let's break down the numbers: The school's tuition, $43,000, is on par with some of the top schools in the country. Students graduate with $158,427 in debt—considerably higher than the $123,793 Yale grads have—but the average annual salary for graduates is only $84,664. Other Considerations The numbers do not consider the financial risk of being a law school dropout. The first-year law school attrition rate nationwide is 17.3% (for 2019-2020 academic year). Enrolling in law school but failing to finish offers no greater marketability than a bachelor's degree. It does, however, substantially add to a person's debt load. All told, the decision to attend law school is one that should be approached with great consideration. Indeed, most attorneys have successful, high-paying careers. Supply and demand dynamics, however, have changed considerably since the 1980s, with fewer high-paying, entry-level jobs, and many more law school graduates chasing those jobs. Pile on tuition costs—which, for decades, have risen at nearly three times the inflation rate—and going to law school is not the financial no-brainer that it once was. 

https://www.investopedia.com/articles/active-trading/11/four-types-of-active-traders.asp

4 Common Active Trading Strategies

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-definition-of-active-trading"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> Definition of Active Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Active trading is the act of buying and selling securities based on short-term movements with the goal of making a quick profit. This is in contrast to passive investing where the approach is buy and hold over the long term. Traders often use a multitude of tools and strategies which include but are not limited to fundamental, quantitative and technical analysis. Some traders also focus on market news and events. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Additionally, active traders may trade a variety of financial instruments such as stocks, bonds, currencies and commodities. They may also use options, futures and derivatives to hedge their positions or increase potential returns. As it pertains to active trading strategies, there are four (4) common approaches. They are scalping, day trading, swing trading and position trading.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Active trading is a strategy that involves attempting to profit through identifying and timing trades, often holding these positions for short holding periods.</li><li>Scalping takes advantage of small pricing discrepancies in the very short term.</li><li>Day trading entails opening and closing positions within the same trading day.</li><li>Swing traders can hold positions from days to weeks or even months. The swing trader will rely heavily on technical analysis to identify when to enter and exit a position.</li><li>Position trading is a long-term trading strategy. Traders will hold positions from weeks to months, to even years.</li></ul></div></div></div> <span class="heading-toc" id="toc-1-scalping"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> 1. Scalping </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/scalping.asp">Scalping</a> involves profiting from small price movements in a security. Scalpers generally hold a trading position for a very short period of time, ranging from a few seconds to a few minutes and they aim to generate gains from small price fluctuations. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Traders who use the scalping approach have to consider the transactions fees and the bid-ask spreads. Because of the frequency of the trades that the scalper makes, these costs can be considerable if not managed efficiently, Additionally, scalping requires quick decision making, focus and discipline as scalpers must be able to enter and exit positions quickly in order to take advantage of small price movements.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_14-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Scalping can offer quick gains as traders aim to profit from small price movements in a short period</p></li> <li><p>Because of the high trading frequency, scalping allows traders to take advantage of numerous trading opportunities</p></li> <li><p>This approach aims to capture tiny price movements, reducing exposure to sudden market reactions</p></li> <li><p>Scalping can help traders develop strong habits because of the high level of discipline and focus it requires</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Scalping involves a high frequency of trading, which can result in high transaction costs such as commissions and bid-ask spreads</p></li> <li><p>This approach can be very stressful and emotionally draining</p></li> <li><p>Given the approach of capturing small profits frequently, scalping has a limited profit potential per trade</p></li> <li><p>Scalping requires solid risk management to juggle multiple positions and limit exposure to market risk</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-2-day-trading"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> 2. Day Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/daytrader.asp">Day trading</a> is a short term trading strategy whereby securities are bought and sold within the same trading day. Day traders aim to profit from price movements in a security and typically close all of their positions by the close of the market trading day. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The general public often associates day trading with individual investors who work from home or a small office and use their own capital to trade securities. However, day traders also work for large financial institutions such as banks, brokerage firms and hedge funds.<span class="ql-inline-citation" data-cite="7"></span><span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_21-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_22-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>There is a high potential for profits per trade, if executed correctly</p></li> <li><p>Day traders can work from anywhere with an internet connection, making it a convenient and flexible way to earn a living</p></li> <li><p>There is no overnight risk as day traders close all their positions by the end of the day</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Day trading is a high risk trading strategy and traders can lose a significant amount of money if they do not have a solid understanding of market trends and risk management techniques</p></li> <li><p>Trading costs can eat into potential profits</p></li> <li><p>Day trading is fast paced and can lead to emotional trading decisions such as overtrading or holding onto losing positions for too long</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-3-swing-trading"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> 3. Swing Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> This approach involves buying and holding securities for a short period of time, usually from a few days to a few months. The goal of swing trading is to gain from short term price movements in the market, buying when prices are low and selling when prices are high. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Swing traders have to manage sudden and unexpected moves in the market which can lead to losses. They have to stay informed about market trends and news. Additionally, swing traders need to have strong risk management skills and discipline to stick to their trading plan and avoid emotional trading decisions.<span class="ql-inline-citation" data-cite="10"></span><span class="ql-inline-citation" data-cite="9"></span><span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_29-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_30-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Reduced transaction costs relative to scalping and day trading</p></li> <li><p>Swing traders have more time to analyze market trends and make informed trading decisions, reducing the risk of emotional trading decisions</p></li> <li><p>Swing trading can offer more flexibility than position trading as traders can adjust their positions as market conditions change</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Swing traders may be exposed to sudden market events that can cause significant price movements</p></li> <li><p>This approach requires relatively more time commitment as swing traders need to spend time analyzing market trends and monitoring their positions</p></li> <li><p>Swing traders may miss out on long-term price movements as they only hold positions from a few days to a few months at most</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-4-position-trading"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> 4. Position Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> This approach entails holding positions in securities for an extended period, usually from several l months to years or even decades. The objective of position trading is to profit from major trends in the market rather than short term price movements. Position trading is less active than scalping, day trading and swing trading. Institutions typically allocate a portion of their trading book to this approach. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Generally position traders use fundamental analysis to identify securities that are undervalued or overvalued and hold these positions for the long term, waiting for the market to correct itself. Position traders may also use technical analysis to identify optimal entry and exit points.<span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="12"></span><span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_37-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_38-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Position trading can offer higher potential gains than the other active trading strategies as traders aim to profit from long term price movements</p></li> <li><p>There are fewer transaction costs due to the infrequency of trading</p></li> <li><p>Position traders can be more flexible in their trading strategy as they can adjust their positions as market conditions change</p></li> <li><p>With this approach there is more time to analyze market trends and make informed trading decisions, reducing the risk of emotional trades</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Position traders may be exposed to sudden market events that can cause large price movements</p></li> <li><p>This approach may limit the traders ability to take advantage of short term market opportunities</p></li> <li><p>Holding positions for an extended period can limit the trader's liquidity, making it difficult to add new positions</p></li> <li><p>Position traders must have a solid risk management plan to manage their positions and limit their exposure to market risk</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-advantages-of-active-trading"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> Advantages of Active Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> There are several reasons why individuals and entities consider active trading strategies. These include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <li><strong>High return potential</strong>: There is a potential for higher returns when compared to passive investment strategies. By actively monitoring the market and making informed decisions, traders can take advantage of short term price movements and profit from market volatility.</li><li><strong>Flexibility</strong>: Traders can adjust their trading strategies to take advantage of changing market conditions and adapt their strategies based on their risk tolerance.</li><li><strong>Control</strong>: Active traders have greater control over their investment decisions compared to passive investors. They can choose entry and exit points, set stop loss and profit levels and manage their risk exposures.<strong><span class="ql-cursor"></span></strong></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <span class="heading-toc" id="toc-limitations-of-active-trading"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-heading__text"> Limitations of Active Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Individuals and entities should be aware of the limitations of active trading. These limitations include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> <li><strong>High risk</strong>: There is a higher level of risk involved relative to passive investing strategies. Traders must be able to manage their risk effectively and have a solid understanding of risk management concepts and techniques.</li><li><strong>Time and effort</strong>: Active trading requires an enormous amount of time and effort. Traders must monitor the market and make informed decisions, which can be time consuming and stressful.</li><li><strong>Transaction costs:</strong> Because of the increased frequency of trading, there will be a larger amount of transaction costs, commissions and fees associated with this approach.</li><li><strong>Emotional stress</strong>: Active trading can be emotionally stressful, particularly during periods of market volatility.</li><li><strong>Tax implications</strong>: Short term capital gains taxes can occur through the short term profits generated by active trading.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_50-0"><span class="heading-toc" id="toc-how-do-i-start-active-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Start Active Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>To be an active trader one would require a solid understanding of the financial markets, trading strategies and risk management techniques. To get to this point one must first learn the basics of financial markets and trading. Then, choose a trading strategy such as scalping, day trading, swing trading or position trading. Next, develop a trading plan. After that one should choose a broker and practice trading and the trading strategy on a model account. Finally one should then execute the trading strategy live.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-is-day-trading-profitable"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Day Trading Profitable?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Day trading can be profitable but profitability is not guaranteed. Successful day traders have a solid understanding of market trends, technical analysis and risk management. They also have the discipline and focus to execute their trading plan consistently over time. Traders should carefully weigh the benefits against the risks and limitations of day trading.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-how-do-i-swing-trade"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Swing Trade?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Firstly one must learn the basics of swing trading. This involves understanding the concept of swing highs and lows, identifying trends and using technical indicators to analyze the market. Then one should choose a market to trade such as stocks, currencies or futures. After that one should develop a trading plan and analyze the respective market with that trading plan. Technical analysis is often used to find swing highs and lows, trend lines, as well as support and resistance levels.</p><p><br/></p><p>When potential trading opportunities are identified, one should enter the trade based on the trading plan. Stop loss and profit levels should be set to manage risk and reward. The positions should be monitored and adjusted if necessary based on market conditions. Finally, post trader analysis should be done to refine one's approach to swing trading.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Active trading strategies refer to short-term trading strategies that involve buying and selling securities frequently to take advantage of short-term price movements in the market. Scalping is the most aggressive form of active trading and involves making trades in a matter of seconds or minutes to profit from small price movements. Day trading is another form of active trading that involves holding positions for a single day to profit from short-term price movements, while swing trading involves holding positions for several days to a few months to profit from intermediate price trends. Position trading, on the other hand, involves holding positions for an extended period of time, usually several months or longer, to profit from major price trends in the market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> While all active trading strategies have the potential for profit, they are also associated with significant risks, including high transaction costs, volatility, and emotional trading decisions. Traders who engage in these strategies must have a solid understanding of market trends, technical analysis, and risk management techniques to succeed. </p></div>

## Definition of Active Trading Active trading is the act of buying and selling securities based on short-term movements with the goal of making a quick profit. This is in contrast to passive investing where the approach is buy and hold over the long term. Traders often use a multitude of tools and strategies which include but are not limited to fundamental, quantitative and technical analysis. Some traders also focus on market news and events. Additionally, active traders may trade a variety of financial instruments such as stocks, bonds, currencies and commodities. They may also use options, futures and derivatives to hedge their positions or increase potential returns. As it pertains to active trading strategies, there are four (4) common approaches. They are scalping, day trading, swing trading and position trading. ### Key Takeaways * Active trading is a strategy that involves attempting to profit through identifying and timing trades, often holding these positions for short holding periods. * Scalping takes advantage of small pricing discrepancies in the very short term. * Day trading entails opening and closing positions within the same trading day. * Swing traders can hold positions from days to weeks or even months. The swing trader will rely heavily on technical analysis to identify when to enter and exit a position. * Position trading is a long-term trading strategy. Traders will hold positions from weeks to months, to even years. ## 1. Scalping [Scalping](https://www.investopedia.com/terms/s/scalping.asp) involves profiting from small price movements in a security. Scalpers generally hold a trading position for a very short period of time, ranging from a few seconds to a few minutes and they aim to generate gains from small price fluctuations. Traders who use the scalping approach have to consider the transactions fees and the bid-ask spreads. Because of the frequency of the trades that the scalper makes, these costs can be considerable if not managed efficiently, Additionally, scalping requires quick decision making, focus and discipline as scalpers must be able to enter and exit positions quickly in order to take advantage of small price movements. Pros * Scalping can offer quick gains as traders aim to profit from small price movements in a short period * Because of the high trading frequency, scalping allows traders to take advantage of numerous trading opportunities * This approach aims to capture tiny price movements, reducing exposure to sudden market reactions * Scalping can help traders develop strong habits because of the high level of discipline and focus it requires Cons * Scalping involves a high frequency of trading, which can result in high transaction costs such as commissions and bid-ask spreads * This approach can be very stressful and emotionally draining * Given the approach of capturing small profits frequently, scalping has a limited profit potential per trade * Scalping requires solid risk management to juggle multiple positions and limit exposure to market risk ## 2. Day Trading [Day trading](https://www.investopedia.com/terms/d/daytrader.asp) is a short term trading strategy whereby securities are bought and sold within the same trading day. Day traders aim to profit from price movements in a security and typically close all of their positions by the close of the market trading day. The general public often associates day trading with individual investors who work from home or a small office and use their own capital to trade securities. However, day traders also work for large financial institutions such as banks, brokerage firms and hedge funds. Pros * There is a high potential for profits per trade, if executed correctly * Day traders can work from anywhere with an internet connection, making it a convenient and flexible way to earn a living * There is no overnight risk as day traders close all their positions by the end of the day Cons * Day trading is a high risk trading strategy and traders can lose a significant amount of money if they do not have a solid understanding of market trends and risk management techniques * Trading costs can eat into potential profits * Day trading is fast paced and can lead to emotional trading decisions such as overtrading or holding onto losing positions for too long ## 3. Swing Trading This approach involves buying and holding securities for a short period of time, usually from a few days to a few months. The goal of swing trading is to gain from short term price movements in the market, buying when prices are low and selling when prices are high. Swing traders have to manage sudden and unexpected moves in the market which can lead to losses. They have to stay informed about market trends and news. Additionally, swing traders need to have strong risk management skills and discipline to stick to their trading plan and avoid emotional trading decisions. Pros * Reduced transaction costs relative to scalping and day trading * Swing traders have more time to analyze market trends and make informed trading decisions, reducing the risk of emotional trading decisions * Swing trading can offer more flexibility than position trading as traders can adjust their positions as market conditions change Cons * Swing traders may be exposed to sudden market events that can cause significant price movements * This approach requires relatively more time commitment as swing traders need to spend time analyzing market trends and monitoring their positions * Swing traders may miss out on long-term price movements as they only hold positions from a few days to a few months at most ## 4. Position Trading This approach entails holding positions in securities for an extended period, usually from several l months to years or even decades. The objective of position trading is to profit from major trends in the market rather than short term price movements. Position trading is less active than scalping, day trading and swing trading. Institutions typically allocate a portion of their trading book to this approach. Generally position traders use fundamental analysis to identify securities that are undervalued or overvalued and hold these positions for the long term, waiting for the market to correct itself. Position traders may also use technical analysis to identify optimal entry and exit points. Pros * Position trading can offer higher potential gains than the other active trading strategies as traders aim to profit from long term price movements * There are fewer transaction costs due to the infrequency of trading * Position traders can be more flexible in their trading strategy as they can adjust their positions as market conditions change * With this approach there is more time to analyze market trends and make informed trading decisions, reducing the risk of emotional trades Cons * Position traders may be exposed to sudden market events that can cause large price movements * This approach may limit the traders ability to take advantage of short term market opportunities * Holding positions for an extended period can limit the trader's liquidity, making it difficult to add new positions * Position traders must have a solid risk management plan to manage their positions and limit their exposure to market risk ## Advantages of Active Trading There are several reasons why individuals and entities consider active trading strategies. These include: * **High return potential**: There is a potential for higher returns when compared to passive investment strategies. By actively monitoring the market and making informed decisions, traders can take advantage of short term price movements and profit from market volatility. * **Flexibility**: Traders can adjust their trading strategies to take advantage of changing market conditions and adapt their strategies based on their risk tolerance. * **Control**: Active traders have greater control over their investment decisions compared to passive investors. They can choose entry and exit points, set stop loss and profit levels and manage their risk exposures. ## Limitations of Active Trading Individuals and entities should be aware of the limitations of active trading. These limitations include: * **High risk**: There is a higher level of risk involved relative to passive investing strategies. Traders must be able to manage their risk effectively and have a solid understanding of risk management concepts and techniques. * **Time and effort**: Active trading requires an enormous amount of time and effort. Traders must monitor the market and make informed decisions, which can be time consuming and stressful. * **Transaction costs:** Because of the increased frequency of trading, there will be a larger amount of transaction costs, commissions and fees associated with this approach. * **Emotional stress**: Active trading can be emotionally stressful, particularly during periods of market volatility. * **Tax implications**: Short term capital gains taxes can occur through the short term profits generated by active trading. ## How Do I Start Active Trading? To be an active trader one would require a solid understanding of the financial markets, trading strategies and risk management techniques. To get to this point one must first learn the basics of financial markets and trading. Then, choose a trading strategy such as scalping, day trading, swing trading or position trading. Next, develop a trading plan. After that one should choose a broker and practice trading and the trading strategy on a model account. Finally one should then execute the trading strategy live. ## Is Day Trading Profitable? Day trading can be profitable but profitability is not guaranteed. Successful day traders have a solid understanding of market trends, technical analysis and risk management. They also have the discipline and focus to execute their trading plan consistently over time. Traders should carefully weigh the benefits against the risks and limitations of day trading. ## How Do I Swing Trade? Firstly one must learn the basics of swing trading. This involves understanding the concept of swing highs and lows, identifying trends and using technical indicators to analyze the market. Then one should choose a market to trade such as stocks, currencies or futures. After that one should develop a trading plan and analyze the respective market with that trading plan. Technical analysis is often used to find swing highs and lows, trend lines, as well as support and resistance levels. When potential trading opportunities are identified, one should enter the trade based on the trading plan. Stop loss and profit levels should be set to manage risk and reward. The positions should be monitored and adjusted if necessary based on market conditions. Finally, post trader analysis should be done to refine one's approach to swing trading. ## The Bottom Line Active trading strategies refer to short-term trading strategies that involve buying and selling securities frequently to take advantage of short-term price movements in the market. Scalping is the most aggressive form of active trading and involves making trades in a matter of seconds or minutes to profit from small price movements. Day trading is another form of active trading that involves holding positions for a single day to profit from short-term price movements, while swing trading involves holding positions for several days to a few months to profit from intermediate price trends. Position trading, on the other hand, involves holding positions for an extended period of time, usually several months or longer, to profit from major price trends in the market. While all active trading strategies have the potential for profit, they are also associated with significant risks, including high transaction costs, volatility, and emotional trading decisions. Traders who engage in these strategies must have a solid understanding of market trends, technical analysis, and risk management techniques to succeed.

Definition of Active Trading Active trading is the act of buying and selling securities based on short-term movements with the goal of making a quick profit. This is in contrast to passive investing where the approach is buy and hold over the long term. Traders often use a multitude of tools and strategies which include but are not limited to fundamental, quantitative and technical analysis. Some traders also focus on market news and events. Additionally, active traders may trade a variety of financial instruments such as stocks, bonds, currencies and commodities. They may also use options, futures and derivatives to hedge their positions or increase potential returns. As it pertains to active trading strategies, there are four (4) common approaches. They are scalping, day trading, swing trading and position trading. Key Takeaways Active trading is a strategy that involves attempting to profit through identifying and timing trades, often holding these positions for short holding periods.Scalping takes advantage of small pricing discrepancies in the very short term.Day trading entails opening and closing positions within the same trading day.Swing traders can hold positions from days to weeks or even months. The swing trader will rely heavily on technical analysis to identify when to enter and exit a position.Position trading is a long-term trading strategy. Traders will hold positions from weeks to months, to even years. 1. Scalping Scalping involves profiting from small price movements in a security. Scalpers generally hold a trading position for a very short period of time, ranging from a few seconds to a few minutes and they aim to generate gains from small price fluctuations. Traders who use the scalping approach have to consider the transactions fees and the bid-ask spreads. Because of the frequency of the trades that the scalper makes, these costs can be considerable if not managed efficiently, Additionally, scalping requires quick decision making, focus and discipline as scalpers must be able to enter and exit positions quickly in order to take advantage of small price movements. Pros Scalping can offer quick gains as traders aim to profit from small price movements in a short period Because of the high trading frequency, scalping allows traders to take advantage of numerous trading opportunities This approach aims to capture tiny price movements, reducing exposure to sudden market reactions Scalping can help traders develop strong habits because of the high level of discipline and focus it requires Cons Scalping involves a high frequency of trading, which can result in high transaction costs such as commissions and bid-ask spreads This approach can be very stressful and emotionally draining Given the approach of capturing small profits frequently, scalping has a limited profit potential per trade Scalping requires solid risk management to juggle multiple positions and limit exposure to market risk 2. Day Trading Day trading is a short term trading strategy whereby securities are bought and sold within the same trading day. Day traders aim to profit from price movements in a security and typically close all of their positions by the close of the market trading day. The general public often associates day trading with individual investors who work from home or a small office and use their own capital to trade securities. However, day traders also work for large financial institutions such as banks, brokerage firms and hedge funds. Pros There is a high potential for profits per trade, if executed correctly Day traders can work from anywhere with an internet connection, making it a convenient and flexible way to earn a living There is no overnight risk as day traders close all their positions by the end of the day Cons Day trading is a high risk trading strategy and traders can lose a significant amount of money if they do not have a solid understanding of market trends and risk management techniques Trading costs can eat into potential profits Day trading is fast paced and can lead to emotional trading decisions such as overtrading or holding onto losing positions for too long 3. Swing Trading This approach involves buying and holding securities for a short period of time, usually from a few days to a few months. The goal of swing trading is to gain from short term price movements in the market, buying when prices are low and selling when prices are high. Swing traders have to manage sudden and unexpected moves in the market which can lead to losses. They have to stay informed about market trends and news. Additionally, swing traders need to have strong risk management skills and discipline to stick to their trading plan and avoid emotional trading decisions. Pros Reduced transaction costs relative to scalping and day trading Swing traders have more time to analyze market trends and make informed trading decisions, reducing the risk of emotional trading decisions Swing trading can offer more flexibility than position trading as traders can adjust their positions as market conditions change Cons Swing traders may be exposed to sudden market events that can cause significant price movements This approach requires relatively more time commitment as swing traders need to spend time analyzing market trends and monitoring their positions Swing traders may miss out on long-term price movements as they only hold positions from a few days to a few months at most 4. Position Trading This approach entails holding positions in securities for an extended period, usually from several l months to years or even decades. The objective of position trading is to profit from major trends in the market rather than short term price movements. Position trading is less active than scalping, day trading and swing trading. Institutions typically allocate a portion of their trading book to this approach. Generally position traders use fundamental analysis to identify securities that are undervalued or overvalued and hold these positions for the long term, waiting for the market to correct itself. Position traders may also use technical analysis to identify optimal entry and exit points. Pros Position trading can offer higher potential gains than the other active trading strategies as traders aim to profit from long term price movements There are fewer transaction costs due to the infrequency of trading Position traders can be more flexible in their trading strategy as they can adjust their positions as market conditions change With this approach there is more time to analyze market trends and make informed trading decisions, reducing the risk of emotional trades Cons Position traders may be exposed to sudden market events that can cause large price movements This approach may limit the traders ability to take advantage of short term market opportunities Holding positions for an extended period can limit the trader's liquidity, making it difficult to add new positions Position traders must have a solid risk management plan to manage their positions and limit their exposure to market risk Advantages of Active Trading There are several reasons why individuals and entities consider active trading strategies. These include: High return potential: There is a potential for higher returns when compared to passive investment strategies. By actively monitoring the market and making informed decisions, traders can take advantage of short term price movements and profit from market volatility.Flexibility: Traders can adjust their trading strategies to take advantage of changing market conditions and adapt their strategies based on their risk tolerance.Control: Active traders have greater control over their investment decisions compared to passive investors. They can choose entry and exit points, set stop loss and profit levels and manage their risk exposures. Limitations of Active Trading Individuals and entities should be aware of the limitations of active trading. These limitations include: High risk: There is a higher level of risk involved relative to passive investing strategies. Traders must be able to manage their risk effectively and have a solid understanding of risk management concepts and techniques.Time and effort: Active trading requires an enormous amount of time and effort. Traders must monitor the market and make informed decisions, which can be time consuming and stressful.Transaction costs: Because of the increased frequency of trading, there will be a larger amount of transaction costs, commissions and fees associated with this approach.Emotional stress: Active trading can be emotionally stressful, particularly during periods of market volatility.Tax implications: Short term capital gains taxes can occur through the short term profits generated by active trading. How Do I Start Active Trading? To be an active trader one would require a solid understanding of the financial markets, trading strategies and risk management techniques. To get to this point one must first learn the basics of financial markets and trading. Then, choose a trading strategy such as scalping, day trading, swing trading or position trading. Next, develop a trading plan. After that one should choose a broker and practice trading and the trading strategy on a model account. Finally one should then execute the trading strategy live. Is Day Trading Profitable? Day trading can be profitable but profitability is not guaranteed. Successful day traders have a solid understanding of market trends, technical analysis and risk management. They also have the discipline and focus to execute their trading plan consistently over time. Traders should carefully weigh the benefits against the risks and limitations of day trading. How Do I Swing Trade? Firstly one must learn the basics of swing trading. This involves understanding the concept of swing highs and lows, identifying trends and using technical indicators to analyze the market. Then one should choose a market to trade such as stocks, currencies or futures. After that one should develop a trading plan and analyze the respective market with that trading plan. Technical analysis is often used to find swing highs and lows, trend lines, as well as support and resistance levels.When potential trading opportunities are identified, one should enter the trade based on the trading plan. Stop loss and profit levels should be set to manage risk and reward. The positions should be monitored and adjusted if necessary based on market conditions. Finally, post trader analysis should be done to refine one's approach to swing trading. The Bottom Line Active trading strategies refer to short-term trading strategies that involve buying and selling securities frequently to take advantage of short-term price movements in the market. Scalping is the most aggressive form of active trading and involves making trades in a matter of seconds or minutes to profit from small price movements. Day trading is another form of active trading that involves holding positions for a single day to profit from short-term price movements, while swing trading involves holding positions for several days to a few months to profit from intermediate price trends. Position trading, on the other hand, involves holding positions for an extended period of time, usually several months or longer, to profit from major price trends in the market. While all active trading strategies have the potential for profit, they are also associated with significant risks, including high transaction costs, volatility, and emotional trading decisions. Traders who engage in these strategies must have a solid understanding of market trends, technical analysis, and risk management techniques to succeed.

https://www.investopedia.com/arm-q4-fy-2024-earnings-8645295

Arm Stock Plunges Despite Revenue, Earnings Beat as Guidance Misses Expectations

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Arm reported fiscal fourth-quarter earnings and revenue Wednesday that beat analysts' estimates.</li><li>The chip designer said record-high royalty revenue helped drive a 47% year-over-year jump in its overall revenue.</li><li>However the company's shares tumbled in extended trading Wednesday as its guidance for fiscal 2025 missed analysts' expectations.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Arm Holdings (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARM">ARM</a>) shares tumbled over 6% in extended trading Wednesday after the British semiconductor chip designer's better-than-expected results for the fiscal fourth quarter were overshadowed by guidance for fiscal 2025 that missed estimates.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The company's revenue for the fourth quarter of fiscal 2024 was $928 million, a 47% year-over-year increase and above analysts' projections. Net income came in at $224 million or 21 cents per share, up from $3 million or 0 cents per share in the year-ago quarter, and also blew past analysts' expectations, according to estimates compiled by Visible Alpha. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_7-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td></td> <td>Q4 FY 2024</td> <td>Analyst Estimates for Q4 FY 2024</td> <td>Q4 FY 2023</td> </tr> <tr> <td>Revenue</td> <td>$928 million</td> <td>$880.90 million</td> <td>$633 million</td> </tr> <tr> <td>Diluted Earnings Per Share</td> <td>21 cents</td> <td>14 cents</td> <td>0 cents</td> </tr> <tr> <td>Net Income</td> <td>$224 million</td> <td>$140.6 million</td> <td>$3 million</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The company indicated record-high royalty revenue drove its revenue beat, accounting for $514 million of total revenue. Arm highlighted that "chips based on Armv9 technology now contribute around 20% of royalty revenue, up from around 15% last quarter." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> "From cloud to edge, all AI software models, from GPT to Llama, rely and run on the Arm compute platform," Arm CEO Rene Haas said, adding that "as these models become larger and smarter, their requirements for more compute with greater power efficiency can only be realized through Arm." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> However, despite what the CEO described as "strong tailwinds heading into FYE25 as AI is driving increased demand for Arm-based technology," the company's guidance for fiscal 2025 missed analysts' expectations. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The company said it anticipates its full-year revenue for fiscal 2025 to be between $3.8 billion and $4.1 billion, up from $3.2 billion in fiscal 2024, but short of the $4.03 billion analysts expected, estimates compiled by Visible Alpha indicated.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Arm shares were down nearly 7% at $99 in extended trading around 5:30 p.m. ET Wednesday following the release of the company's earnings report. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * Arm reported fiscal fourth-quarter earnings and revenue Wednesday that beat analysts' estimates. * The chip designer said record-high royalty revenue helped drive a 47% year-over-year jump in its overall revenue. * However the company's shares tumbled in extended trading Wednesday as its guidance for fiscal 2025 missed analysts' expectations. Arm Holdings ([ARM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARM)) shares tumbled over 6% in extended trading Wednesday after the British semiconductor chip designer's better-than-expected results for the fiscal fourth quarter were overshadowed by guidance for fiscal 2025 that missed estimates. The company's revenue for the fourth quarter of fiscal 2024 was $928 million, a 47% year-over-year increase and above analysts' projections. Net income came in at $224 million or 21 cents per share, up from $3 million or 0 cents per share in the year-ago quarter, and also blew past analysts' expectations, according to estimates compiled by Visible Alpha. | | Q4 FY 2024 | Analyst Estimates for Q4 FY 2024 | Q4 FY 2023 | | --- | --- | --- | --- | | Revenue | $928 million | $880.90 million | $633 million | | Diluted Earnings Per Share | 21 cents | 14 cents | 0 cents | | Net Income | $224 million | $140.6 million | $3 million | The company indicated record-high royalty revenue drove its revenue beat, accounting for $514 million of total revenue. Arm highlighted that "chips based on Armv9 technology now contribute around 20% of royalty revenue, up from around 15% last quarter." "From cloud to edge, all AI software models, from GPT to Llama, rely and run on the Arm compute platform," Arm CEO Rene Haas said, adding that "as these models become larger and smarter, their requirements for more compute with greater power efficiency can only be realized through Arm." However, despite what the CEO described as "strong tailwinds heading into FYE25 as AI is driving increased demand for Arm-based technology," the company's guidance for fiscal 2025 missed analysts' expectations. The company said it anticipates its full-year revenue for fiscal 2025 to be between $3.8 billion and $4.1 billion, up from $3.2 billion in fiscal 2024, but short of the $4.03 billion analysts expected, estimates compiled by Visible Alpha indicated. Arm shares were down nearly 7% at $99 in extended trading around 5:30 p.m. ET Wednesday following the release of the company's earnings report. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Arm reported fiscal fourth-quarter earnings and revenue Wednesday that beat analysts' estimates.The chip designer said record-high royalty revenue helped drive a 47% year-over-year jump in its overall revenue.However the company's shares tumbled in extended trading Wednesday as its guidance for fiscal 2025 missed analysts' expectations. Arm Holdings (ARM) shares tumbled over 6% in extended trading Wednesday after the British semiconductor chip designer's better-than-expected results for the fiscal fourth quarter were overshadowed by guidance for fiscal 2025 that missed estimates. The company's revenue for the fourth quarter of fiscal 2024 was $928 million, a 47% year-over-year increase and above analysts' projections. Net income came in at $224 million or 21 cents per share, up from $3 million or 0 cents per share in the year-ago quarter, and also blew past analysts' expectations, according to estimates compiled by Visible Alpha. Q4 FY 2024 Analyst Estimates for Q4 FY 2024 Q4 FY 2023 Revenue $928 million $880.90 million $633 million Diluted Earnings Per Share 21 cents 14 cents 0 cents Net Income $224 million $140.6 million $3 million The company indicated record-high royalty revenue drove its revenue beat, accounting for $514 million of total revenue. Arm highlighted that "chips based on Armv9 technology now contribute around 20% of royalty revenue, up from around 15% last quarter." "From cloud to edge, all AI software models, from GPT to Llama, rely and run on the Arm compute platform," Arm CEO Rene Haas said, adding that "as these models become larger and smarter, their requirements for more compute with greater power efficiency can only be realized through Arm." However, despite what the CEO described as "strong tailwinds heading into FYE25 as AI is driving increased demand for Arm-based technology," the company's guidance for fiscal 2025 missed analysts' expectations. The company said it anticipates its full-year revenue for fiscal 2025 to be between $3.8 billion and $4.1 billion, up from $3.2 billion in fiscal 2024, but short of the $4.03 billion analysts expected, estimates compiled by Visible Alpha indicated. Arm shares were down nearly 7% at $99 in extended trading around 5:30 p.m. ET Wednesday following the release of the company's earnings report. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/gen-z-guide-roth-iras-5220325

Gen Z Guide to Roth IRAs

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Is it ever too early to start investing? Experts say no—and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/generation-z-gen-z-definition-5218554">Gen Z</a> is listening. For those born in the 1997–2012 years, the time to act is now. As this generation starts their careers, they are diving into the investing pool and finding strong traction with IRAs. In a 2022 study by Fidelity, the number of Gen Z IRA investors rose 71% compared to Q4 2021.<span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Let's dive into what a Roth IRA is and why its design makes them appealing to Gen Z investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Investors use after-tax dollars to contribute to a Roth individual retirement account (Roth IRA).<span class="ql-inline-citation" data-cite="4"></span></li><li>Their contributions can be withdrawn with no penalty for qualified reasons.<span class="ql-inline-citation" data-cite="4"></span></li><li>Anyone can start a Roth IRA, regardless of age, as long as they earn income. However, there are income limits to be mindful of that may limit contributions.<span class="ql-inline-citation" data-cite="13"></span></li><li>Withdrawals after age 59½ are tax- and penalty-free.<span class="ql-inline-citation" data-cite="6"></span></li><li>There is no mandatory disbursement age for funds.<span class="ql-inline-citation" data-cite="6"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-roth-ira-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> How a Roth IRA Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A Roth IRA is an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">individual retirement account</a> that accepts contributions using <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aftertaxcontribution.asp">after-tax dollars</a>. Because they are taxed upfront, there is no tax burden when money is withdrawn later in life. A <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/traditionalira.asp">traditional IRA</a> does the opposite—contributions are made with <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pretaxcontribution.asp">pretax dollars</a>, which lowers your yearly income for tax purposes.<span class="ql-inline-citation" data-cite="4"></span> While a Roth IRA doesn’t help you in the year when you invest, it could save a lot of money in tax payments later. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-who-can-have-a-roth-ira"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Who Can Have a Roth IRA? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Anyone of any age can have a Roth IRA as long as they meet certain conditions: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <li>They must have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnedincome.asp">earned income</a>.</li> <li>Contributions can’t exceed the amount of income earned in a year.</li> <li>Their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/magi.asp">modified adjusted gross income (MAGI)</a> can’t exceed the amount set by the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service (IRS)</a> for that year.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="9"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> For example, if 14-year-old Sienna earns money from a part-time restaurant job, she is eligible to contribute to a Roth IRA. If she earned $5,000 that year, she can contribute up to $5,000. However, she can’t contribute money given to her as gifts or an allowance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-contribution-limits"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Contribution Limits </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Just as there are limits on what type of money you can contribute, there are limits to how much you can contribute based on your MAGI. For 2023, you can contribute up to $6,500 ($7,500 if age 50 or older).<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> These contribution amounts may be limited based on your MAGI. If you earn too much money, your contribution amount may be reduced or eliminated entirely. These contribution limits also depend on your filing status, and earners that fall between the lower thresholds and upper thresholds below may be eligible to make partial contributions: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li><strong>Single Taxpayers: </strong>For 2023, single earners may make up to $138,000 and make full Roth IRA contributions. If the single earner makes more than $153,000 in 2023, they can not make Roth IRA contributions.<span class="ql-inline-citation" data-cite="9"></span></li><li><strong>Married Filing Joint Taxpayers:</strong> For 2023, MFJ taxpayers may make up to $218,000 and make full Roth IRA contributions. If the MFJ taxpayer makes more than $228,000 in 2023, they can not make Roth IRA contributions.<span class="ql-inline-citation" data-cite="9"></span></li><li><strong>Married Filing Separate Taxpayers:</strong> MFS taxpayers may make partial contributions to their Roth IRA when their MAGI is between $0 and $10,000. Taxpayers whose MAGI exceeds $10,000 can not make Roth IRA contributions.<span class="ql-inline-citation" data-cite="15"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>You can only contribute earned income—wages, salaries, bonuses, or self-employment income—to a Roth IRA.<span class="ql-inline-citation" data-cite="13"></span></p></div></div></div> <span class="heading-toc" id="toc-benefits-of-roth-iras"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_26-0"> <span class="mntl-sc-block-heading__text"> Benefits of Roth IRAs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Roth IRAs offer the opportunity to pay your taxes up front, eliminating taxes on withdrawals when you retire. For those who believe they are in a lower <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxbracket.asp">tax bracket</a> now than they will be when they retire, this can be a huge advantage. Since most of Gen Z are just starting their careers, it’s easy to assume that their earnings and tax bracket will only go up from here. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> The ability to withdraw your contributions anytime is also a huge asset. You can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/roth-ira-withdrawal-rules-4769951">withdraw</a> the money you’ve contributed to your Roth IRA at any time—you’ve already paid taxes on it, so there are no fees, penalties, or taxes. With a limit of $6,500 in 2023 (excluding catch-up contributions), the money you contribute is essentially in a hard-to-access holding account as its earnings are reinvested.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Roth IRAs are friendlier to entrepreneurs. If you can prove that you earned income, you can open a Roth IRA, regardless of age. Many other investment tools have age requirements that eliminate young people altogether. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> You also don’t have to withdraw the money at any certain time—or ever. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/">Unlike traditional IRAs</a> that require minimum distributions at age 73, Roth IRAs allow you to keep the money indefinitely.<span class="ql-inline-citation" data-cite="3"></span> You can even pass it on to your heirs untouched, and they can inherit the money tax-free as well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-drawbacks-of-roth-iras"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> Drawbacks of Roth IRAs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Ideally, your investment will earn money as well. Withdrawing your earnings has a different set of standards. To withdraw your earnings without penalty before age 59½, you must meet certain conditions, such as the following: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <li>You are using the funds to buy or build your first home.</li><li>You have a permanent disability.</li><li>You are the recipient of the Roth IRA from the original owner’s death.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Earnings may be withdrawn for other reasons, but they will be taxed at your current income rate, as well as incurring a 10% penalty. Earnings may be withdrawn penalty free to pay for education expenses for you, a spouse, or a child, but the withdrawal will still be taxed.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Although tax-free income in your retirement years is ideal, lowering your tax burden now is also attractive. The money you save in taxes now can be invested for the future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_44-0"><span class="heading-toc" id="toc-what-counts-as-earned-income-for-a-roth-ira"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Counts as Earned Income for a Roth IRA?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/roth-ira-contributions-with-no-job-4770755">Earned income</a> for a Roth individual retirement account (Roth IRA) is typically considered wages, salaries, tips, bonuses, commissions, or self-employment income. There are some out-of-the-ordinary forms of income, such as income from selling non-qualified stock options or certain scholarships or fellowships. If you are married but don’t earn taxable income, you may open a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-spousal-roth-ira-4770888">spousal Roth IRA</a> using your spouse’s income.<span class="ql-inline-citation" data-cite="13"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-can-i-have-both-a-roth-ira-and-a-traditional-ira"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Have Both a Roth IRA and a Traditional IRA?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, you can contribute to both a Roth IRA and a traditional IRA. However, you can only contribute up to the yearly Internal Revenue Service (IRS) limit for both accounts. For example, you cannot contribute more than $6,500 to both accounts in aggregate in the same year in 2023.<span class="ql-inline-citation" data-cite="15"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-will-gen-z-pay-higher-taxes-in-retirement"></span> <h2 class="mntl-sc-block-questionandanswer__question">Will Gen Z Pay Higher Taxes in Retirement?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Tax law is highly variable and changes frequently. There’s no guarantee of what the tax code will look like when Gen Z reaches retirement age. Very broadly speaking, Gen Z individuals (especially those just starting their careers) are more likely to move into higher-paying jobs and shift into higher tax brackets as they age. For this reason, a Roth IRA is more favorable to Gen Z as their tax liability is generally not as high as an older individual further along in their career with higher pay.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> As they <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/generation-z-stepping-into-financial-independence-5224362">enter the workforce</a>, Gen Z has a huge opportunity to leverage their lower tax bracket to harvest wealth in their retirement years. Roth IRAs may not lower your taxes now, but tax-free income at retirement can make a huge difference, depending on how the tax code changes. Roth IRAs also offer flexible investment options for those thinking of buying a home or sending a loved one to college. </p></div>

Is it ever too early to start investing? Experts say no—and [Gen Z](https://www.investopedia.com/generation-z-gen-z-definition-5218554) is listening. For those born in the 1997–2012 years, the time to act is now. As this generation starts their careers, they are diving into the investing pool and finding strong traction with IRAs. In a 2022 study by Fidelity, the number of Gen Z IRA investors rose 71% compared to Q4 2021. Let's dive into what a Roth IRA is and why its design makes them appealing to Gen Z investors. ### Key Takeaways * Investors use after-tax dollars to contribute to a Roth individual retirement account (Roth IRA). * Their contributions can be withdrawn with no penalty for qualified reasons. * Anyone can start a Roth IRA, regardless of age, as long as they earn income. However, there are income limits to be mindful of that may limit contributions. * Withdrawals after age 59½ are tax- and penalty-free. * There is no mandatory disbursement age for funds. ## How a Roth IRA Works A Roth IRA is an [individual retirement account](https://www.investopedia.com/terms/i/ira.asp) that accepts contributions using [after-tax dollars](https://www.investopedia.com/terms/a/aftertaxcontribution.asp). Because they are taxed upfront, there is no tax burden when money is withdrawn later in life. A [traditional IRA](https://www.investopedia.com/terms/t/traditionalira.asp) does the opposite—contributions are made with [pretax dollars](https://www.investopedia.com/terms/p/pretaxcontribution.asp), which lowers your yearly income for tax purposes. While a Roth IRA doesn’t help you in the year when you invest, it could save a lot of money in tax payments later. ## Who Can Have a Roth IRA? Anyone of any age can have a Roth IRA as long as they meet certain conditions: * They must have [earned income](https://www.investopedia.com/terms/e/earnedincome.asp). * Contributions can’t exceed the amount of income earned in a year. * Their [modified adjusted gross income (MAGI)](https://www.investopedia.com/terms/m/magi.asp) can’t exceed the amount set by the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) for that year. For example, if 14-year-old Sienna earns money from a part-time restaurant job, she is eligible to contribute to a Roth IRA. If she earned $5,000 that year, she can contribute up to $5,000. However, she can’t contribute money given to her as gifts or an allowance. ## Contribution Limits Just as there are limits on what type of money you can contribute, there are limits to how much you can contribute based on your MAGI. For 2023, you can contribute up to $6,500 ($7,500 if age 50 or older). These contribution amounts may be limited based on your MAGI. If you earn too much money, your contribution amount may be reduced or eliminated entirely. These contribution limits also depend on your filing status, and earners that fall between the lower thresholds and upper thresholds below may be eligible to make partial contributions: * **Single Taxpayers:** For 2023, single earners may make up to $138,000 and make full Roth IRA contributions. If the single earner makes more than $153,000 in 2023, they can not make Roth IRA contributions. * **Married Filing Joint Taxpayers:** For 2023, MFJ taxpayers may make up to $218,000 and make full Roth IRA contributions. If the MFJ taxpayer makes more than $228,000 in 2023, they can not make Roth IRA contributions. * **Married Filing Separate Taxpayers:** MFS taxpayers may make partial contributions to their Roth IRA when their MAGI is between $0 and $10,000. Taxpayers whose MAGI exceeds $10,000 can not make Roth IRA contributions. ### You can only contribute earned income—wages, salaries, bonuses, or self-employment income—to a Roth IRA. ## Benefits of Roth IRAs Roth IRAs offer the opportunity to pay your taxes up front, eliminating taxes on withdrawals when you retire. For those who believe they are in a lower [tax bracket](https://www.investopedia.com/terms/t/taxbracket.asp) now than they will be when they retire, this can be a huge advantage. Since most of Gen Z are just starting their careers, it’s easy to assume that their earnings and tax bracket will only go up from here. The ability to withdraw your contributions anytime is also a huge asset. You can [withdraw](https://www.investopedia.com/roth-ira-withdrawal-rules-4769951) the money you’ve contributed to your Roth IRA at any time—you’ve already paid taxes on it, so there are no fees, penalties, or taxes. With a limit of $6,500 in 2023 (excluding catch-up contributions), the money you contribute is essentially in a hard-to-access holding account as its earnings are reinvested. Roth IRAs are friendlier to entrepreneurs. If you can prove that you earned income, you can open a Roth IRA, regardless of age. Many other investment tools have age requirements that eliminate young people altogether. You also don’t have to withdraw the money at any certain time—or ever. [Unlike traditional IRAs](https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/) that require minimum distributions at age 73, Roth IRAs allow you to keep the money indefinitely. You can even pass it on to your heirs untouched, and they can inherit the money tax-free as well. ## Drawbacks of Roth IRAs Ideally, your investment will earn money as well. Withdrawing your earnings has a different set of standards. To withdraw your earnings without penalty before age 59½, you must meet certain conditions, such as the following: * You are using the funds to buy or build your first home. * You have a permanent disability. * You are the recipient of the Roth IRA from the original owner’s death. Earnings may be withdrawn for other reasons, but they will be taxed at your current income rate, as well as incurring a 10% penalty. Earnings may be withdrawn penalty free to pay for education expenses for you, a spouse, or a child, but the withdrawal will still be taxed. Although tax-free income in your retirement years is ideal, lowering your tax burden now is also attractive. The money you save in taxes now can be invested for the future. ## What Counts as Earned Income for a Roth IRA? [Earned income](https://www.investopedia.com/roth-ira-contributions-with-no-job-4770755) for a Roth individual retirement account (Roth IRA) is typically considered wages, salaries, tips, bonuses, commissions, or self-employment income. There are some out-of-the-ordinary forms of income, such as income from selling non-qualified stock options or certain scholarships or fellowships. If you are married but don’t earn taxable income, you may open a [spousal Roth IRA](https://www.investopedia.com/what-is-a-spousal-roth-ira-4770888) using your spouse’s income. ## Can I Have Both a Roth IRA and a Traditional IRA? Yes, you can contribute to both a Roth IRA and a traditional IRA. However, you can only contribute up to the yearly Internal Revenue Service (IRS) limit for both accounts. For example, you cannot contribute more than $6,500 to both accounts in aggregate in the same year in 2023. ## Will Gen Z Pay Higher Taxes in Retirement? Tax law is highly variable and changes frequently. There’s no guarantee of what the tax code will look like when Gen Z reaches retirement age. Very broadly speaking, Gen Z individuals (especially those just starting their careers) are more likely to move into higher-paying jobs and shift into higher tax brackets as they age. For this reason, a Roth IRA is more favorable to Gen Z as their tax liability is generally not as high as an older individual further along in their career with higher pay. ## The Bottom Line As they [enter the workforce](https://www.investopedia.com/generation-z-stepping-into-financial-independence-5224362), Gen Z has a huge opportunity to leverage their lower tax bracket to harvest wealth in their retirement years. Roth IRAs may not lower your taxes now, but tax-free income at retirement can make a huge difference, depending on how the tax code changes. Roth IRAs also offer flexible investment options for those thinking of buying a home or sending a loved one to college.

Is it ever too early to start investing? Experts say no—and Gen Z is listening. For those born in the 1997–2012 years, the time to act is now. As this generation starts their careers, they are diving into the investing pool and finding strong traction with IRAs. In a 2022 study by Fidelity, the number of Gen Z IRA investors rose 71% compared to Q4 2021. Let's dive into what a Roth IRA is and why its design makes them appealing to Gen Z investors. Key Takeaways Investors use after-tax dollars to contribute to a Roth individual retirement account (Roth IRA).Their contributions can be withdrawn with no penalty for qualified reasons.Anyone can start a Roth IRA, regardless of age, as long as they earn income. However, there are income limits to be mindful of that may limit contributions.Withdrawals after age 59½ are tax- and penalty-free.There is no mandatory disbursement age for funds. How a Roth IRA Works A Roth IRA is an individual retirement account that accepts contributions using after-tax dollars. Because they are taxed upfront, there is no tax burden when money is withdrawn later in life. A traditional IRA does the opposite—contributions are made with pretax dollars, which lowers your yearly income for tax purposes. While a Roth IRA doesn’t help you in the year when you invest, it could save a lot of money in tax payments later. Who Can Have a Roth IRA? Anyone of any age can have a Roth IRA as long as they meet certain conditions: They must have earned income. Contributions can’t exceed the amount of income earned in a year. Their modified adjusted gross income (MAGI) can’t exceed the amount set by the Internal Revenue Service (IRS) for that year. For example, if 14-year-old Sienna earns money from a part-time restaurant job, she is eligible to contribute to a Roth IRA. If she earned $5,000 that year, she can contribute up to $5,000. However, she can’t contribute money given to her as gifts or an allowance. Contribution Limits Just as there are limits on what type of money you can contribute, there are limits to how much you can contribute based on your MAGI. For 2023, you can contribute up to $6,500 ($7,500 if age 50 or older). These contribution amounts may be limited based on your MAGI. If you earn too much money, your contribution amount may be reduced or eliminated entirely. These contribution limits also depend on your filing status, and earners that fall between the lower thresholds and upper thresholds below may be eligible to make partial contributions: Single Taxpayers: For 2023, single earners may make up to $138,000 and make full Roth IRA contributions. If the single earner makes more than $153,000 in 2023, they can not make Roth IRA contributions.Married Filing Joint Taxpayers: For 2023, MFJ taxpayers may make up to $218,000 and make full Roth IRA contributions. If the MFJ taxpayer makes more than $228,000 in 2023, they can not make Roth IRA contributions.Married Filing Separate Taxpayers: MFS taxpayers may make partial contributions to their Roth IRA when their MAGI is between $0 and $10,000. Taxpayers whose MAGI exceeds $10,000 can not make Roth IRA contributions. You can only contribute earned income—wages, salaries, bonuses, or self-employment income—to a Roth IRA. Benefits of Roth IRAs Roth IRAs offer the opportunity to pay your taxes up front, eliminating taxes on withdrawals when you retire. For those who believe they are in a lower tax bracket now than they will be when they retire, this can be a huge advantage. Since most of Gen Z are just starting their careers, it’s easy to assume that their earnings and tax bracket will only go up from here. The ability to withdraw your contributions anytime is also a huge asset. You can withdraw the money you’ve contributed to your Roth IRA at any time—you’ve already paid taxes on it, so there are no fees, penalties, or taxes. With a limit of $6,500 in 2023 (excluding catch-up contributions), the money you contribute is essentially in a hard-to-access holding account as its earnings are reinvested. Roth IRAs are friendlier to entrepreneurs. If you can prove that you earned income, you can open a Roth IRA, regardless of age. Many other investment tools have age requirements that eliminate young people altogether. You also don’t have to withdraw the money at any certain time—or ever. Unlike traditional IRAs that require minimum distributions at age 73, Roth IRAs allow you to keep the money indefinitely. You can even pass it on to your heirs untouched, and they can inherit the money tax-free as well. Drawbacks of Roth IRAs Ideally, your investment will earn money as well. Withdrawing your earnings has a different set of standards. To withdraw your earnings without penalty before age 59½, you must meet certain conditions, such as the following: You are using the funds to buy or build your first home.You have a permanent disability.You are the recipient of the Roth IRA from the original owner’s death. Earnings may be withdrawn for other reasons, but they will be taxed at your current income rate, as well as incurring a 10% penalty. Earnings may be withdrawn penalty free to pay for education expenses for you, a spouse, or a child, but the withdrawal will still be taxed. Although tax-free income in your retirement years is ideal, lowering your tax burden now is also attractive. The money you save in taxes now can be invested for the future. What Counts as Earned Income for a Roth IRA? Earned income for a Roth individual retirement account (Roth IRA) is typically considered wages, salaries, tips, bonuses, commissions, or self-employment income. There are some out-of-the-ordinary forms of income, such as income from selling non-qualified stock options or certain scholarships or fellowships. If you are married but don’t earn taxable income, you may open a spousal Roth IRA using your spouse’s income. Can I Have Both a Roth IRA and a Traditional IRA? Yes, you can contribute to both a Roth IRA and a traditional IRA. However, you can only contribute up to the yearly Internal Revenue Service (IRS) limit for both accounts. For example, you cannot contribute more than $6,500 to both accounts in aggregate in the same year in 2023. Will Gen Z Pay Higher Taxes in Retirement? Tax law is highly variable and changes frequently. There’s no guarantee of what the tax code will look like when Gen Z reaches retirement age. Very broadly speaking, Gen Z individuals (especially those just starting their careers) are more likely to move into higher-paying jobs and shift into higher tax brackets as they age. For this reason, a Roth IRA is more favorable to Gen Z as their tax liability is generally not as high as an older individual further along in their career with higher pay. The Bottom Line As they enter the workforce, Gen Z has a huge opportunity to leverage their lower tax bracket to harvest wealth in their retirement years. Roth IRAs may not lower your taxes now, but tax-free income at retirement can make a huge difference, depending on how the tax code changes. Roth IRAs also offer flexible investment options for those thinking of buying a home or sending a loved one to college.

https://www.investopedia.com/can-you-get-a-usd500-personal-loan-7852432

Can You Get a $500 Personal Loan?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> It’s possible to get a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-5076027">personal loan</a> for $500 or even less, but it can be difficult. Most banks, credit unions, or online lenders don’t offer loans this small because the cost of administering the loan would be greater than the profit they would make. For this reason, most banks and credit unions don’t offer personal loans for less than $1,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> However, you can get a loan for $500 in a number of ways. These options include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payday-loans.asp">payday loans</a> and loans through loan apps. Some of these loans have other benefits. You can receive them fairly quickly, and they may not require a <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-inquiry.asp">credit check</a>. However, they may also have much higher <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a> than the personal loans offered through traditional <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lenders</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Most banks, credit unions, and online lenders don’t offer personal loans for less than $1,000.</li><li>You can get a $500 loan in other ways in addition to some personal loans, such as via a cash advance on your credit card, a payday loan, or a loan app.</li><li>A small loan like a payday loan can be useful in an emergency, but you will likely face higher interest rates.</li><li>If you have a good credit score, it may make more sense to take out a slightly larger personal loan.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-to-get-a-500-personal-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> How to Get a $500 Personal Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> If you’re looking for a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">personal loan</a>, the best option may be to apply with a financial institution like a bank or a credit union. A reputable financial institution often offers low interest rates, low fees, and flexible <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repayment</a> options. You can typically apply online or in person if the bank has branch locations. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> However, the smallest loan you can apply for at many lenders will likely be about $1,000 or more, and you’ll need a minimum <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> to qualify. Minimum credit scores will vary by lender.<span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> After you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp">apply for a personal loan</a>, a lender assesses your credit risk to determine if you qualify for the loan. They will consider your credit score, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a>, and other financial factors. If you’re approved, you receive the money in a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lump-sum-payment.asp">lump sum</a> and repay it over time plus <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a> in monthly payments.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-subheading__text"> Credit Unions, Banks, and Online Lenders </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> While most banks, credit unions, and online lenders don’t offer personal loans for less than $1,000, some do. Among them: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-tech-federal-credit-union-personal-loans-review-5070073">First Tech Federal Credit Union</a>, which offers personal loans from $500, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/navy-federal-credit-union-personal-loans-review-4844366">Navy Federal Credit Union</a>, which offers personal loans from $250. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> First Tech Federal Credit Union and Navy Federal Credit Union offer interest rates from about 8% to 18%, depending on your credit score.<span class="ql-inline-citation" data-cite="8"></span><span class="ql-inline-citation" data-cite="9"></span> So their loans are likely to be much less expensive than payday loans, cash advances, or loan app loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-alternatives-to-a-500-personal-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> Alternatives to a $500 Personal Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> If a $500 personal loan doesn’t make sense for you, or if you can’t qualify, you can consider other small loan options, such as a cash advance, funding through a loan app, or a payday loan. However, these loans have downsides to consider, like higher interest rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Cash Advances </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> A cash advance is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shorttermdebt.asp">short-term loan</a> from a bank or an alternative lender. The term also refers to a service provided by many credit card issuers allowing cardholders to withdraw a certain amount of cash against their available credit.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashadvance.asp">Cash advances</a> generally have high interest rates and fees, but they may be attractive to borrowers because they have fast approval and funding. If you can pay back a cash advance loan quickly, it may be a useful financial tool.<span class="ql-inline-citation" data-cite="18"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_27-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_28-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Be aware that a cash advance loan can indirectly hurt your credit score by increasing your outstanding balance and your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-utilization-rate.asp">credit utilization ratio</a>.<span class="ql-inline-citation" data-cite="17"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-subheading__text"> Loan Apps </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Many <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-best-cash-advance-apps-7973242">loan apps</a> now offer small loans, some for as little as $5. These apps also allow you access to your loan quickly (typically within one to three days), and many don’t require a credit check. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Here are some examples of loan apps offering small personal loans:<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_34-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>Loan App</b></td> <td><b>Loan Amount</b></td> </tr> <tr> <td>Brigit<span data-cite="5"></span></td> <td>$50 to $250</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/earnin-personal-loans-review-4799607">Earnin</a><span data-cite="6"></span></td> <td>$100 per day</td> </tr> <tr> <td>Empower<span data-cite="7"></span></td> <td>$10 to $250</td> </tr> <tr> <td>Dave<span data-cite="10"></span></td> <td>Up to $500</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-moneylion-and-how-does-it-make-money-4584503">MoneyLion</a><span data-cite="11"></span></td> <td>$10 to $500</td> </tr> <tr> <td>SoLo Funds<span data-cite="12"></span></td> <td>$20 to $575</td> </tr> <tr> <td>Klover<span data-cite="13"></span></td> <td>$5 to $200</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/chime-bank-review-4846500">Chime</a><span data-cite="14"></span></td> <td>$20 to $200</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Using apps like these can provide emergency funds. However, they generally charge monthly fees in lieu of interest that can make borrowing small sums relatively expensive. For this reason, using funds from loan apps is not a sustainable, long-term solution to financial difficulties. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-subheading__text"> Payday Loans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/payday-loans.asp">payday loan</a> is a type of short-term borrowing where a lender will extend high-interest credit based on your income. Its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a> is typically a portion of your next paycheck. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Payday loans charge high interest rates for short-term, immediate credit. They are also called cash advance loans or check advance loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Payday loans can also be useful in an emergency, such as to pay for vehicle repairs or medical bills. But they also have high interest rates and may have high penalties if you fail to pay them back on time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Payday loans aren’t regarded as a good solution to financial difficulties, and they aren’t legal in all states.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-what-to-consider-when-getting-a-500-personal-loan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> What to Consider When Getting a $500 Personal Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> If you’re applying for a personal loan of any amount, you should consider a number of factors: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> <li><strong>Interest rates</strong>: Your interest rate will affect the total cost of the loan. The lower your interest rate, the lower your total loan cost. Compare several loan offers to ensure you get the best deal.</li> <li><strong>Fees and charges</strong>: Some lenders add significant fees to their loans. If you’re applying for a $500 loan, these charges might be a significant portion of the money you’ll have to repay.<span class="ql-inline-citation" data-cite="19"></span></li> <li><strong>Loan terms</strong>: Shorter <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/loan-terms-5075341">loan terms</a> result in higher monthly payments but lower total loan costs. If you take out a small loan with a high interest rate, make sure you pay it back as quickly as possible.<span class="ql-inline-citation" data-cite="20"></span></li> <li><strong>Funding time</strong>: Most loans will take at least a few days to process, although with some loan apps, you can speed up the process by paying a fee.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_52-0"> <span class="mntl-sc-block-subheading__text"> How to Get a $500 Personal Loan  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> The process of getting a $500 loan is the same as applying for any other type of personal loan. Here are the main steps: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> <li><strong>Find a loan</strong>: Make sure you shop around for the best interest rate and the lowest fees.</li><li><strong>Gather your documents</strong>: Most lenders will require you to provide ID, while others may want to see proof of how much you earn.</li><li><strong>Apply online</strong>: Today, most lenders will allow you to apply online. For the loan apps we’ve discussed above, you can apply for a loan directly from the app.</li><li><strong>Wait</strong>: Most loans will take one to three days to process and fund, although some online lenders and loan apps will give you your loan much more quickly.</li> </ol> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-what-credit-score-is-needed-for-a-500-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Credit Score Is Needed for a $500 Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many lenders will require you to have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-score-needed-personal-loan-7553033">credit score of at least 580</a>, but some don’t require a credit check. The minimum score varies by lender, and the higher your credit score, the more likely you are to qualify for a loan.<span class="ql-inline-citation" data-cite="17"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_59-0"><span class="heading-toc" id="toc-whats-the-smallest-loan-you-can-get-from-a-bank"></span> <h2 class="mntl-sc-block-questionandanswer__question">What’s the Smallest Loan You Can Get from a Bank?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The smallest loan you can get from a bank is usually $1,000, although you may find loans for lower amounts. For example, Navy Federal Credit Union offers personal loans for as little as $250.<span class="ql-inline-citation" data-cite="9"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_61-0"><span class="heading-toc" id="toc-what-are-the-easiest-loans-to-get"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Easiest Loans to Get?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The easiest loans to get are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/signature-loan-no-credit-check-8413880">those that require no credit check</a>, such as those from loan apps and some online lenders. However, these loans tend to have high interest rates that will increase the total cost of the loan.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <span class="heading-toc" id="toc-how-do-people-use-personal-loans"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-heading__text"> How Do People Use Personal Loans? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> Investopedia commissioned <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574">a national survey</a> of 962 U.S. adults between Aug. 14, 2023, to Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574">most common reason people borrowed money</a>, followed by home improvement and other large expenditures.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_66-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/T6dEU/9/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="How People Use Personal Loans"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> The minimum amount for a personal loan is generally around $1,000. You may find loans of lower amounts through lenders such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-best-cash-advance-apps-7973242">loan apps</a>, payday loan providers, and cash advances on your credit card. However, these lenders tend to charge higher interest rates than you would find on a personal loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Consider checking with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp">Consumer Financial Protection Bureau (CFPB)</a> for educational resources on small personal loans, or consulting with a free financial professional who may be available through your local financial institution to help you determine which loan may be best for your needs.<br/> </p></div>

It’s possible to get a [personal loan](https://www.investopedia.com/personal-loan-5076027) for $500 or even less, but it can be difficult. Most banks, credit unions, or online lenders don’t offer loans this small because the cost of administering the loan would be greater than the profit they would make. For this reason, most banks and credit unions don’t offer personal loans for less than $1,000. However, you can get a loan for $500 in a number of ways. These options include [payday loans](https://www.investopedia.com/terms/p/payday-loans.asp) and loans through loan apps. Some of these loans have other benefits. You can receive them fairly quickly, and they may not require a [credit check](https://www.investopedia.com/terms/c/credit-inquiry.asp). However, they may also have much higher [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) than the personal loans offered through traditional [lenders](https://www.investopedia.com/terms/l/lender.asp). ### Key Takeaways * Most banks, credit unions, and online lenders don’t offer personal loans for less than $1,000. * You can get a $500 loan in other ways in addition to some personal loans, such as via a cash advance on your credit card, a payday loan, or a loan app. * A small loan like a payday loan can be useful in an emergency, but you will likely face higher interest rates. * If you have a good credit score, it may make more sense to take out a slightly larger personal loan. ## How to Get a $500 Personal Loan If you’re looking for a [personal loan](https://www.investopedia.com/best-personal-loans-4773300), the best option may be to apply with a financial institution like a bank or a credit union. A reputable financial institution often offers low interest rates, low fees, and flexible [repayment](https://www.investopedia.com/terms/r/repayment.asp) options. You can typically apply online or in person if the bank has branch locations. However, the smallest loan you can apply for at many lenders will likely be about $1,000 or more, and you’ll need a minimum [credit score](https://www.investopedia.com/terms/c/credit_score.asp) to qualify. Minimum credit scores will vary by lender. After you [apply for a personal loan](https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp), a lender assesses your credit risk to determine if you qualify for the loan. They will consider your credit score, [income](https://www.investopedia.com/terms/i/income.asp), and other financial factors. If you’re approved, you receive the money in a [lump sum](https://www.investopedia.com/terms/l/lump-sum-payment.asp) and repay it over time plus [interest](https://www.investopedia.com/terms/i/interest.asp) in monthly payments. ### Credit Unions, Banks, and Online Lenders While most banks, credit unions, and online lenders don’t offer personal loans for less than $1,000, some do. Among them: [First Tech Federal Credit Union](https://www.investopedia.com/first-tech-federal-credit-union-personal-loans-review-5070073), which offers personal loans from $500, and [Navy Federal Credit Union](https://www.investopedia.com/navy-federal-credit-union-personal-loans-review-4844366), which offers personal loans from $250. First Tech Federal Credit Union and Navy Federal Credit Union offer interest rates from about 8% to 18%, depending on your credit score. So their loans are likely to be much less expensive than payday loans, cash advances, or loan app loans. ## Alternatives to a $500 Personal Loan If a $500 personal loan doesn’t make sense for you, or if you can’t qualify, you can consider other small loan options, such as a cash advance, funding through a loan app, or a payday loan. However, these loans have downsides to consider, like higher interest rates. ### Cash Advances A cash advance is a [short-term loan](https://www.investopedia.com/terms/s/shorttermdebt.asp) from a bank or an alternative lender. The term also refers to a service provided by many credit card issuers allowing cardholders to withdraw a certain amount of cash against their available credit.  [Cash advances](https://www.investopedia.com/terms/c/cashadvance.asp) generally have high interest rates and fees, but they may be attractive to borrowers because they have fast approval and funding. If you can pay back a cash advance loan quickly, it may be a useful financial tool. ### Be aware that a cash advance loan can indirectly hurt your credit score by increasing your outstanding balance and your [credit utilization ratio](https://www.investopedia.com/terms/c/credit-utilization-rate.asp). ### Loan Apps Many [loan apps](https://www.investopedia.com/the-best-cash-advance-apps-7973242) now offer small loans, some for as little as $5. These apps also allow you access to your loan quickly (typically within one to three days), and many don’t require a credit check. Here are some examples of loan apps offering small personal loans: | **Loan App** | **Loan Amount** | | --- | --- | | Brigit | $50 to $250 | | [Earnin](https://www.investopedia.com/earnin-personal-loans-review-4799607) | $100 per day | | Empower | $10 to $250 | | Dave | Up to $500 | | [MoneyLion](https://www.investopedia.com/what-is-moneylion-and-how-does-it-make-money-4584503) | $10 to $500 | | SoLo Funds | $20 to $575 | | Klover | $5 to $200 | | [Chime](https://www.investopedia.com/chime-bank-review-4846500) | $20 to $200 | Using apps like these can provide emergency funds. However, they generally charge monthly fees in lieu of interest that can make borrowing small sums relatively expensive. For this reason, using funds from loan apps is not a sustainable, long-term solution to financial difficulties. ### Payday Loans A [payday loan](https://www.investopedia.com/terms/p/payday-loans.asp) is a type of short-term borrowing where a lender will extend high-interest credit based on your income. Its [principal](https://www.investopedia.com/terms/p/principal.asp) is typically a portion of your next paycheck. Payday loans charge high interest rates for short-term, immediate credit. They are also called cash advance loans or check advance loans. Payday loans can also be useful in an emergency, such as to pay for vehicle repairs or medical bills. But they also have high interest rates and may have high penalties if you fail to pay them back on time. Payday loans aren’t regarded as a good solution to financial difficulties, and they aren’t legal in all states. ## What to Consider When Getting a $500 Personal Loan If you’re applying for a personal loan of any amount, you should consider a number of factors: * **Interest rates**: Your interest rate will affect the total cost of the loan. The lower your interest rate, the lower your total loan cost. Compare several loan offers to ensure you get the best deal. * **Fees and charges**: Some lenders add significant fees to their loans. If you’re applying for a $500 loan, these charges might be a significant portion of the money you’ll have to repay. * **Loan terms**: Shorter [loan terms](https://www.investopedia.com/loan-terms-5075341) result in higher monthly payments but lower total loan costs. If you take out a small loan with a high interest rate, make sure you pay it back as quickly as possible. * **Funding time**: Most loans will take at least a few days to process, although with some loan apps, you can speed up the process by paying a fee. ### How to Get a $500 Personal Loan The process of getting a $500 loan is the same as applying for any other type of personal loan. Here are the main steps: 1. **Find a loan**: Make sure you shop around for the best interest rate and the lowest fees. 2. **Gather your documents**: Most lenders will require you to provide ID, while others may want to see proof of how much you earn. 3. **Apply online**: Today, most lenders will allow you to apply online. For the loan apps we’ve discussed above, you can apply for a loan directly from the app. 4. **Wait**: Most loans will take one to three days to process and fund, although some online lenders and loan apps will give you your loan much more quickly. ## What Credit Score Is Needed for a $500 Loan? Many lenders will require you to have a [credit score of at least 580](https://www.investopedia.com/credit-score-needed-personal-loan-7553033), but some don’t require a credit check. The minimum score varies by lender, and the higher your credit score, the more likely you are to qualify for a loan. ## What’s the Smallest Loan You Can Get from a Bank? The smallest loan you can get from a bank is usually $1,000, although you may find loans for lower amounts. For example, Navy Federal Credit Union offers personal loans for as little as $250. ## What Are the Easiest Loans to Get? The easiest loans to get are [those that require no credit check](https://www.investopedia.com/signature-loan-no-credit-check-8413880), such as those from loan apps and some online lenders. However, these loans tend to have high interest rates that will increase the total cost of the loan. ## How Do People Use Personal Loans? Investopedia commissioned [a national survey](https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574) of 962 U.S. adults between Aug. 14, 2023, to Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the [most common reason people borrowed money](https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574), followed by home improvement and other large expenditures. ## The Bottom Line The minimum amount for a personal loan is generally around $1,000. You may find loans of lower amounts through lenders such as [loan apps](https://www.investopedia.com/the-best-cash-advance-apps-7973242), payday loan providers, and cash advances on your credit card. However, these lenders tend to charge higher interest rates than you would find on a personal loan. Consider checking with the [Consumer Financial Protection Bureau (CFPB)](https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp) for educational resources on small personal loans, or consulting with a free financial professional who may be available through your local financial institution to help you determine which loan may be best for your needs.

It’s possible to get a personal loan for $500 or even less, but it can be difficult. Most banks, credit unions, or online lenders don’t offer loans this small because the cost of administering the loan would be greater than the profit they would make. For this reason, most banks and credit unions don’t offer personal loans for less than $1,000. However, you can get a loan for $500 in a number of ways. These options include payday loans and loans through loan apps. Some of these loans have other benefits. You can receive them fairly quickly, and they may not require a credit check. However, they may also have much higher interest rates than the personal loans offered through traditional lenders. Key Takeaways Most banks, credit unions, and online lenders don’t offer personal loans for less than $1,000.You can get a $500 loan in other ways in addition to some personal loans, such as via a cash advance on your credit card, a payday loan, or a loan app.A small loan like a payday loan can be useful in an emergency, but you will likely face higher interest rates.If you have a good credit score, it may make more sense to take out a slightly larger personal loan. How to Get a $500 Personal Loan If you’re looking for a personal loan, the best option may be to apply with a financial institution like a bank or a credit union. A reputable financial institution often offers low interest rates, low fees, and flexible repayment options. You can typically apply online or in person if the bank has branch locations. However, the smallest loan you can apply for at many lenders will likely be about $1,000 or more, and you’ll need a minimum credit score to qualify. Minimum credit scores will vary by lender. After you apply for a personal loan, a lender assesses your credit risk to determine if you qualify for the loan. They will consider your credit score, income, and other financial factors. If you’re approved, you receive the money in a lump sum and repay it over time plus interest in monthly payments. Credit Unions, Banks, and Online Lenders While most banks, credit unions, and online lenders don’t offer personal loans for less than $1,000, some do. Among them: First Tech Federal Credit Union, which offers personal loans from $500, and Navy Federal Credit Union, which offers personal loans from $250. First Tech Federal Credit Union and Navy Federal Credit Union offer interest rates from about 8% to 18%, depending on your credit score. So their loans are likely to be much less expensive than payday loans, cash advances, or loan app loans. Alternatives to a $500 Personal Loan If a $500 personal loan doesn’t make sense for you, or if you can’t qualify, you can consider other small loan options, such as a cash advance, funding through a loan app, or a payday loan. However, these loans have downsides to consider, like higher interest rates. Cash Advances A cash advance is a short-term loan from a bank or an alternative lender. The term also refers to a service provided by many credit card issuers allowing cardholders to withdraw a certain amount of cash against their available credit.  Cash advances generally have high interest rates and fees, but they may be attractive to borrowers because they have fast approval and funding. If you can pay back a cash advance loan quickly, it may be a useful financial tool. Be aware that a cash advance loan can indirectly hurt your credit score by increasing your outstanding balance and your credit utilization ratio. Loan Apps Many loan apps now offer small loans, some for as little as $5. These apps also allow you access to your loan quickly (typically within one to three days), and many don’t require a credit check. Here are some examples of loan apps offering small personal loans: Loan App Loan Amount Brigit $50 to $250 Earnin $100 per day Empower $10 to $250 Dave Up to $500 MoneyLion $10 to $500 SoLo Funds $20 to $575 Klover $5 to $200 Chime $20 to $200 Using apps like these can provide emergency funds. However, they generally charge monthly fees in lieu of interest that can make borrowing small sums relatively expensive. For this reason, using funds from loan apps is not a sustainable, long-term solution to financial difficulties. Payday Loans A payday loan is a type of short-term borrowing where a lender will extend high-interest credit based on your income. Its principal is typically a portion of your next paycheck. Payday loans charge high interest rates for short-term, immediate credit. They are also called cash advance loans or check advance loans. Payday loans can also be useful in an emergency, such as to pay for vehicle repairs or medical bills. But they also have high interest rates and may have high penalties if you fail to pay them back on time. Payday loans aren’t regarded as a good solution to financial difficulties, and they aren’t legal in all states. What to Consider When Getting a $500 Personal Loan If you’re applying for a personal loan of any amount, you should consider a number of factors: Interest rates: Your interest rate will affect the total cost of the loan. The lower your interest rate, the lower your total loan cost. Compare several loan offers to ensure you get the best deal. Fees and charges: Some lenders add significant fees to their loans. If you’re applying for a $500 loan, these charges might be a significant portion of the money you’ll have to repay. Loan terms: Shorter loan terms result in higher monthly payments but lower total loan costs. If you take out a small loan with a high interest rate, make sure you pay it back as quickly as possible. Funding time: Most loans will take at least a few days to process, although with some loan apps, you can speed up the process by paying a fee. How to Get a $500 Personal Loan  The process of getting a $500 loan is the same as applying for any other type of personal loan. Here are the main steps: Find a loan: Make sure you shop around for the best interest rate and the lowest fees.Gather your documents: Most lenders will require you to provide ID, while others may want to see proof of how much you earn.Apply online: Today, most lenders will allow you to apply online. For the loan apps we’ve discussed above, you can apply for a loan directly from the app.Wait: Most loans will take one to three days to process and fund, although some online lenders and loan apps will give you your loan much more quickly. What Credit Score Is Needed for a $500 Loan? Many lenders will require you to have a credit score of at least 580, but some don’t require a credit check. The minimum score varies by lender, and the higher your credit score, the more likely you are to qualify for a loan. What’s the Smallest Loan You Can Get from a Bank? The smallest loan you can get from a bank is usually $1,000, although you may find loans for lower amounts. For example, Navy Federal Credit Union offers personal loans for as little as $250. What Are the Easiest Loans to Get? The easiest loans to get are those that require no credit check, such as those from loan apps and some online lenders. However, these loans tend to have high interest rates that will increase the total cost of the loan. How Do People Use Personal Loans? Investopedia commissioned a national survey of 962 U.S. adults between Aug. 14, 2023, to Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the most common reason people borrowed money, followed by home improvement and other large expenditures. The Bottom Line The minimum amount for a personal loan is generally around $1,000. You may find loans of lower amounts through lenders such as loan apps, payday loan providers, and cash advances on your credit card. However, these lenders tend to charge higher interest rates than you would find on a personal loan. Consider checking with the Consumer Financial Protection Bureau (CFPB) for educational resources on small personal loans, or consulting with a free financial professional who may be available through your local financial institution to help you determine which loan may be best for your needs.

https://www.investopedia.com/investing/uk-companies-best-shareholder-perks/

UK Companies with the Best Shareholder Perks

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The main benefit to owning stocks is to gain value from a company growing its business. But some stocks offer side benefits in the form of shareholder perks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Perks can range from discounts on products the company sells to free services. Some perks only require shareholders to have at least other share. Others have a higher minimum holding requirement. While perks should not be the sole reason to own a stock, they are an attractive benefit to many shareholders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Here are three U.K. companies with substantial shareholder perks: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <span class="heading-toc" id="toc-carnival-corp"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Carnival Corp. </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Carnival Corp. (LON: CCL) offers shareholders who hold at least 100 shares onboard credit when they travel on the American-British cruise lines. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Those traveling 14 days or longer get $150 British pounds per stateroom toward onboard credit on U.K. cruise line brands P &amp; O Cruises, Cunard, and Princess Cruises UK. Those traveling 7 to 13 days get $60 British pounds of credit, and those traveling less six days get $30 British pounds in credit.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> As of Sept. 16, 2022, Carnival shares were down 46.5% this year.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-interncontinental-hotels-group"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-heading__text"> InternContinental Hotels Group </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> InterContinental Hotels Group plc (LON: IHG) celebrates shareholders with discounts on hotel says through a controlled access website. Discounts vary according to availability.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Headquartered in Denham, U.K.,<span class="ql-inline-citation" data-cite="5"></span> the company has more than 6,020 hotels in 100 countries.<span class="ql-inline-citation" data-cite="4"></span> Its brands include hotels like Holiday Inn, Holiday Inn Express, Staybridge Suites, Intercontinental Hotels &amp; Resorts and Candlewood Suites.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> As of Sep. 16, 2022, InterContinental shares are down around 11% versus a year ago.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-mulberry-group"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Mulberry Group </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Mulberry Group plc (LON: MUL) shareholders can also get a 20% discount on up to £5,000 British pounds worth of merchandise. But they must present their discount card. And to get a discount card, customers must have at least 500 shares in the company.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Based in Somerset, England, Mulberry is a luxury fashion company known for its leather handbags that typically cost more than £1,000 British pounds.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> As of Sept. 15, 2022, shares of Mulberry are trading at about £237 British pounds.<span class="ql-inline-citation" data-cite="15"></span>  </p></div>

The main benefit to owning stocks is to gain value from a company growing its business. But some stocks offer side benefits in the form of shareholder perks. Perks can range from discounts on products the company sells to free services. Some perks only require shareholders to have at least other share. Others have a higher minimum holding requirement. While perks should not be the sole reason to own a stock, they are an attractive benefit to many shareholders. Here are three U.K. companies with substantial shareholder perks: ## Carnival Corp. Carnival Corp. (LON: CCL) offers shareholders who hold at least 100 shares onboard credit when they travel on the American-British cruise lines. Those traveling 14 days or longer get $150 British pounds per stateroom toward onboard credit on U.K. cruise line brands P & O Cruises, Cunard, and Princess Cruises UK. Those traveling 7 to 13 days get $60 British pounds of credit, and those traveling less six days get $30 British pounds in credit. As of Sept. 16, 2022, Carnival shares were down 46.5% this year. ## InternContinental Hotels Group InterContinental Hotels Group plc (LON: IHG) celebrates shareholders with discounts on hotel says through a controlled access website. Discounts vary according to availability. Headquartered in Denham, U.K., the company has more than 6,020 hotels in 100 countries. Its brands include hotels like Holiday Inn, Holiday Inn Express, Staybridge Suites, Intercontinental Hotels & Resorts and Candlewood Suites. As of Sep. 16, 2022, InterContinental shares are down around 11% versus a year ago. ## Mulberry Group Mulberry Group plc (LON: MUL) shareholders can also get a 20% discount on up to £5,000 British pounds worth of merchandise. But they must present their discount card. And to get a discount card, customers must have at least 500 shares in the company. Based in Somerset, England, Mulberry is a luxury fashion company known for its leather handbags that typically cost more than £1,000 British pounds. As of Sept. 15, 2022, shares of Mulberry are trading at about £237 British pounds. 

The main benefit to owning stocks is to gain value from a company growing its business. But some stocks offer side benefits in the form of shareholder perks. Perks can range from discounts on products the company sells to free services. Some perks only require shareholders to have at least other share. Others have a higher minimum holding requirement. While perks should not be the sole reason to own a stock, they are an attractive benefit to many shareholders. Here are three U.K. companies with substantial shareholder perks: Carnival Corp. Carnival Corp. (LON: CCL) offers shareholders who hold at least 100 shares onboard credit when they travel on the American-British cruise lines. Those traveling 14 days or longer get $150 British pounds per stateroom toward onboard credit on U.K. cruise line brands P & O Cruises, Cunard, and Princess Cruises UK. Those traveling 7 to 13 days get $60 British pounds of credit, and those traveling less six days get $30 British pounds in credit. As of Sept. 16, 2022, Carnival shares were down 46.5% this year. InternContinental Hotels Group InterContinental Hotels Group plc (LON: IHG) celebrates shareholders with discounts on hotel says through a controlled access website. Discounts vary according to availability. Headquartered in Denham, U.K., the company has more than 6,020 hotels in 100 countries. Its brands include hotels like Holiday Inn, Holiday Inn Express, Staybridge Suites, Intercontinental Hotels & Resorts and Candlewood Suites. As of Sep. 16, 2022, InterContinental shares are down around 11% versus a year ago. Mulberry Group Mulberry Group plc (LON: MUL) shareholders can also get a 20% discount on up to £5,000 British pounds worth of merchandise. But they must present their discount card. And to get a discount card, customers must have at least 500 shares in the company. Based in Somerset, England, Mulberry is a luxury fashion company known for its leather handbags that typically cost more than £1,000 British pounds. As of Sept. 15, 2022, shares of Mulberry are trading at about £237 British pounds. 

https://www.investopedia.com/best-undervalued-stocks-8550572

Best Undervalued Stocks for May 2024

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueinvesting.asp">Value investing</a> is the strategy of buying stocks whose prices don’t reflect what the underlying company is fundamentally worth. When done successfully, value investors stock up on high-quality companies while their valuations are still low, then stand to benefit when the market corrects itself later. It’s the market’s version of finding a lost masterpiece at a flea market—just with a bit more method and deliberation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> For May 2024, the most undervalued stocks—those with the lowest <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-earningsratio.asp">price-to-earnings (P/E) ratios</a> for each sector—include Revelation Biosciences, a healthcare company developing therapies to treat diseases; Urgent.ly, a mobile app for roadside assistance; Toro Corp., which operates oceangoing tankers; and the cinema advertising firm National CineMedia Inc. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The top undervalued NYSE and Nasdaq stocks by sector include P/E ratios as low as 0.07.</li><li>Value investing holds that investors can identify stocks that are trading below their true value. When the market corrects this pricing error and the price of those stocks increases to match this value, investors see gains.</li><li>Looking at undervalued stocks by sector allows investors to compare one company against its peers, as P/E ratios tend to vary significantly by industry.</li><li>Other metrics to consider when taking a value-investing approach include the price-to-book ratio, price/earnings-to-growth ratio, and forward P/E ratio, among others.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Below, we look at the top undervalued stocks listed on either the Nasdaq or the New York Stock Exchange (NYSE) as measured by P/E ratio. The statistics below are current as of April 24, 2024. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_9-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 58px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>Ticker</b></td> <td><b>Company</b></td> <td><b>Sector</b></td> <td><b>Market Cap ($B)</b></td> <td><b>12-Month Trailing P/E Ratio</b></td> <td><b>Price ($)</b></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=IMPP" rel="noopener noreferrer">IMPP</a></td> <td>Imperial Petroleum Inc.</td> <td>Energy</td> <td>0.09</td> <td>0.09</td> <td>3.36</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ORGN" rel="noopener noreferrer">ORGN</a></td> <td>Origin Materials Inc.</td> <td>Materials</td> <td>0.1</td> <td>4.47</td> <td>0.73</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TORO" rel="noopener noreferrer">TORO</a></td> <td>Toro Corp.</td> <td>Industrials</td> <td>0.07</td> <td>0.47</td> <td>3.78</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMCX" rel="noopener noreferrer">AMCX</a></td> <td>AMC Networks Inc.</td> <td>Consumer Discretionary</td> <td>0.50</td> <td>2.35</td> <td>11.55</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SANW" rel="noopener noreferrer">SANW</a></td> <td>S&amp;W Seed Company</td> <td>Consumer Staples</td> <td>0.02</td> <td>1.54</td> <td>0.42</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=REVB" rel="noopener noreferrer">REVB</a></td> <td>Revelation Biosciences Inc</td> <td>Healthcare</td> <td>0.003</td> <td>0.07</td> <td>2.13</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=FIHL" rel="noopener noreferrer">FIHL</a></td> <td>Fidelis Insurance Holdings Limited</td> <td>Financials </td> <td>2.26</td> <td>1.05</td> <td>19.27</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ULY" rel="noopener noreferrer">ULY</a></td> <td>Urgent.ly Inc.</td> <td>Information Technology </td> <td>0.02</td> <td>0.3</td> <td>1.68</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NCMI" rel="noopener noreferrer">NCMI</a></td> <td>National CineMedia Inc.</td> <td>Communication Services </td> <td>0.44</td> <td>0.77</td> <td>4.57</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TAC" rel="noopener noreferrer">TAC</a></td> <td>TransAlta Corporation</td> <td>Utilities </td> <td>2.02</td> <td>3.52</td> <td>6.57</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SQFT" rel="noopener noreferrer">SQFT</a></td> <td>Presidio Property Trust Inc.</td> <td>Real Estate </td> <td>0.01</td> <td>1.45</td> <td>0.98</td> </tr> </tbody> </table> <figcaption>Top Undervalued Stocks By Sector, Based on Lowest 12-Month Trailing P/E Ratio</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-why-are-these-the-top-undervalued-stocks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> Why Are These the Top Undervalued Stocks? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> We use the 12-month trailing P/E ratio as the metric for the top undervalued stocks listed on the NYSE or Nasdaq for each sector. The P/E ratio is generally seen as a key metric for value investors, with a lower P/E ratio suggesting a more attractively valued company. However, there are some things a potential investor should keep in mind: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <strong>P/E ratio is only one metric.</strong> Although it is well-established as an important measure of the relationship between the intrinsic value of a company and the price of its stock, P/E ratio is only one measure of a company's value. Looking at the company's financials and other metrics more holistically will give investors the best picture. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> <strong>Intrinsic value is hard to measure. </strong>It can be difficult to pinpoint the intrinsic value of a company, and many investors approach doing so as a type of educated guessing. With that in mind, it's possible that stocks that appear undervalued based on one or more metrics may not actually be. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <strong>The market is unpredictable.</strong> Even if a stock is undervalued, there is no guarantee that the market will correct the mispricing. Industry-wide, sector-wide, or even market-wide phenomena can override this correction and lead to unpredictable price swings. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-what-should-investors-look-for-in-undervalued-stocks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> What Should Investors Look For in Undervalued Stocks? </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-subheading__text"> Comparison against the industry or sector </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Different industries and sectors have dramatically different norms for trailing P/E ratios. What is an astonishingly high P/E ratio in one sector may be normal or even low in another. Thus, it's essential that investors compare apples to apples; look not only for the lowest P/E ratio you can find, but also at competitors in the same industry or sector and at sector-wide metrics. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-subheading__text"> Forward P/E ratio </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Above, we consider stocks based on a 12-month trailing P/E ratio. Investors may also want to consider <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forwardpe.asp">forward P/E ratios</a>, which take into account not real historical earnings for a company but expert forecasts from Wall Street analysts. This may help to factor in developments that are on the horizon for a company, although without the hard data of historical earnings, these figures can be highly speculative. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-subheading__text"> Price-to-book ratio </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-to-bookratio.asp">price-to-book ratio</a> is another metric used to gauge whether a company is undervalued based on its stock price. Instead of earnings, though, this ratio compares a stock price against a company's net value (assets less liabilities). This is a measure of stock price against a company's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bvps.asp">book value per share</a> and tells you how much investors are willing to pay for each dollar of a firm's net value. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-subheading__text"> Price/earnings-to-growth ratio </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> This is a modified version of the P/E ratio above. Unlike P/E, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/012715/what-considered-good-peg-price-earnings-growth-ratio.asp">price/earnings-to-growth ratio</a> also takes into account future earnings growth. It compares P/E and expected earnings growth to attempt to measure whether a company is undervalued relative to its potential for future earnings. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Investors attempting to buy stocks that are undervalued on the market compared with their intrinsic worth are using a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/professionals/072415/value-or-growth-stocks-which-best.asp">value-based investing approach</a>. Companies sometimes fly under the radar, with stock trading at a discount compared with what it is actually—and, hopefully, eventually—worth. The P/E ratio is one of several metrics used to gauge whether a stock is over- or under-valued. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> It's important to keep in mind that P/E ratio is only one of several value-investing metrics and that these ratios will differ depending upon the nature of the company, industry, or sector. Similarly, just because a company has a low P/E ratio relative to its competitors does not necessarily mean that the company's stock will increase. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <em>The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer">warranty and liability disclaimer</a> for more info.</em> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> <em>As of the date this article was written, the author does not own any of the above stocks.</em> </p></div>

[Value investing](https://www.investopedia.com/terms/v/valueinvesting.asp) is the strategy of buying stocks whose prices don’t reflect what the underlying company is fundamentally worth. When done successfully, value investors stock up on high-quality companies while their valuations are still low, then stand to benefit when the market corrects itself later. It’s the market’s version of finding a lost masterpiece at a flea market—just with a bit more method and deliberation. For May 2024, the most undervalued stocks—those with the lowest [price-to-earnings (P/E) ratios](https://www.investopedia.com/terms/p/price-earningsratio.asp) for each sector—include Revelation Biosciences, a healthcare company developing therapies to treat diseases; Urgent.ly, a mobile app for roadside assistance; Toro Corp., which operates oceangoing tankers; and the cinema advertising firm National CineMedia Inc. ### Key Takeaways * The top undervalued NYSE and Nasdaq stocks by sector include P/E ratios as low as 0.07. * Value investing holds that investors can identify stocks that are trading below their true value. When the market corrects this pricing error and the price of those stocks increases to match this value, investors see gains. * Looking at undervalued stocks by sector allows investors to compare one company against its peers, as P/E ratios tend to vary significantly by industry. * Other metrics to consider when taking a value-investing approach include the price-to-book ratio, price/earnings-to-growth ratio, and forward P/E ratio, among others. Below, we look at the top undervalued stocks listed on either the Nasdaq or the New York Stock Exchange (NYSE) as measured by P/E ratio. The statistics below are current as of April 24, 2024. | **Ticker** | **Company** | **Sector** | **Market Cap ($B)** | **12-Month Trailing P/E Ratio** | **Price ($)** | | --- | --- | --- | --- | --- | --- | | [IMPP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IMPP) | Imperial Petroleum Inc. | Energy | 0.09 | 0.09 | 3.36 | | [ORGN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ORGN) | Origin Materials Inc. | Materials | 0.1 | 4.47 | 0.73 | | [TORO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TORO) | Toro Corp. | Industrials | 0.07 | 0.47 | 3.78 | | [AMCX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMCX) | AMC Networks Inc. | Consumer Discretionary | 0.50 | 2.35 | 11.55 | | [SANW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SANW) | S&W Seed Company | Consumer Staples | 0.02 | 1.54 | 0.42 | | [REVB](https://www.investopedia.com/markets/quote?tvwidgetsymbol=REVB) | Revelation Biosciences Inc | Healthcare | 0.003 | 0.07 | 2.13 | | [FIHL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FIHL) | Fidelis Insurance Holdings Limited | Financials | 2.26 | 1.05 | 19.27 | | [ULY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ULY) | Urgent.ly Inc. | Information Technology | 0.02 | 0.3 | 1.68 | | [NCMI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NCMI) | National CineMedia Inc. | Communication Services | 0.44 | 0.77 | 4.57 | | [TAC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TAC) | TransAlta Corporation | Utilities | 2.02 | 3.52 | 6.57 | | [SQFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SQFT) | Presidio Property Trust Inc. | Real Estate | 0.01 | 1.45 | 0.98 | Top Undervalued Stocks By Sector, Based on Lowest 12-Month Trailing P/E Ratio ## Why Are These the Top Undervalued Stocks? We use the 12-month trailing P/E ratio as the metric for the top undervalued stocks listed on the NYSE or Nasdaq for each sector. The P/E ratio is generally seen as a key metric for value investors, with a lower P/E ratio suggesting a more attractively valued company. However, there are some things a potential investor should keep in mind: **P/E ratio is only one metric.** Although it is well-established as an important measure of the relationship between the intrinsic value of a company and the price of its stock, P/E ratio is only one measure of a company's value. Looking at the company's financials and other metrics more holistically will give investors the best picture. **Intrinsic value is hard to measure.** It can be difficult to pinpoint the intrinsic value of a company, and many investors approach doing so as a type of educated guessing. With that in mind, it's possible that stocks that appear undervalued based on one or more metrics may not actually be. **The market is unpredictable.** Even if a stock is undervalued, there is no guarantee that the market will correct the mispricing. Industry-wide, sector-wide, or even market-wide phenomena can override this correction and lead to unpredictable price swings. ## What Should Investors Look For in Undervalued Stocks? ### Comparison against the industry or sector Different industries and sectors have dramatically different norms for trailing P/E ratios. What is an astonishingly high P/E ratio in one sector may be normal or even low in another. Thus, it's essential that investors compare apples to apples; look not only for the lowest P/E ratio you can find, but also at competitors in the same industry or sector and at sector-wide metrics. ### Forward P/E ratio Above, we consider stocks based on a 12-month trailing P/E ratio. Investors may also want to consider [forward P/E ratios](https://www.investopedia.com/terms/f/forwardpe.asp), which take into account not real historical earnings for a company but expert forecasts from Wall Street analysts. This may help to factor in developments that are on the horizon for a company, although without the hard data of historical earnings, these figures can be highly speculative. ### Price-to-book ratio The [price-to-book ratio](https://www.investopedia.com/terms/p/price-to-bookratio.asp) is another metric used to gauge whether a company is undervalued based on its stock price. Instead of earnings, though, this ratio compares a stock price against a company's net value (assets less liabilities). This is a measure of stock price against a company's [book value per share](https://www.investopedia.com/terms/b/bvps.asp) and tells you how much investors are willing to pay for each dollar of a firm's net value. ### Price/earnings-to-growth ratio This is a modified version of the P/E ratio above. Unlike P/E, the [price/earnings-to-growth ratio](https://www.investopedia.com/ask/answers/012715/what-considered-good-peg-price-earnings-growth-ratio.asp) also takes into account future earnings growth. It compares P/E and expected earnings growth to attempt to measure whether a company is undervalued relative to its potential for future earnings. ## The Bottom Line Investors attempting to buy stocks that are undervalued on the market compared with their intrinsic worth are using a [value-based investing approach](https://www.investopedia.com/articles/professionals/072415/value-or-growth-stocks-which-best.asp). Companies sometimes fly under the radar, with stock trading at a discount compared with what it is actually—and, hopefully, eventually—worth. The P/E ratio is one of several metrics used to gauge whether a stock is over- or under-valued. It's important to keep in mind that P/E ratio is only one of several value-investing metrics and that these ratios will differ depending upon the nature of the company, industry, or sector. Similarly, just because a company has a low P/E ratio relative to its competitors does not necessarily mean that the company's stock will increase. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.* *As of the date this article was written, the author does not own any of the above stocks.*

Value investing is the strategy of buying stocks whose prices don’t reflect what the underlying company is fundamentally worth. When done successfully, value investors stock up on high-quality companies while their valuations are still low, then stand to benefit when the market corrects itself later. It’s the market’s version of finding a lost masterpiece at a flea market—just with a bit more method and deliberation. For May 2024, the most undervalued stocks—those with the lowest price-to-earnings (P/E) ratios for each sector—include Revelation Biosciences, a healthcare company developing therapies to treat diseases; Urgent.ly, a mobile app for roadside assistance; Toro Corp., which operates oceangoing tankers; and the cinema advertising firm National CineMedia Inc. Key Takeaways The top undervalued NYSE and Nasdaq stocks by sector include P/E ratios as low as 0.07.Value investing holds that investors can identify stocks that are trading below their true value. When the market corrects this pricing error and the price of those stocks increases to match this value, investors see gains.Looking at undervalued stocks by sector allows investors to compare one company against its peers, as P/E ratios tend to vary significantly by industry.Other metrics to consider when taking a value-investing approach include the price-to-book ratio, price/earnings-to-growth ratio, and forward P/E ratio, among others. Below, we look at the top undervalued stocks listed on either the Nasdaq or the New York Stock Exchange (NYSE) as measured by P/E ratio. The statistics below are current as of April 24, 2024. Ticker Company Sector Market Cap ($B) 12-Month Trailing P/E Ratio Price ($) IMPP Imperial Petroleum Inc. Energy 0.09 0.09 3.36 ORGN Origin Materials Inc. Materials 0.1 4.47 0.73 TORO Toro Corp. Industrials 0.07 0.47 3.78 AMCX AMC Networks Inc. Consumer Discretionary 0.50 2.35 11.55 SANW S&W Seed Company Consumer Staples 0.02 1.54 0.42 REVB Revelation Biosciences Inc Healthcare 0.003 0.07 2.13 FIHL Fidelis Insurance Holdings Limited Financials  2.26 1.05 19.27 ULY Urgent.ly Inc. Information Technology  0.02 0.3 1.68 NCMI National CineMedia Inc. Communication Services  0.44 0.77 4.57 TAC TransAlta Corporation Utilities  2.02 3.52 6.57 SQFT Presidio Property Trust Inc. Real Estate  0.01 1.45 0.98 Top Undervalued Stocks By Sector, Based on Lowest 12-Month Trailing P/E Ratio Why Are These the Top Undervalued Stocks? We use the 12-month trailing P/E ratio as the metric for the top undervalued stocks listed on the NYSE or Nasdaq for each sector. The P/E ratio is generally seen as a key metric for value investors, with a lower P/E ratio suggesting a more attractively valued company. However, there are some things a potential investor should keep in mind: P/E ratio is only one metric. Although it is well-established as an important measure of the relationship between the intrinsic value of a company and the price of its stock, P/E ratio is only one measure of a company's value. Looking at the company's financials and other metrics more holistically will give investors the best picture. Intrinsic value is hard to measure. It can be difficult to pinpoint the intrinsic value of a company, and many investors approach doing so as a type of educated guessing. With that in mind, it's possible that stocks that appear undervalued based on one or more metrics may not actually be. The market is unpredictable. Even if a stock is undervalued, there is no guarantee that the market will correct the mispricing. Industry-wide, sector-wide, or even market-wide phenomena can override this correction and lead to unpredictable price swings. What Should Investors Look For in Undervalued Stocks? Comparison against the industry or sector Different industries and sectors have dramatically different norms for trailing P/E ratios. What is an astonishingly high P/E ratio in one sector may be normal or even low in another. Thus, it's essential that investors compare apples to apples; look not only for the lowest P/E ratio you can find, but also at competitors in the same industry or sector and at sector-wide metrics. Forward P/E ratio Above, we consider stocks based on a 12-month trailing P/E ratio. Investors may also want to consider forward P/E ratios, which take into account not real historical earnings for a company but expert forecasts from Wall Street analysts. This may help to factor in developments that are on the horizon for a company, although without the hard data of historical earnings, these figures can be highly speculative. Price-to-book ratio The price-to-book ratio is another metric used to gauge whether a company is undervalued based on its stock price. Instead of earnings, though, this ratio compares a stock price against a company's net value (assets less liabilities). This is a measure of stock price against a company's book value per share and tells you how much investors are willing to pay for each dollar of a firm's net value. Price/earnings-to-growth ratio This is a modified version of the P/E ratio above. Unlike P/E, the price/earnings-to-growth ratio also takes into account future earnings growth. It compares P/E and expected earnings growth to attempt to measure whether a company is undervalued relative to its potential for future earnings. The Bottom Line Investors attempting to buy stocks that are undervalued on the market compared with their intrinsic worth are using a value-based investing approach. Companies sometimes fly under the radar, with stock trading at a discount compared with what it is actually—and, hopefully, eventually—worth. The P/E ratio is one of several metrics used to gauge whether a stock is over- or under-valued. It's important to keep in mind that P/E ratio is only one of several value-investing metrics and that these ratios will differ depending upon the nature of the company, industry, or sector. Similarly, just because a company has a low P/E ratio relative to its competitors does not necessarily mean that the company's stock will increase. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own any of the above stocks.

https://www.investopedia.com/how-to-trade-options-7378194

How to Trade Options

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Options trading can generate big profits, or big losses, through financial leverage. The leverage allows investors to protect their portfolio while giving speculators an opportunity to amplify profits from price moves. This dynamic generates tantalizing opportunities that constantly abound in the option market. However, would-be options traders need a clear understanding of how options pricing works,  the risks involved, and the best practices for choosing the best platform on which to trade. We’ve compiled the basics every option trader should know, and have structured this guide for trading options to answer the questions most novice option traders have.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <span class="heading-toc" id="toc-how-to-trade-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> How to Trade Options </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0"> <span class="mntl-sc-block-subheading__text"> Understand the Basic </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Traders who want to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/5-tips-keep-mind-if-you-want-begin-options-trading/">get started with options</a> need to understand the following key topics:  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> <li>The definition of an option and the two types of options: calls vs. puts</li><li>How options are priced (in the money vs. out of the money)</li><li>How option prices change (measured by the options Greeks)</li><li>How to open and get started trading in an options account</li><li>How to avoid losing money</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-subheading__text"> Call and Put Options Defined </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Options allow traders to make a leveraged bet on what might happen next with a security’s price. Each standard option controls 100 shares and has a designated strike price and expiration date.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Option contract holders aren’t required to exercise their rights to buy or sell shares. They can let the option expire worthless (and forfeit what they spent on it), or they can sell the option contract to another trader for whatever amount that trader is willing to pay. If the contract’s value increases, they can make a profit without ever exercising the option or having to own the stock. However, if the value decreases, losses result.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-subheading__text"> Calls vs. Puts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Call options let you purchase the security at its strike price, which can be done any time before expiration. At expiration, the broker will automatically exercise the option if the price of the underlying shares exceeds the value of the strike price. Put options give you the right to sell the security at the strike price any time before expiration. The broker will exercise the option at expiration, but only if the price of the underlying shares is below the value of the strike price before the contract expires. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The value of call options will generally increase as the underlying security goes up in price, while the value of put options will increase as the security falls in price. But there are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/optioninvestor/09/buying-options.asp">certain basic elements that go into option pricing</a> that every trader should be aware of, and the price of the underlying shares is only one of them.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> European vs. American </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Call option buyers can exercise their right to purchase shares and establish a long position in the stock. Put option buyers exercise their right to sell shares and establish a short position in the stock. But there is a difference in the moment when a contract can be exercised based on the style of the option contract.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> American-style options can be exercised at any time leading up to the close of the expiration date, but European-style options can only be exercised on the date of expiration. However, both option styles can be bought or sold up until expiration. Most exchange-traded securities are American-style options, while most index-based options are European-style options. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-subheading__text"> Physical vs. Cash Settle </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> When an option contract reaches expiration, the terms of the contract are settled, meaning both parties in the contract receive what they are due. Call options for stocks or other exchange-traded securities are settled by assigning shares of the underlying security to the call option buyer and assigning the call option seller the obligation to provide those shares. If the seller holds those shares already, they are removed from the seller’s account and placed in the buyer’s account. If the seller does not have the shares in their account, the buyer is still given shares, but the seller is assigned a short position in the security. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> For options on indexes, the contract is settled to cash. Option buyers who find their contracts in the money at expiration will receive a cash equivalent of the intrinsic value of the option, while the option sellers are required to pay that cash from their account. Options that expire out of the money are worthless and no cash changes hands at expiration. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-best-options-trading-platforms"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> Best Options Trading Platforms </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_30-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th>Platform</th> <th>Best For</th> <th><b>Account</b> <b>Minimum</b></th> <th> <b>Fees</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1" rel="sponsored nofollow">tastytrade</a></td> <td>Best Options Trading Platform</td> <td>$0</td> <td>$0 stock trades, $1 to open options trades (capped at $10 per leg), $0 to close</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.interactivebrokers.com/mkt/?src=investopedia98a&amp;url=%2Fen%2Fwhyib%2Foverview.php" rel="sponsored nofollow">Interactive Brokers</a></td> <td>Best Broker for Advanced Options Traders</td> <td>$0 </td> <td>$0 commissions for equities/ETFs available on IBKR’s TWS Light, or low costs scaled by volume for active traders that want access to advanced functionality such as order routing. $0.65 per contract for options on TWS Light; that is also the base rate for TWS Pro users, with scaled rates based on volume. $0.85 per contract for futures</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://us.etrade.com/" rel="sponsored nofollow">E*TRADE</a></td> <td>Best Broker for Beginning Options Traders</td> <td>$0</td> <td>$0 for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.webull.com/activity?source=Investopedia-Per" rel="sponsored nofollow">Webull</a> </td> <td>Best Broker for Low-Cost Options Trading</td> <td>$0 </td> <td>$0 commissions for stock, ETF, options, and cryptocurrency trading (small markup is priced in)</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-steps-required-to-open-an-options-trading-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> Steps Required to Open an Options Trading Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Once you're prepared to explore the world of options trading, you will need to research the brokers with which you can open an account. After you have selected a broker to use and filled out the account application (this is usually done online and is fairly quick), then you can request options trading approval. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <strong>Step 1: Select a broker. </strong>Choose a reputable online broker, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.interactivebrokers.com/mkt/?src=investopedia90a&amp;url=%2Fen%2Fwhyib%2Foverview.php" rel="sponsored nofollow">Interactive Brokers</a>, <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B28583678.362989854;dc_trk_aid=553608942;dc_trk_cid=163772288;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=" rel="sponsored nofollow">tastytrade</a>, or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://ad.doubleclick.net/ddm/trackclk/N84001.3034362DOTDASH/B29033839.359635625;dc_trk_aid=550738970;dc_trk_cid=186914042;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=" rel="sponsored nofollow">E*TRADE</a>, where you have access to critical options trading tools, including options calculators, extensive charting tools, screeners, demo accounts, strong trading technology, extensive educational materials, and a transparent fee structure.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> <strong>Step 2: Register an account. </strong>Broker requirements for approving options trading in your account can vary widely. Some brokers may have a tiered level of option trading approval (lower tiers include buying and selling options; higher tiers include spread trading, index trading, and selling uncovered options).  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Some brokers may ask you to complete a questionnaire or take an online course to demonstrate your knowledge of options trading. All such requirements are stipulated by the broker simply to manage their risk. Consequently, the higher your net worth or the larger your account, the less strict a broker is likely to be about such requirements. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> <strong>Step 3: Fund your account. </strong>Once your application is processed and you are approved for options trading, you will want to fund your account with more than the minimum required amount, and review and accept the language of the options agreement. If you plan to trade options on margin, you'll need to meet your brokerage firm's margin requirements. This can include meeting ongoing minimum balance requirements and promptly addressing margin calls. Once these are complete, your account will be capable of trading options.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <strong>Step 4: Research option strategies. </strong>Successful option trading is more complex than stock trading because it requires factoring critical elements, such as volatility and time decay. Options trading strategies range from simple one-leg strategies, like simply buying puts or calls, to complex multi-leg strategies like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/08/flock-to-iron-condors.asp">iron condors</a>. All strategies have varying sensitivity to the passage of time, fluctuations in price, and changes in implied volatility, and it is critical to understand what trade-offs each strategy includes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <span class="heading-toc" id="toc-what-you-need-to-open-an-options-trading-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-heading__text"> What You Need to Open an Options Trading Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Before you can start trading options, you need to open an account with a brokerage firm. To do this, you'll need to provide personal information such as: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> <li>Name</li><li>Address</li><li>Social Security number </li><li>Employment status</li><li>Job title </li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> These are provided for account ownership and standard banking purposes.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> The broker will also ask you to provide additional information regarding the following key items:  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> <li>Financial status</li><li>Liquid assets</li><li>Trading experience </li><li>Risk tolerance</li><li>Option trading knowledge</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> This information is used to assess the risk of having you as a customer. It helps the broker reduce the risk that you might make a trading mistake that could somehow spill over from your account and impact their business.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <span class="heading-toc" id="toc-how-to-read-an-options-chain"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_58-0"> <span class="mntl-sc-block-heading__text"> How to Read an Options Chain </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_59-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.3%;"> <img alt="Interactive Brokers" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/vpgvouqNTCEpB1w7r-UlIvwVm28=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/options-adv-perspective-8cede21b0b14439bb253373e927e1f30.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/vpgvouqNTCEpB1w7r-UlIvwVm28=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/options-adv-perspective-8cede21b0b14439bb253373e927e1f30.jpg" data-srcset="https://www.investopedia.com/thmb/IYSmnGK0SPGXYq8GConH0_p_2yw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/options-adv-perspective-8cede21b0b14439bb253373e927e1f30.jpg 750w" data-tracking-container="true" height="1024" id="mntl-sc-block-image_1-0" width="1520"/> <noscript> <img alt="Interactive Brokers" class="img--noscript universal-image__image" height="1024" sizes="750px" src="https://www.investopedia.com/thmb/vpgvouqNTCEpB1w7r-UlIvwVm28=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/options-adv-perspective-8cede21b0b14439bb253373e927e1f30.jpg" srcset="https://www.investopedia.com/thmb/IYSmnGK0SPGXYq8GConH0_p_2yw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/options-adv-perspective-8cede21b0b14439bb253373e927e1f30.jpg 750w" width="1520"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-text">Interactive Brokers.</span> </figcaption></figure> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_60-0"> <span class="mntl-sc-block-subheading__text"> Bid </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> The bid is the price you can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0412/a-newbies-guide-to-reading-an-options-chain.aspx">sell the quoted option</a> for with a market order. It is the price of the highest limit order that a buyer from any exchange is willing to spend to buy the contract you want to sell. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-subheading__text"> Ask </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> The ask is the price you can buy the quoted option for with a market order. It is the price of the lowest limit order that a seller from any exchange is willing to sell the contract you want to buy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_66-0"> <span class="mntl-sc-block-subheading__text"> Volume </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> This is the number of option contracts that have transacted today on this specific contract. Contracts with a volume of less than 100 per day might see larger spreads between the bid and the ask prices. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_69-0"> <span class="mntl-sc-block-subheading__text"> Open Interest </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> Option contracts which have been purchased, and are still available to be exercised, are counted as part of open interest. This number includes options that are initiated as both buys or sells, so the open interest includes both long and short positions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_72-0"> <span class="mntl-sc-block-subheading__text"> Strike Price </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> This is the price at which the option buyer can exercise the right to buy (in the case of call options) or sell (in the case of put options). Each option contract has a strike price and an expiration date. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-subheading__text"> Expiration Date </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> Beyond this date, the option contract cannot be exercised. Up until the close of trading on this date, the option buyer may choose to exercise their right. Options which expire in the money are automatically exercised on the day after trading is closed. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_78-0"> <span class="mntl-sc-block-subheading__text"> Vega </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_79-0"> This option <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/getting-to-know-the-greeks/">Greek</a> measures an option contract’s sensitivity to changes in implied volatility. If the implied volatility of an option increases by one percentage point, the option contract should increase in price by the vega value (all else being equal).  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_81-0"> <span class="mntl-sc-block-subheading__text"> Theta </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> Another option Greek, theta measures an option contract’s decline in price over the next 24 hours attributable to time decay. Theta values rise as the day of expiration gets closer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_84-0"> <span class="mntl-sc-block-subheading__text"> Delta </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> This option Greek is the measure of an option contract’s sensitivity to changes in the price of the underlying security. If the underlying stock, or other security, increases by one dollar in price, the option contract should increase in price by the delta value (all else being equal).  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_87-0"> <span class="mntl-sc-block-subheading__text"> Gamma </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_88-0"> This is an option Greek related to delta. It is the measure of an option contract’s change in delta score if the underlying security increases by one dollar. If the underlying stock, or other security, increases by two dollars in price, all other considerations being equal, the option contract should increase in price by the delta value for the first dollar increase and by the delta value plus the gamma value for the second dollar increase. As a result, gamma measures the potential acceleration of option prices. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_90-0"> <span class="mntl-sc-block-subheading__text"> At-the-money (ATM) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_91-0"> The option contract with the strike price closest to the current price of the underlying security is said to be “at the money.” The ATM contract is subjective when the price is equally between two strike prices, but it is common to consider the strike that is currently in the money as the option someone would designate as at the money.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_92-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_93-0"> <span class="mntl-sc-block-subheading__text"> In-the-money (ITM): </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/042715/what-difference-between-money-and-out-money.asp">In-the-money</a> (ITM) options have intrinsic value, meaning the difference between the option's strike price and the underlying asset's market price is favorable, resulting in immediate value if exercised. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_95-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_96-0"> <span class="mntl-sc-block-subheading__text"> Out-of-the-money (OTM): </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_97-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/optioninvestor/10/lure-of-cheap-options.asp">Out-of-the-money</a> (OTM) options have no intrinsic value, as the strike price isn't favorable compared to the market price. It would be worthless to exercise an OTM option. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_98-0"></div> <span class="heading-toc" id="toc-factors-to-consider-when-opening-an-options-trading-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_99-0"> <span class="mntl-sc-block-heading__text"> Factors to Consider When Opening an Options Trading Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_100-0"> <strong>Customer service: </strong>As an option trader, you’ll want a broker that can be accessed online or over the phone to give quick answers on things like balance changes, margin requirements, margin call notices or other unusual notifications. A broker representative should also be available to clarify trade-related issues, especially on topics of expiration, assignment, and closing out spread trades.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_101-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_102-0"> <strong>Fees and commissions: </strong>Some brokers charge commissions on option trades, even if they don’t charge commissions on stock trades. The costs of commissions and fees can vary significantly as certain brokers prefer to remove some or all commissions from the customer transaction. For a better understanding of the fees charged by the best options trading platforms, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-brokers-for-options-trading-4587876">this guide</a> can serve as an excellent resource.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_104-0"> <strong>Account minimums: </strong>For stock and option trading, opening an account with a minimum deposit of several thousand dollars has become a thing of the past. Most brokers will allow customers to open an account without funding it right away.<strong><br/><br/>Research and trading tools: </strong>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-brokers-for-options-trading-4587876">best options trading platforms</a> supply fundamental, technical, and even proprietary research for traders. Online web-based brokers tend to offer a more sophisticated toolset for trading than mobile-based apps used by some of the newer brokers such as <a data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://robinhood.c3me6x.net/c/328256/1149283/10402" rel="sponsored nofollow">Robinhood</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.webull.com/activity?source=Investopedia-Per" rel="sponsored nofollow">Webull</a>, and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://med.etoro.com/B19500_A113056_TClick.aspx" rel="sponsored nofollow">eToro</a>. Sophisticated charting tasks are more productive when performed on software-based desktop trading platforms. The same is true for complex order types such as <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conditionalorder.asp">conditional</a> or branching orders.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_105-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_106-0"> <strong>Educational content: </strong>Highly informative articles, videos, online classes, interactive quizzes, and more are common nowadays for many online brokers. The most popular broker platforms are often featured by option traders who create educational content on social media platforms as well. You shouldn’t have to struggle finding educational content for your trading platform, so if you do, take that as a warning flag. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_107-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_108-0"> <strong>Demo account: </strong>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-brokers-for-options-trading-4587876">best options trading platforms</a> include demo accounts so that their customers can fully understand how options Greeks and changing market conditions affect options prices. These practice accounts allow a trader to make simulated trades based on the same platform interface they will use to make trades. This can be very helpful for traders just getting started trading options. But not all brokers provide this tool, so beginner-level traders may want to check out the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/simulator/">investopedia simulator</a> if they have no tools available from their broker. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_109-0"></div> <span class="heading-toc" id="toc-faqs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_110-0"> <span class="mntl-sc-block-heading__text"> FAQs </span> </h2> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_111-0"><span class="heading-toc" id="toc-are-futures-the-same-as-options"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Futures the Same as Options?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Options differ from futures because an option buyer is not obligated to exercise their right to buy shares. Futures buyers, on the other hand, are obligated to take delivery of the underlying commodity in the contract unless they sell the contract away before expiration. This means that option prices can be highly sensitive to time decay, where futures are not.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_112-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_113-0"><span class="heading-toc" id="toc-how-can-you-hedge-with-options"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can You Hedge With Options?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The most common use of options for hedging large portfolios or large positions within a portfolio is to buy put options to protect from catastrophic price drops. This is analogous to buying insurance, in that you are paying a premium for the protection. The adverse event may not occur, but if it does, you can make some gains. Either way, you won’t receive the premium back unless you can sell the contract at a higher price than you paid for it. Any portfolio position can be hedged with option contracts, so long as you are willing to pay the contract prices.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_114-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_115-0"><span class="heading-toc" id="toc-what-are-leap-options"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Leap Options?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The term “long-term equity anticipation securities” (LEAPS) refers to publicly traded <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/optionscontract.asp">options contracts</a> with<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expiration-date.asp"> expiration dates</a> that are longer than one year, and typically up to three years from issue. They are functionally identical to most other listed options, except with longer times until expiration.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_116-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_117-0"><span class="heading-toc" id="toc-how-much-money-do-you-need-to-trade-options"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Money Do You Need to Trade Options?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Broker requirements can vary from zero to a few thousand dollars. Most brokers require account sizes of $2,000 or less. However, trading an option account with only a few hundred dollars is not prudent. Option trading strategies work best when a trader employs only a small amount of their available capital on any one trade.</p></div> </div></div>

Options trading can generate big profits, or big losses, through financial leverage. The leverage allows investors to protect their portfolio while giving speculators an opportunity to amplify profits from price moves. This dynamic generates tantalizing opportunities that constantly abound in the option market. However, would-be options traders need a clear understanding of how options pricing works,  the risks involved, and the best practices for choosing the best platform on which to trade. We’ve compiled the basics every option trader should know, and have structured this guide for trading options to answer the questions most novice option traders have.  ## How to Trade Options ### Understand the Basic Traders who want to [get started with options](https://www.investopedia.com/trading/5-tips-keep-mind-if-you-want-begin-options-trading/) need to understand the following key topics:  * The definition of an option and the two types of options: calls vs. puts * How options are priced (in the money vs. out of the money) * How option prices change (measured by the options Greeks) * How to open and get started trading in an options account * How to avoid losing money ### Call and Put Options Defined Options allow traders to make a leveraged bet on what might happen next with a security’s price. Each standard option controls 100 shares and has a designated strike price and expiration date.  Option contract holders aren’t required to exercise their rights to buy or sell shares. They can let the option expire worthless (and forfeit what they spent on it), or they can sell the option contract to another trader for whatever amount that trader is willing to pay. If the contract’s value increases, they can make a profit without ever exercising the option or having to own the stock. However, if the value decreases, losses result.  ### Calls vs. Puts Call options let you purchase the security at its strike price, which can be done any time before expiration. At expiration, the broker will automatically exercise the option if the price of the underlying shares exceeds the value of the strike price. Put options give you the right to sell the security at the strike price any time before expiration. The broker will exercise the option at expiration, but only if the price of the underlying shares is below the value of the strike price before the contract expires. The value of call options will generally increase as the underlying security goes up in price, while the value of put options will increase as the security falls in price. But there are [certain basic elements that go into option pricing](https://www.investopedia.com/articles/optioninvestor/09/buying-options.asp) that every trader should be aware of, and the price of the underlying shares is only one of them.  ### European vs. American Call option buyers can exercise their right to purchase shares and establish a long position in the stock. Put option buyers exercise their right to sell shares and establish a short position in the stock. But there is a difference in the moment when a contract can be exercised based on the style of the option contract.  American-style options can be exercised at any time leading up to the close of the expiration date, but European-style options can only be exercised on the date of expiration. However, both option styles can be bought or sold up until expiration. Most exchange-traded securities are American-style options, while most index-based options are European-style options. ### Physical vs. Cash Settle When an option contract reaches expiration, the terms of the contract are settled, meaning both parties in the contract receive what they are due. Call options for stocks or other exchange-traded securities are settled by assigning shares of the underlying security to the call option buyer and assigning the call option seller the obligation to provide those shares. If the seller holds those shares already, they are removed from the seller’s account and placed in the buyer’s account. If the seller does not have the shares in their account, the buyer is still given shares, but the seller is assigned a short position in the security. For options on indexes, the contract is settled to cash. Option buyers who find their contracts in the money at expiration will receive a cash equivalent of the intrinsic value of the option, while the option sellers are required to pay that cash from their account. Options that expire out of the money are worthless and no cash changes hands at expiration. ## Best Options Trading Platforms | Platform | Best For | **Account** **Minimum** | **Fees** | | --- | --- | --- | --- | | [tastytrade](https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1) | Best Options Trading Platform | $0 | $0 stock trades, $1 to open options trades (capped at $10 per leg), $0 to close | | [Interactive Brokers](https://www.interactivebrokers.com/mkt/?src=investopedia98a&url=%2Fen%2Fwhyib%2Foverview.php) | Best Broker for Advanced Options Traders | $0 | $0 commissions for equities/ETFs available on IBKR’s TWS Light, or low costs scaled by volume for active traders that want access to advanced functionality such as order routing. $0.65 per contract for options on TWS Light; that is also the base rate for TWS Pro users, with scaled rates based on volume. $0.85 per contract for futures | | [E\*TRADE](https://us.etrade.com/) | Best Broker for Beginning Options Traders | $0 | $0 for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume | | [Webull](https://www.webull.com/activity?source=Investopedia-Per) | Best Broker for Low-Cost Options Trading | $0 | $0 commissions for stock, ETF, options, and cryptocurrency trading (small markup is priced in) | ## Steps Required to Open an Options Trading Account Once you're prepared to explore the world of options trading, you will need to research the brokers with which you can open an account. After you have selected a broker to use and filled out the account application (this is usually done online and is fairly quick), then you can request options trading approval. **Step 1: Select a broker.** Choose a reputable online broker, such as [Interactive Brokers](https://www.interactivebrokers.com/mkt/?src=investopedia90a&url=%2Fen%2Fwhyib%2Foverview.php), [tastytrade](https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B28583678.362989854;dc_trk_aid=553608942;dc_trk_cid=163772288;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=), or [E\*TRADE](https://ad.doubleclick.net/ddm/trackclk/N84001.3034362DOTDASH/B29033839.359635625;dc_trk_aid=550738970;dc_trk_cid=186914042;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=), where you have access to critical options trading tools, including options calculators, extensive charting tools, screeners, demo accounts, strong trading technology, extensive educational materials, and a transparent fee structure.  **Step 2: Register an account.** Broker requirements for approving options trading in your account can vary widely. Some brokers may have a tiered level of option trading approval (lower tiers include buying and selling options; higher tiers include spread trading, index trading, and selling uncovered options).  Some brokers may ask you to complete a questionnaire or take an online course to demonstrate your knowledge of options trading. All such requirements are stipulated by the broker simply to manage their risk. Consequently, the higher your net worth or the larger your account, the less strict a broker is likely to be about such requirements. **Step 3: Fund your account.** Once your application is processed and you are approved for options trading, you will want to fund your account with more than the minimum required amount, and review and accept the language of the options agreement. If you plan to trade options on margin, you'll need to meet your brokerage firm's margin requirements. This can include meeting ongoing minimum balance requirements and promptly addressing margin calls. Once these are complete, your account will be capable of trading options.  **Step 4: Research option strategies.** Successful option trading is more complex than stock trading because it requires factoring critical elements, such as volatility and time decay. Options trading strategies range from simple one-leg strategies, like simply buying puts or calls, to complex multi-leg strategies like [iron condors](https://www.investopedia.com/articles/trading/08/flock-to-iron-condors.asp). All strategies have varying sensitivity to the passage of time, fluctuations in price, and changes in implied volatility, and it is critical to understand what trade-offs each strategy includes. ## What You Need to Open an Options Trading Account Before you can start trading options, you need to open an account with a brokerage firm. To do this, you'll need to provide personal information such as: * Name * Address * Social Security number * Employment status * Job title These are provided for account ownership and standard banking purposes.  The broker will also ask you to provide additional information regarding the following key items:  * Financial status * Liquid assets * Trading experience * Risk tolerance * Option trading knowledge This information is used to assess the risk of having you as a customer. It helps the broker reduce the risk that you might make a trading mistake that could somehow spill over from your account and impact their business.  ## How to Read an Options Chain ![Interactive Brokers]() :max_bytes(150000):strip_icc()/options-adv-perspective-8cede21b0b14439bb253373e927e1f30.jpg) Interactive Brokers. ### Bid The bid is the price you can [sell the quoted option](https://www.investopedia.com/financial-edge/0412/a-newbies-guide-to-reading-an-options-chain.aspx) for with a market order. It is the price of the highest limit order that a buyer from any exchange is willing to spend to buy the contract you want to sell. ### Ask The ask is the price you can buy the quoted option for with a market order. It is the price of the lowest limit order that a seller from any exchange is willing to sell the contract you want to buy. ### Volume This is the number of option contracts that have transacted today on this specific contract. Contracts with a volume of less than 100 per day might see larger spreads between the bid and the ask prices. ### Open Interest Option contracts which have been purchased, and are still available to be exercised, are counted as part of open interest. This number includes options that are initiated as both buys or sells, so the open interest includes both long and short positions. ### Strike Price This is the price at which the option buyer can exercise the right to buy (in the case of call options) or sell (in the case of put options). Each option contract has a strike price and an expiration date. ### Expiration Date Beyond this date, the option contract cannot be exercised. Up until the close of trading on this date, the option buyer may choose to exercise their right. Options which expire in the money are automatically exercised on the day after trading is closed. ### Vega This option [Greek](https://www.investopedia.com/trading/getting-to-know-the-greeks/) measures an option contract’s sensitivity to changes in implied volatility. If the implied volatility of an option increases by one percentage point, the option contract should increase in price by the vega value (all else being equal).  ### Theta Another option Greek, theta measures an option contract’s decline in price over the next 24 hours attributable to time decay. Theta values rise as the day of expiration gets closer. ### Delta This option Greek is the measure of an option contract’s sensitivity to changes in the price of the underlying security. If the underlying stock, or other security, increases by one dollar in price, the option contract should increase in price by the delta value (all else being equal).  ### Gamma This is an option Greek related to delta. It is the measure of an option contract’s change in delta score if the underlying security increases by one dollar. If the underlying stock, or other security, increases by two dollars in price, all other considerations being equal, the option contract should increase in price by the delta value for the first dollar increase and by the delta value plus the gamma value for the second dollar increase. As a result, gamma measures the potential acceleration of option prices.  ### At-the-money (ATM) The option contract with the strike price closest to the current price of the underlying security is said to be “at the money.” The ATM contract is subjective when the price is equally between two strike prices, but it is common to consider the strike that is currently in the money as the option someone would designate as at the money. ### In-the-money (ITM): [In-the-money](https://www.investopedia.com/ask/answers/042715/what-difference-between-money-and-out-money.asp) (ITM) options have intrinsic value, meaning the difference between the option's strike price and the underlying asset's market price is favorable, resulting in immediate value if exercised.  ### Out-of-the-money (OTM): [Out-of-the-money](https://www.investopedia.com/articles/optioninvestor/10/lure-of-cheap-options.asp) (OTM) options have no intrinsic value, as the strike price isn't favorable compared to the market price. It would be worthless to exercise an OTM option. ## Factors to Consider When Opening an Options Trading Account **Customer service:** As an option trader, you’ll want a broker that can be accessed online or over the phone to give quick answers on things like balance changes, margin requirements, margin call notices or other unusual notifications. A broker representative should also be available to clarify trade-related issues, especially on topics of expiration, assignment, and closing out spread trades.  **Fees and commissions:** Some brokers charge commissions on option trades, even if they don’t charge commissions on stock trades. The costs of commissions and fees can vary significantly as certain brokers prefer to remove some or all commissions from the customer transaction. For a better understanding of the fees charged by the best options trading platforms, [this guide](https://www.investopedia.com/best-brokers-for-options-trading-4587876) can serve as an excellent resource.  **Account minimums:** For stock and option trading, opening an account with a minimum deposit of several thousand dollars has become a thing of the past. Most brokers will allow customers to open an account without funding it right away. **Research and trading tools:** The [best options trading platforms](https://www.investopedia.com/best-brokers-for-options-trading-4587876) supply fundamental, technical, and even proprietary research for traders. Online web-based brokers tend to offer a more sophisticated toolset for trading than mobile-based apps used by some of the newer brokers such as [Robinhood](https://robinhood.c3me6x.net/c/328256/1149283/10402), [Webull](https://www.webull.com/activity?source=Investopedia-Per), and [eToro](https://med.etoro.com/B19500_A113056_TClick.aspx). Sophisticated charting tasks are more productive when performed on software-based desktop trading platforms. The same is true for complex order types such as [conditional](https://www.investopedia.com/terms/c/conditionalorder.asp) or branching orders.  **Educational content:** Highly informative articles, videos, online classes, interactive quizzes, and more are common nowadays for many online brokers. The most popular broker platforms are often featured by option traders who create educational content on social media platforms as well. You shouldn’t have to struggle finding educational content for your trading platform, so if you do, take that as a warning flag. **Demo account:** The [best options trading platforms](https://www.investopedia.com/best-brokers-for-options-trading-4587876) include demo accounts so that their customers can fully understand how options Greeks and changing market conditions affect options prices. These practice accounts allow a trader to make simulated trades based on the same platform interface they will use to make trades. This can be very helpful for traders just getting started trading options. But not all brokers provide this tool, so beginner-level traders may want to check out the [investopedia simulator](https://www.investopedia.com/simulator/) if they have no tools available from their broker. ## FAQs ## Are Futures the Same as Options? Options differ from futures because an option buyer is not obligated to exercise their right to buy shares. Futures buyers, on the other hand, are obligated to take delivery of the underlying commodity in the contract unless they sell the contract away before expiration. This means that option prices can be highly sensitive to time decay, where futures are not. ## How Can You Hedge With Options? The most common use of options for hedging large portfolios or large positions within a portfolio is to buy put options to protect from catastrophic price drops. This is analogous to buying insurance, in that you are paying a premium for the protection. The adverse event may not occur, but if it does, you can make some gains. Either way, you won’t receive the premium back unless you can sell the contract at a higher price than you paid for it. Any portfolio position can be hedged with option contracts, so long as you are willing to pay the contract prices. ## What Are Leap Options? The term “long-term equity anticipation securities” (LEAPS) refers to publicly traded [options contracts](https://www.investopedia.com/terms/o/optionscontract.asp) with [expiration dates](https://www.investopedia.com/terms/e/expiration-date.asp) that are longer than one year, and typically up to three years from issue. They are functionally identical to most other listed options, except with longer times until expiration. ## How Much Money Do You Need to Trade Options? Broker requirements can vary from zero to a few thousand dollars. Most brokers require account sizes of $2,000 or less. However, trading an option account with only a few hundred dollars is not prudent. Option trading strategies work best when a trader employs only a small amount of their available capital on any one trade.

Options trading can generate big profits, or big losses, through financial leverage. The leverage allows investors to protect their portfolio while giving speculators an opportunity to amplify profits from price moves. This dynamic generates tantalizing opportunities that constantly abound in the option market. However, would-be options traders need a clear understanding of how options pricing works,  the risks involved, and the best practices for choosing the best platform on which to trade. We’ve compiled the basics every option trader should know, and have structured this guide for trading options to answer the questions most novice option traders have.  How to Trade Options Understand the Basic Traders who want to get started with options need to understand the following key topics:  The definition of an option and the two types of options: calls vs. putsHow options are priced (in the money vs. out of the money)How option prices change (measured by the options Greeks)How to open and get started trading in an options accountHow to avoid losing money Call and Put Options Defined Options allow traders to make a leveraged bet on what might happen next with a security’s price. Each standard option controls 100 shares and has a designated strike price and expiration date.  Option contract holders aren’t required to exercise their rights to buy or sell shares. They can let the option expire worthless (and forfeit what they spent on it), or they can sell the option contract to another trader for whatever amount that trader is willing to pay. If the contract’s value increases, they can make a profit without ever exercising the option or having to own the stock. However, if the value decreases, losses result.  Calls vs. Puts Call options let you purchase the security at its strike price, which can be done any time before expiration. At expiration, the broker will automatically exercise the option if the price of the underlying shares exceeds the value of the strike price. Put options give you the right to sell the security at the strike price any time before expiration. The broker will exercise the option at expiration, but only if the price of the underlying shares is below the value of the strike price before the contract expires. The value of call options will generally increase as the underlying security goes up in price, while the value of put options will increase as the security falls in price. But there are certain basic elements that go into option pricing that every trader should be aware of, and the price of the underlying shares is only one of them.  European vs. American Call option buyers can exercise their right to purchase shares and establish a long position in the stock. Put option buyers exercise their right to sell shares and establish a short position in the stock. But there is a difference in the moment when a contract can be exercised based on the style of the option contract.  American-style options can be exercised at any time leading up to the close of the expiration date, but European-style options can only be exercised on the date of expiration. However, both option styles can be bought or sold up until expiration. Most exchange-traded securities are American-style options, while most index-based options are European-style options. Physical vs. Cash Settle When an option contract reaches expiration, the terms of the contract are settled, meaning both parties in the contract receive what they are due. Call options for stocks or other exchange-traded securities are settled by assigning shares of the underlying security to the call option buyer and assigning the call option seller the obligation to provide those shares. If the seller holds those shares already, they are removed from the seller’s account and placed in the buyer’s account. If the seller does not have the shares in their account, the buyer is still given shares, but the seller is assigned a short position in the security. For options on indexes, the contract is settled to cash. Option buyers who find their contracts in the money at expiration will receive a cash equivalent of the intrinsic value of the option, while the option sellers are required to pay that cash from their account. Options that expire out of the money are worthless and no cash changes hands at expiration. Best Options Trading Platforms Platform Best For Account Minimum  Fees tastytrade Best Options Trading Platform $0 $0 stock trades, $1 to open options trades (capped at $10 per leg), $0 to close Interactive Brokers Best Broker for Advanced Options Traders $0  $0 commissions for equities/ETFs available on IBKR’s TWS Light, or low costs scaled by volume for active traders that want access to advanced functionality such as order routing. $0.65 per contract for options on TWS Light; that is also the base rate for TWS Pro users, with scaled rates based on volume. $0.85 per contract for futures E*TRADE Best Broker for Beginning Options Traders $0 $0 for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume Webull  Best Broker for Low-Cost Options Trading $0  $0 commissions for stock, ETF, options, and cryptocurrency trading (small markup is priced in) Steps Required to Open an Options Trading Account Once you're prepared to explore the world of options trading, you will need to research the brokers with which you can open an account. After you have selected a broker to use and filled out the account application (this is usually done online and is fairly quick), then you can request options trading approval. Step 1: Select a broker. Choose a reputable online broker, such as Interactive Brokers, tastytrade, or E*TRADE, where you have access to critical options trading tools, including options calculators, extensive charting tools, screeners, demo accounts, strong trading technology, extensive educational materials, and a transparent fee structure.  Step 2: Register an account. Broker requirements for approving options trading in your account can vary widely. Some brokers may have a tiered level of option trading approval (lower tiers include buying and selling options; higher tiers include spread trading, index trading, and selling uncovered options).  Some brokers may ask you to complete a questionnaire or take an online course to demonstrate your knowledge of options trading. All such requirements are stipulated by the broker simply to manage their risk. Consequently, the higher your net worth or the larger your account, the less strict a broker is likely to be about such requirements. Step 3: Fund your account. Once your application is processed and you are approved for options trading, you will want to fund your account with more than the minimum required amount, and review and accept the language of the options agreement. If you plan to trade options on margin, you'll need to meet your brokerage firm's margin requirements. This can include meeting ongoing minimum balance requirements and promptly addressing margin calls. Once these are complete, your account will be capable of trading options.  Step 4: Research option strategies. Successful option trading is more complex than stock trading because it requires factoring critical elements, such as volatility and time decay. Options trading strategies range from simple one-leg strategies, like simply buying puts or calls, to complex multi-leg strategies like iron condors. All strategies have varying sensitivity to the passage of time, fluctuations in price, and changes in implied volatility, and it is critical to understand what trade-offs each strategy includes. What You Need to Open an Options Trading Account Before you can start trading options, you need to open an account with a brokerage firm. To do this, you'll need to provide personal information such as: NameAddressSocial Security number Employment statusJob title  These are provided for account ownership and standard banking purposes.  The broker will also ask you to provide additional information regarding the following key items:  Financial statusLiquid assetsTrading experience Risk toleranceOption trading knowledge This information is used to assess the risk of having you as a customer. It helps the broker reduce the risk that you might make a trading mistake that could somehow spill over from your account and impact their business.  How to Read an Options Chain Interactive Brokers. Bid The bid is the price you can sell the quoted option for with a market order. It is the price of the highest limit order that a buyer from any exchange is willing to spend to buy the contract you want to sell. Ask The ask is the price you can buy the quoted option for with a market order. It is the price of the lowest limit order that a seller from any exchange is willing to sell the contract you want to buy. Volume This is the number of option contracts that have transacted today on this specific contract. Contracts with a volume of less than 100 per day might see larger spreads between the bid and the ask prices. Open Interest Option contracts which have been purchased, and are still available to be exercised, are counted as part of open interest. This number includes options that are initiated as both buys or sells, so the open interest includes both long and short positions. Strike Price This is the price at which the option buyer can exercise the right to buy (in the case of call options) or sell (in the case of put options). Each option contract has a strike price and an expiration date. Expiration Date Beyond this date, the option contract cannot be exercised. Up until the close of trading on this date, the option buyer may choose to exercise their right. Options which expire in the money are automatically exercised on the day after trading is closed. Vega This option Greek measures an option contract’s sensitivity to changes in implied volatility. If the implied volatility of an option increases by one percentage point, the option contract should increase in price by the vega value (all else being equal).  Theta Another option Greek, theta measures an option contract’s decline in price over the next 24 hours attributable to time decay. Theta values rise as the day of expiration gets closer. Delta This option Greek is the measure of an option contract’s sensitivity to changes in the price of the underlying security. If the underlying stock, or other security, increases by one dollar in price, the option contract should increase in price by the delta value (all else being equal).  Gamma This is an option Greek related to delta. It is the measure of an option contract’s change in delta score if the underlying security increases by one dollar. If the underlying stock, or other security, increases by two dollars in price, all other considerations being equal, the option contract should increase in price by the delta value for the first dollar increase and by the delta value plus the gamma value for the second dollar increase. As a result, gamma measures the potential acceleration of option prices.  At-the-money (ATM) The option contract with the strike price closest to the current price of the underlying security is said to be “at the money.” The ATM contract is subjective when the price is equally between two strike prices, but it is common to consider the strike that is currently in the money as the option someone would designate as at the money. In-the-money (ITM): In-the-money (ITM) options have intrinsic value, meaning the difference between the option's strike price and the underlying asset's market price is favorable, resulting in immediate value if exercised.  Out-of-the-money (OTM): Out-of-the-money (OTM) options have no intrinsic value, as the strike price isn't favorable compared to the market price. It would be worthless to exercise an OTM option. Factors to Consider When Opening an Options Trading Account Customer service: As an option trader, you’ll want a broker that can be accessed online or over the phone to give quick answers on things like balance changes, margin requirements, margin call notices or other unusual notifications. A broker representative should also be available to clarify trade-related issues, especially on topics of expiration, assignment, and closing out spread trades.  Fees and commissions: Some brokers charge commissions on option trades, even if they don’t charge commissions on stock trades. The costs of commissions and fees can vary significantly as certain brokers prefer to remove some or all commissions from the customer transaction. For a better understanding of the fees charged by the best options trading platforms, this guide can serve as an excellent resource.  Account minimums: For stock and option trading, opening an account with a minimum deposit of several thousand dollars has become a thing of the past. Most brokers will allow customers to open an account without funding it right away.Research and trading tools: The best options trading platforms supply fundamental, technical, and even proprietary research for traders. Online web-based brokers tend to offer a more sophisticated toolset for trading than mobile-based apps used by some of the newer brokers such as Robinhood, Webull, and eToro. Sophisticated charting tasks are more productive when performed on software-based desktop trading platforms. The same is true for complex order types such as conditional or branching orders.  Educational content: Highly informative articles, videos, online classes, interactive quizzes, and more are common nowadays for many online brokers. The most popular broker platforms are often featured by option traders who create educational content on social media platforms as well. You shouldn’t have to struggle finding educational content for your trading platform, so if you do, take that as a warning flag. Demo account: The best options trading platforms include demo accounts so that their customers can fully understand how options Greeks and changing market conditions affect options prices. These practice accounts allow a trader to make simulated trades based on the same platform interface they will use to make trades. This can be very helpful for traders just getting started trading options. But not all brokers provide this tool, so beginner-level traders may want to check out the investopedia simulator if they have no tools available from their broker. FAQs Are Futures the Same as Options? Options differ from futures because an option buyer is not obligated to exercise their right to buy shares. Futures buyers, on the other hand, are obligated to take delivery of the underlying commodity in the contract unless they sell the contract away before expiration. This means that option prices can be highly sensitive to time decay, where futures are not. How Can You Hedge With Options? The most common use of options for hedging large portfolios or large positions within a portfolio is to buy put options to protect from catastrophic price drops. This is analogous to buying insurance, in that you are paying a premium for the protection. The adverse event may not occur, but if it does, you can make some gains. Either way, you won’t receive the premium back unless you can sell the contract at a higher price than you paid for it. Any portfolio position can be hedged with option contracts, so long as you are willing to pay the contract prices. What Are Leap Options? The term “long-term equity anticipation securities” (LEAPS) refers to publicly traded options contracts with expiration dates that are longer than one year, and typically up to three years from issue. They are functionally identical to most other listed options, except with longer times until expiration. How Much Money Do You Need to Trade Options? Broker requirements can vary from zero to a few thousand dollars. Most brokers require account sizes of $2,000 or less. However, trading an option account with only a few hundred dollars is not prudent. Option trading strategies work best when a trader employs only a small amount of their available capital on any one trade.

https://www.investopedia.com/best-brokers-for-beginners-4587873

Best Online Brokers for Beginners of 2024

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="24" data-sc-ad-track-spacing="100" data-sc-breakpoint="50em" data-sc-content-positions="[300,600,900,1200,1500,1800,2100]" data-sc-load-immediate="1" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="60" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> According to our research, Fidelity is the best online broker for beginners due to its abundant educational materials, low costs, excellent customer support, and more. We researched 25 online brokers and trading platforms and evaluated them based on 11 major categories and 66 criteria, including fees, usability, account services, mobile app experience, and additional features.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Our research previously determined TD Ameritrade to be the best platform for beginners, the best platform for educational materials, and the best platform for customer service. However, now that TD Ameritrade is no longer accepting new customers as its integration into Charles Schwab nears completion, a reevaluation of our quantitative ratings model has determined that Fidelity and Charles Schwab are now the best brokers for beginner traders who want top educational materials and customer service.    </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <span class="heading-toc" id="toc-best-online-brokers-for-beginners-of-2024"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Best Online Brokers for Beginners of 2024 </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> <li>Best Broker for Beginners: <a data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&amp;offerid=1500096.1073&amp;type=3&amp;subid=0" rel="sponsored nofollow"><strong>Fidelity</strong></a></li> <li>Best Broker for Investor Education: <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.schwab.com/" rel="sponsored nofollow"><strong>Charles Schwab</strong></a></li> <li>Best Broker for Customer Service: <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://www.schwab.com/" rel="sponsored nofollow"><strong>Charles Schwab</strong></a></li> <li>Best Broker for Ease of Trading Experience: <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://us.etrade.com/" rel="sponsored nofollow"><strong>E*TRADE</strong></a><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-fidelity-best-for-beginners"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Fidelity: Best for Beginners </span> </h2> <div class="comp mntl-sc-block finance-sc-block-starrating mntl-block" id="mntl-sc-block_9-0"><div aria-label="4.8 out of 5 stars" class="comp mntl-sc-block mntl-sc-block-starrating" id="mntl-sc-block_10-0"><div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 100%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 100%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 100%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 100%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 80%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <span class="mntl-sc-block__label mntl-sc-block-starrating__label">4.8</span></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <div class="comp mntl-sc-block finance-sc-block-review mntl-sc-block-review" id="mntl-sc-block_12-0"> <div class="mntl-sc-block__header-link mntl-sc-block-review__header-link"> <a href="https://www.investopedia.com/fidelity-review-4587897" rel="nocaes" target="_blank"><img height="0" src="https://www.investopedia.com/thmb/2z0zeePI0hjFFCPW3eB8ckVLU6s=/2160x0/filters:no_upscale():max_bytes(150000):strip_icc()/Fid-Logo-Blk-2160x480-8a29ae20e787478b80d7e7732debf40f.jpg" width="2160"/></a> </div> <div class="loc entity-link"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-tracking-container="true" href="https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&amp;offerid=1500096.1073&amp;type=3&amp;subid=0" id="mntl-sc-block-review__entity-link_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div> <div class="mntl-sc-block__quick-facts mntl-sc-block-review__quick-facts"> <ul class="mntl-sc-block__quick-list mntl-sc-block-review__quick-list"> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Account Minimum</strong>: $0 </li> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Fees</strong>: $0 for stock/ETF trades, $0 plus $0.65/contract for options trades </li> </ul> <div class="loc article-link"><a class="mntl-sc-block-review__article-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/fidelity-review-4587897" id="mntl-sc-block-review__article-link_1-0" rel="noopener nocaes" target="_blank"><span class="link__wrapper">Read full review</span></a> </div> </div> <div class="loc entity-link mntl-sc-block__trailing-links mntl-sc-block-review__trailing-links"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-tracking-container="true" href="https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&amp;offerid=1500096.1073&amp;type=3&amp;subid=0" id="mntl-sc-block-review__entity-link_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-why-we-chose-it"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Why We Chose It </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Fidelity is our choice for the best overall broker for beginners due to its low fees, wide-ranging educational content, strong customer service options, vast array of investment resources, and ongoing enhancements to improve the user experience.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <span class="heading-toc" id="toc-pros--cons"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Pros &amp; Cons </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_19-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_20-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Top-notch trade executions</p></li> <li><p>Low costs</p></li> <li><p>Extensive educational content</p></li> <li><p>Strong customer service</p></li> <li><p>Fractional shares trading in over 7000 U.S. stocks and ETFs</p><p><br/></p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>No futures or commodities trading<br/></p></li> <li><p>Available to the U.S. and main island residents only<br/></p></li> <li><p>High broker-assisted trading fees<br/></p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Founded in 1943 and headquartered in Boston, Fidelity is one of the largest brokerages in the U.S., with 43 million individual investors, $11.5 trillion in assets under administration, and $4.4 trillion in discretionary assets.<span class="ql-inline-citation" data-cite="32"></span> Beginner traders and investors will find Fidelity’s account setup process to be a breeze. The company offers three platforms that can be used simultaneously. Fidelity excels at providing a user-friendly experience, with ongoing enhancements designed to create an increasingly intuitive interface that simplifies the complexities of investing. Navigating through Fidelity’s web-based, downloadable, and mobile trading platforms is seamless, making it ideal for those taking their first steps in the financial markets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Of course, when it comes to determining which broker is the best for beginners, education is a top-weighted criteria. One of Fidelity's standout features is its expansive Online Learning Center, which utilizes machine learning to highlight educational materials that match the customer’s investing behavior. The platform offers a wealth of educational materials, including articles, webinars, videos, tutorials, and live events and seminars catering to various learning styles. Additionally, Fidelity provides a powerful simulated trading environment with a paper trading feature. This allows beginners to practice their strategies and get a feel for the market without risking real money. It's a valuable tool for building confidence and honing skills before diving into live trading. Whether you're looking to grasp the basics of investing or delve into more advanced strategies, Fidelity's educational tools empower beginners to make informed decisions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Customer support, another feature critical to the development of new traders and investors, is also top notch at Fidelity, which offers assistance through various channels. For beginners encountering uncertainties, responsive and knowledgeable customer service is available through several channels, including 24/7 live phone support, live online chat, a chatbot (Fidelity Virtual Assistant), and email. Perhaps most importantly, customers can talk to a live broker (there is a surcharge for any trades placed via the broker) and get face-to-face assistance at one of any 200 investment centers across the U.S.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-charles-schwab-best-for-investor-education-and-customer-service"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> Charles Schwab: Best for Investor Education and Customer Service </span> </h2> <div class="comp mntl-sc-block finance-sc-block-starrating mntl-block" id="mntl-sc-block_30-0"><div aria-label="4.5 out of 5 stars" class="comp mntl-sc-block mntl-sc-block-starrating" id="mntl-sc-block_31-0"><div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 100%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 100%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 100%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 100%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 50%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <span class="mntl-sc-block__label mntl-sc-block-starrating__label">4.5</span></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-review mntl-sc-block-review" id="mntl-sc-block_33-0"> <div class="mntl-sc-block__header-link mntl-sc-block-review__header-link"> <a href="https://www.investopedia.com/charles-schwab-review-4587888" rel="nocaes" target="_blank"><img height="0" src="https://www.investopedia.com/thmb/p-xwUVi8CfYUF9oWOYPQE1IaHJk=/2939x0/filters:no_upscale():max_bytes(150000):strip_icc()/charles-schwab-productcard-5c742da0c9e77c00010d6c5b.png" width="2939"/></a> </div> <div class="loc entity-link"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://www.schwab.com/" id="mntl-sc-block-review__entity-link_3-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div> <div class="mntl-sc-block__quick-facts mntl-sc-block-review__quick-facts"> <ul class="mntl-sc-block__quick-list mntl-sc-block-review__quick-list"> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Account Minimum</strong>: $0 </li> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Fees</strong>: $0 for stock/ETF trades, $0.65 per contract for options </li> </ul> <div class="loc article-link"><a class="mntl-sc-block-review__article-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/charles-schwab-review-4587888" id="mntl-sc-block-review__article-link_3-0" rel="noopener nocaes" target="_blank"><span class="link__wrapper">Read full review</span></a> </div> </div> <div class="loc entity-link mntl-sc-block__trailing-links mntl-sc-block-review__trailing-links"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://www.schwab.com/" id="mntl-sc-block-review__entity-link_3-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-why-we-chose-it"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Why We Chose It </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-subheading__text"> Best for Investor Education </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> With the recent integration of TD Ameritrade, Charles Schwab has bolstered its already strong educational offering to an industry-best level.<span class="ql-inline-citation" data-cite="33"></span> For beginners looking to improve their investment knowledge and trading skills, the resources Charles Schwab now offers are unmatched. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-subheading__text"> Best for Customer Service </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Charles Schwab has long been a close runner-up to TD Ameritrade when it comes to customer service. With TD Ameritrade nearly fully integrated into the Schwab ecosystem, customers will not find a better breadth and quality of service options backed by a satisfaction guarantee.<span class="ql-inline-citation" data-cite="34"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <span class="heading-toc" id="toc-pros--cons"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_43-0"> <span class="mntl-sc-block-heading__text"> Pros &amp; Cons </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_44-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_45-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Access to TD Ameritrade’s award-winning thinkorswim trading platforms</p></li> <li><p>TD Ameritrade acquisition adds to Schwab's existing 400+ branch locations</p></li> <li><p>Customer service satisfaction guarantee<br/></p></li> <li><p>Huge library of original and third-party research and commentary</p></li> <li><p>Excellent phone and live chat customer support</p><p><br/></p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>No fractional share trading in ETFs<br/></p></li> <li><p>No direct cryptocurrency trading</p></li> <li><p>High fees for some mutual funds<br/></p></li> <li><p>Low interest rate on uninvested cash</p></li> <li><p>Broker-assisted trade fees apply</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Originally formed as First Commander Corporation by its founder Chuck Schwab and his partners in April 1971, the company’s name was changed to Charles Schwab &amp; Co., Inc. in 1973. Since the start, the company has put customers first as part of its “Through Clients’ Eyes” philosophy. As one of the largest <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/charles-schwab-vs-vanguard-4587941">discount brokerages</a> in the world, with $8.52 trillion in client assets and 34.8 million brokerage accounts as of Dec. 31, 2023, Charles Schwab provides a full-service approach to the entire range of investor types, as well as to employers and independent advisors.<span class="ql-inline-citation" data-cite="35"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Charles Schwab announced that it had acquired TD Ameritrade for $26 billion in November 2019. The deal closed a year later and Charles Schwab has been working to integrate TD Ameritrade into its business ever since. Schwab customers have long enjoyed wide-ranging and responsive customer service and excellent educational resources. But Charles Schwab's acquisition of TD Ameritrade has created an educational and service-rich powerhouse that caters to investors' diverse needs. Schwab even goes so far as to offer a satisfaction guarantee to customers for the services it provides.<span class="ql-inline-citation" data-cite="36"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> Charles Schwab's dedication to investor education has been a hallmark, and the acquisition of TD Ameritrade amplifies its already stellar collection of articles, videos, webcasts, live branch events, and podcasts. Customers will especially like that Schwab now offers live trading seminars that have been a top draw at TD Ameritrade for years. And when it comes to customer service, investors of all levels will be even closer to in-person support now that Schwab’s 400-plus branch locations will increase with the addition of many TD Ameritrade branches. All told, beginners will not find a deeper bench of financial advisor access, frequently asked questions (FAQs), and 24/7 live phone and chat support to help them navigate the complexities of investing.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <span class="heading-toc" id="toc-etrade-best-broker-for-ease-of-use"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_54-0"> <span class="mntl-sc-block-heading__text"> E*TRADE: Best Broker for Ease of Use </span> </h2> <div class="comp mntl-sc-block finance-sc-block-starrating mntl-block" id="mntl-sc-block_55-0"><div aria-label="4.1 out of 5 stars" class="comp mntl-sc-block mntl-sc-block-starrating" id="mntl-sc-block_56-0"><div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 100%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 100%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 100%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 100%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-starrating__wrapper"> <div class="mntl-sc-block__background mntl-sc-block-starrating__background"></div> <div class="mntl-sc-block__bar mntl-sc-block-starrating__bar" style="width: 10%;"></div> <svg class="icon icon-star mntl-sc-block__svg mntl-sc-block-starrating__svg"> <use xlink:href="#icon-star" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> <span class="mntl-sc-block__label mntl-sc-block-starrating__label">4.1</span></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-review mntl-sc-block-review" id="mntl-sc-block_58-0"> <div class="mntl-sc-block__header-link mntl-sc-block-review__header-link"> <a href="https://www.investopedia.com/e-trade-review-4587893" rel="nocaes" target="_blank"><img height="0" src="https://www.investopedia.com/thmb/3eDrUHCx4Y2-qsHI5J-Qfd6r6OA=/1741x0/filters:no_upscale():max_bytes(150000):strip_icc()/Etrade2022-22aa6950945a4c6c9b263e56e4263fba.jpg" width="1741"/></a> </div> <div class="loc entity-link"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://us.etrade.com/" id="mntl-sc-block-review__entity-link_5-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div> <div class="mntl-sc-block__quick-facts mntl-sc-block-review__quick-facts"> <ul class="mntl-sc-block__quick-list mntl-sc-block-review__quick-list"> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Account</strong> <strong>Minimum</strong>: $0 </li> <li class="mntl-sc-block__quick-list__item mntl-sc-block-review__quick-list__item"> <strong>Fees</strong>: No commission for stock, ETF, and mutual fund trades. Options are $0.50-$0.65 per contract, depending on trading volume. </li> </ul> <div class="loc article-link"><a class="mntl-sc-block-review__article-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/e-trade-review-4587893" id="mntl-sc-block-review__article-link_5-0" rel="noopener nocaes" target="_blank"><span class="link__wrapper">Read full review</span></a> </div> </div> <div class="loc entity-link mntl-sc-block__trailing-links mntl-sc-block-review__trailing-links"><a class="mntl-sc-block-review__entity-link mntl-text-link" data-tracking-container="true" href="https://us.etrade.com/" id="mntl-sc-block-review__entity-link_5-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open an Account</span></a> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-why-we-chose-it"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> Why We Chose It </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> E*TRADE wins our Best Broker for Ease of Use thanks to user-friendly desktop and mobile experiences to go along with readily accessible tools and features. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <span class="heading-toc" id="toc-pros--cons"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_64-0"> <span class="mntl-sc-block-heading__text"> Pros &amp; Cons </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_65-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_66-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Two exceptionally designed mobile apps for investors with different interests</p></li> <li><p>Prebuilt portfolios and automated portfolio builder let users invest quickly</p></li> <li><p>Paper trading account offers ability to test platform and strategies before investing</p></li> <li><p>Excellent educational tools and content library</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>Fractional shares are only offered through a dividend reinvestment plan (DRIP)</p></li> <li><p>Trading on international exchanges is not offered</p></li> <li><p>No direct crypto trading</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <span class="heading-toc" id="toc-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_68-0"> <span class="mntl-sc-block-heading__text"> Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> E*TRADE has been a leading broker since its founding in 1982, thriving as an innovative electronic platform with the evolution of the internet in the early ‘90s and building a reputation as a seamless, powerful trading service.<span class="ql-inline-citation" data-cite="21"></span> In 2020, Morgan Stanley acquired E*TRADE for $13 billion.<span class="ql-inline-citation" data-cite="22"></span> Morgan Stanley's ownership has been a net positive for E*TRADE, leading directly to E*TRADE eliminating all commissions for mutual funds on the platform in December 2022.<span class="ql-inline-citation" data-cite="19"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> E*TRADE has diligently worked on enhancing an already strong desktop and mobile experience, implementing a number of app enhancements ranging from position details to site navigation optimization. Continuing improvements to educational material help investors move swiftly from research to investing. New investors can get started with ease due to straightforward site menus and research tools, although the platform is built for users of all backgrounds and experience levels. A wide range of pre-built portfolios and automated portfolio-building tools let beginners enter the market without having to spend an exorbitant amount of time learning the ropes. The paper trading account option lets users experience the site and test trading approaches without putting real money in the market.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_72-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Two mobile apps are offered that cater to investors of different experience levels and trading styles. The E*TRADE mobile app is intuitive, aesthetically pleasing, and geared toward users looking to stay in touch with their brokerage accounts while maintaining full feature parity. The Power E*TRADE mobile app builds on this by providing even more interactive charts and technical analysis to ensure investors have everything they need in the palm of their hand.<span class="ql-inline-citation" data-cite="31"></span> User reviews focus on a continually enhanced, intuitive experience, and low or eliminated trading fees. Overall, E*TRADE is one of the most advanced mobile trading platforms, as it’s extremely well-designed and offers a wide range of useful features.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <span class="heading-toc" id="toc-final-verdict"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_75-0"> <span class="mntl-sc-block-heading__text"> Final Verdict </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> Fidelity, Charles Schwab, and E*TRADE are all strong full-service brokers with many outstanding qualities. They all offer a solid menu of trading resources, educational content, research tools, and demo accounts to help beginners get started. All have invested heavily in making their platforms intuitive and easy to navigate to provide users with a smooth experience. These are the critical tools necessary to help ease new investors into the complex world of investing.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> That said, Fidelity takes the top spot as the best broker for beginners due to its overall corpus of features that are critical to helping beginner traders and investors thrive. Educational resources and customer support are key elements in this evaluation, and Charles Schwab’s execution in these two areas is unmatched throughout the industry. Still, E*TRADE has been continually enhancing desktop and mobile offerings, particularly when it comes to education, making the difference between platforms nearly imperceptible. As a result, new investors would do well utilizing any of these industry titans to grow their investment expertise and capabilities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_80-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/ZHJq8/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Compare the Best Brokers for Beginners"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <span class="heading-toc" id="toc-trading-vs-investing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_82-0"> <span class="mntl-sc-block-heading__text"> Trading vs. Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_83-0"> Generally, when people talk about investing, they are referring to the practice of purchasing assets to be held for a long period of time. Investors hold their assets long-term so that they may reach a retirement goal or their money can grow more quickly than it would in a standard savings account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> In contrast, trading involves buying and selling assets in a short period of time with the goal of making quick profits. Trading is typically seen as riskier than investing, and those new or inexperienced in trading should do so cautiously. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> Before selecting an online <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-company.asp">broker</a> to use, you'll need to ask yourself questions including: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> <li><strong>Am I a beginner? </strong>If so, you'll want to find a broker with solid education resources and ideally a paper trading account to practice in. You'll also want calculators and analysis tools to help you plan, invest, and manage your portfolio. The quality of tools and resources can vary widely by broker but, generally, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/do-i-need-broker-to-buy-stocks-5213282">larger brokers</a> have a much wider selection.</li> <li><strong>How much can I afford to invest right now?</strong> Some brokers require a larger initial investment to open an account and access the trading platform. If you have a small amount of money, you'll want a broker with a low to no account minimum.</li> <li><strong>Am I a trader or an investor?</strong> While investors can usually get away with a web platform or app, the complex needs of traders generally require a customizable desktop platform with all the bells and whistles.</li> <li><strong>What kind of assets would I like to invest in?</strong> While most brokers offer the basics of stocks and ETFs, you may find other seemingly standard offerings like bonds and options are far from universal. If you are interested in trading forex, futures, cryptocurrency, and so on, you will be looking to larger brokers with asset offerings far beyond the basics.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <span class="heading-toc" id="toc-how-to-pick-a-brokerage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_91-0"> <span class="mntl-sc-block-heading__text"> How to Pick a Brokerage </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> You’ll also need to decide the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/types-brokerage-accounts/">type of brokerage account</a> you’ll want, the fees involved, and how involved you want to be, day-to-day, with your account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> Also consider your investment preferences, such as your need for research, tools, and portfolio tracking features, to ensure the broker you end up choosing will be a match. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_95-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> You can also read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/complete-guide-choosing-online-stock-broker/">guide to choosing the right online broker</a> for additional assistance in choosing the right brokerage account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_97-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_98-0"><span class="heading-toc" id="toc-what-about-robinhood"></span> <h2 class="mntl-sc-block-questionandanswer__question">What About Robinhood?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>For new investors looking to enter the market, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/robinhood-vs-webull-6754841">Robinhood provides easy access to trading</a>. However, when run through our scoring criteria, Robinhood is a middle-to-low-end broker with a well-optimized app. This discount broker does next to nothing to prepare investors to be successful. In addition to an overall lack of screeners and other basic tools, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/robinhood-pays-settlement-but-gamification-remains-a-concern-5093195">Robinhood's use of gamification tactics may be hurting investors</a> more than its publicity-grabbing GameStop debacle or high payment for order flow.</p><p>As such, we don't recommend it for new investors, even though we recognize that many new investors are coming into the market that way.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_99-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_100-0"><span class="heading-toc" id="toc-whats-the-difference-between-an-online-broker-and-a-robo-advisor"></span> <h2 class="mntl-sc-block-questionandanswer__question">What’s the Difference Between an Online Broker and a Robo Advisor?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Brokers give you all the research tools and market insights needed so that you can create investment strategies that match your preferences. They don’t act as advisors or manage your portfolio, but rather empower you with the resources needed to implement your trading approach.</p><p>Robo advisors manage a portfolio on your behalf based on your investing experience, goals, and timeline. While you won’t have as much influence over your portfolio makeup, robo advisor platforms do all the work for you to keep you on track for the long term.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_101-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_102-0"><span class="heading-toc" id="toc-do-you-need-a-lot-of-money-to-use-an-online-brokerage"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do You Need a Lot of Money to Use an Online Brokerage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Fortunately, you don't need a lot of money to open a brokerage account. Many discount brokers typically offer $0 account minimums, making it easy for almost anyone to get started.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_104-0"><span class="heading-toc" id="toc-what-do-you-need-to-open-a-brokerage-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Do You Need to Open a Brokerage Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>To <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-open-an-online-brokerage-account-7973796">open a brokerage account</a>, you'll need several pieces of information available, including:<span class="ql-inline-citation" data-cite="24"></span></p><ul><li>Name</li><li>Address</li><li>Date of birth</li><li>Social Security number (or taxpayer identification number)</li><li>Telephone number</li><li>Email address</li><li>Driver's license, passport, or other government-issued identification</li><li>Employment status and occupation</li><li>Annual income</li><li>Net worth</li></ul></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_105-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_106-0"><span class="heading-toc" id="toc-is-my-money-safe-in-a-brokerage"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is My Money Safe in a Brokerage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>All brokerages operating within the U.S. are required to have $500,000 of SIPC protection, which includes a $250,000 limit for cash.<span class="ql-inline-citation" data-cite="14"></span> This means that any holdings with a brokerage that exceed $500,000 could be lost in the event that a brokerage goes bankrupt or is liquidated. That said, retail investors, especially beginners, are unlikely to have accounts that exceed $500,000, giving little cause for concern for new investors.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_107-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_108-0"><span class="heading-toc" id="toc-can-i-withdraw-money-from-a-brokerage"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Withdraw Money From a Brokerage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Withdrawing your money from a brokerage is relatively straightforward. Excess cash that is in the account but not invested can be withdrawn at any time, similar to a bank account withdrawal.</p><p>The other money that is invested can only be withdrawn by liquidating the positions held. This means selling the assets that you purchased like stocks, ETFs, and mutual funds. </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_109-0"></div> <span class="heading-toc" id="toc-terms-beginners-should-know"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_110-0"> <span class="mntl-sc-block-heading__text"> Terms Beginners Should Know </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_111-0"> <li><strong><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashaccount.asp">Cash account</a>:</strong> A cash account is a brokerage account in which a customer is required to pay the full amount for securities purchased, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buying-on-margin.asp">buying on margin</a> is prohibited. The Federal Reserve's <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regulationt.asp">Regulation T</a> governs cash accounts and the purchase of securities on margin. This regulation gives investors two business days to pay for securities.</li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marginaccount.asp"><strong>Margin account</strong></a>: A margin account is a <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerageaccount.asp">brokerage account</a> in which the broker lends the customer cash to purchase stocks or other financial products. The loan in the account is collateralized by the securities purchased and cash, and comes with a <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/periodic_interest_rate.asp">periodic interest rate</a>. Because the customer is investing with borrowed money, the customer is using leverage which will magnify profits and losses for the customer.</li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/051613/how-start-saving-retirement.asp"><strong>Retirement account</strong></a>: Brokerages offer all types of retirement accounts like traditional IRAs, Roth IRAs, and 401(k)s.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_112-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_113-0"> Anyone who would like to get involved in the stock market should know some basic terminology: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_114-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_115-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock.asp"><strong>Stock</strong></a>: A stock (also known as "shares" or "equity") is a type of security that signifies proportionate ownership in the issuing <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporation.asp">corporation</a>. This entitles the stockholder to that proportion of the corporation's assets and earnings.</li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-earningsratio.asp"><strong>Price-to-earnings ratio</strong></a>: The price-to-earnings ratio (P/E ratio) is a ratio for valuing a company that measures its current share price relative to its earnings-per-share (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eps.asp">EPS</a>). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.</li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketcapitalization.asp"><strong>Market capitalization</strong></a>: Market capitalization, commonly referred to as "market cap," refers to the total dollar market value of a company's outstanding <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shares.asp">shares</a>. Market cap is calculated by multiplying a company's shares outstanding by the current market price of one share.</li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp"><strong>Dividend</strong></a>: A dividend is the distribution of reward from a portion of the company's earnings and is paid to a class of its shareholders.</li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp"><strong>Exchange-traded fund (ETF)</strong></a>: An exchange-traded fund (ETF) is a collection of securities—such as stocks—that typically tracks an underlying <a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketindex.asp">index</a>.</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp"><strong>Bond</strong></a>: A bond is a <a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixed-incomesecurity.asp">fixed income instrument</a> that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the <a data-component="link" data-ordinal="12" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lender</a> and borrower which includes the details of the loan and its payments.</li> <li><a data-component="link" data-ordinal="13" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp"><strong>Mutual fund</strong></a>: A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional <a data-component="link" data-ordinal="14" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymanager.asp">money managers</a>, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors.</li> <li><a data-component="link" data-ordinal="15" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/limitorder.asp"><strong>Limit order</strong></a>: A limit order is the use of a pre-specified price to buy or sell a <a data-component="link" data-ordinal="16" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">security</a>. For example, if a trader is looking to buy XYZ’s stock but has a limit of $14.50, they will only buy the stock at a price of $14.50 or lower. If the trader is looking to sell shares of XYZ’s stock with a $14.50 limit, the trader will not sell any shares until the price is $14.50 or higher.  </li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><a data-component="link" data-ordinal="17" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketorder.asp"><strong>Market order</strong></a>: A market order is a request by an investor—usually made through a <a data-component="link" data-ordinal="18" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker.asp">broker</a>—to buy or sell a security at the best available price in the current market. It is widely considered the fastest and most reliable way to enter or exit a trade and provides the most likely method of getting in or out of a trade quickly. For many <a data-component="link" data-ordinal="19" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/large-cap.asp">large-cap</a> liquid stocks, market orders fill nearly instantaneously.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_116-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_117-0"> If you're interested in learning more about the stock market, you can check out our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/11/3-s-simple-investing.asp">guide to investing</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_118-0"></div> <span class="heading-toc" id="toc-how-we-picked-the-best-brokers-for-beginners"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_119-0"> <span class="mntl-sc-block-heading__text"> How We Picked the Best Brokers for Beginners </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_120-0"> Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of online brokers. This year, we revamped the review process by conducting an extensive survey of customers who are actively looking to start trading and investing with an online broker. We then combined this invaluable information with our subject matter expertise to develop the framework for a quantitative rating model that is at the core of how we compiled our list of the best online broker and trading platform companies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_121-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_122-0"> This model weighs key factors like trading technology, range of offerings, mobile app usability, research amenities, educational content, portfolio analysis features, customer support, costs, account amenities, and overall trading experience according to their importance. Our team of researchers gathered 2,425 data points and weighted 66 criteria based on data collected during extensive research for each of the 25 companies we reviewed.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_123-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_124-0"> Many of the brokers we reviewed also gave us live demonstrations of their platforms and services, either at their New York City offices or via video conferencing methods. Live brokerage accounts were also obtained for most of the platforms we reviewed, which our team of expert writers and editors used to perform hands-on testing to lend their qualitative point of view.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_125-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_126-0"> Read our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/broker-ranking-methodology-4587135">full Methodology</a> for reviewing online brokers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_127-0"></div> <div class="comp mntl-sc-block finance-sc-block-inlinevideo mntl-sc-block-inlinevideo mntl-block has-details inline-video" id="mntl-sc-block_128-0"><div class="comp mntl-sc-block-inlinevideo__video-container mntl-block" id="mntl-sc-block-inlinevideo__video-container_1-0"><div class="comp mntl-sc-block-inlinevideo__video mntl-jwplayer mm-video lazyload aspectratio-16:9" data-bgset="https://cdn.jwplayer.com/v2/media/pizsSJMQ/poster.jpg?width=720" data-sizes="auto" id="mntl-sc-block-inlinevideo__video_1-0"></div></div> <h4 class="comp mntl-sc-block-inlinevideo__title mntl-text-block" id="mntl-sc-block-inlinevideo__title_1-0">Everything You Need to Know About Brokerage Accounts</h4> <div class="comp mntl-sc-block-inlinevideo__feature-link-wrapper mntl-block" id="mntl-sc-block-inlinevideo__feature-link-wrapper_1-0"><span class="comp mntl-sc-block-inlinevideo__feature-link mntl-text-link mntl-sc-block-inlinevideo__feature-link mntl-text-link" id="mntl-sc-block-inlinevideo__feature-link_1-0"></span></div></div> <div class="comp textnote-placeholder mntl-block" id="textnote-placeholder_1-0"></div> <div class="comp textnote mm-ads-gpt-adunit gpt textnote" id="textnote_1-0"> <div class="wrapper" id="textnote"></div> </div></div>

According to our research, Fidelity is the best online broker for beginners due to its abundant educational materials, low costs, excellent customer support, and more. We researched 25 online brokers and trading platforms and evaluated them based on 11 major categories and 66 criteria, including fees, usability, account services, mobile app experience, and additional features.  Our research previously determined TD Ameritrade to be the best platform for beginners, the best platform for educational materials, and the best platform for customer service. However, now that TD Ameritrade is no longer accepting new customers as its integration into Charles Schwab nears completion, a reevaluation of our quantitative ratings model has determined that Fidelity and Charles Schwab are now the best brokers for beginner traders who want top educational materials and customer service.    ## Best Online Brokers for Beginners of 2024 * Best Broker for Beginners: [**Fidelity**](https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&offerid=1500096.1073&type=3&subid=0) * Best Broker for Investor Education: [**Charles Schwab**](https://www.schwab.com/) * Best Broker for Customer Service: [**Charles Schwab**](https://www.schwab.com/) * Best Broker for Ease of Trading Experience: [**E\*TRADE**](https://us.etrade.com/) ## Fidelity: Best for Beginners 4.8 [:max_bytes(150000):strip_icc()/Fid-Logo-Blk-2160x480-8a29ae20e787478b80d7e7732debf40f.jpg)](https://www.investopedia.com/fidelity-review-4587897) [Open an Account](https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&offerid=1500096.1073&type=3&subid=0) * **Account Minimum**: $0 * **Fees**: $0 for stock/ETF trades, $0 plus $0.65/contract for options trades [Read full review](https://www.investopedia.com/fidelity-review-4587897) [Open an Account](https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&offerid=1500096.1073&type=3&subid=0) ## Why We Chose It Fidelity is our choice for the best overall broker for beginners due to its low fees, wide-ranging educational content, strong customer service options, vast array of investment resources, and ongoing enhancements to improve the user experience. ## Pros & Cons Pros * Top-notch trade executions * Low costs * Extensive educational content * Strong customer service * Fractional shares trading in over 7000 U.S. stocks and ETFs Cons * No futures or commodities trading * Available to the U.S. and main island residents only * High broker-assisted trading fees ## Overview Founded in 1943 and headquartered in Boston, Fidelity is one of the largest brokerages in the U.S., with 43 million individual investors, $11.5 trillion in assets under administration, and $4.4 trillion in discretionary assets. Beginner traders and investors will find Fidelity’s account setup process to be a breeze. The company offers three platforms that can be used simultaneously. Fidelity excels at providing a user-friendly experience, with ongoing enhancements designed to create an increasingly intuitive interface that simplifies the complexities of investing. Navigating through Fidelity’s web-based, downloadable, and mobile trading platforms is seamless, making it ideal for those taking their first steps in the financial markets. Of course, when it comes to determining which broker is the best for beginners, education is a top-weighted criteria. One of Fidelity's standout features is its expansive Online Learning Center, which utilizes machine learning to highlight educational materials that match the customer’s investing behavior. The platform offers a wealth of educational materials, including articles, webinars, videos, tutorials, and live events and seminars catering to various learning styles. Additionally, Fidelity provides a powerful simulated trading environment with a paper trading feature. This allows beginners to practice their strategies and get a feel for the market without risking real money. It's a valuable tool for building confidence and honing skills before diving into live trading. Whether you're looking to grasp the basics of investing or delve into more advanced strategies, Fidelity's educational tools empower beginners to make informed decisions. Customer support, another feature critical to the development of new traders and investors, is also top notch at Fidelity, which offers assistance through various channels. For beginners encountering uncertainties, responsive and knowledgeable customer service is available through several channels, including 24/7 live phone support, live online chat, a chatbot (Fidelity Virtual Assistant), and email. Perhaps most importantly, customers can talk to a live broker (there is a surcharge for any trades placed via the broker) and get face-to-face assistance at one of any 200 investment centers across the U.S. ## Charles Schwab: Best for Investor Education and Customer Service 4.5 [:max_bytes(150000):strip_icc()/charles-schwab-productcard-5c742da0c9e77c00010d6c5b.png)](https://www.investopedia.com/charles-schwab-review-4587888) [Open an Account](https://www.schwab.com/) * **Account Minimum**: $0 * **Fees**: $0 for stock/ETF trades, $0.65 per contract for options [Read full review](https://www.investopedia.com/charles-schwab-review-4587888) [Open an Account](https://www.schwab.com/) ## Why We Chose It ### Best for Investor Education With the recent integration of TD Ameritrade, Charles Schwab has bolstered its already strong educational offering to an industry-best level. For beginners looking to improve their investment knowledge and trading skills, the resources Charles Schwab now offers are unmatched. ### Best for Customer Service Charles Schwab has long been a close runner-up to TD Ameritrade when it comes to customer service. With TD Ameritrade nearly fully integrated into the Schwab ecosystem, customers will not find a better breadth and quality of service options backed by a satisfaction guarantee. ## Pros & Cons Pros * Access to TD Ameritrade’s award-winning thinkorswim trading platforms * TD Ameritrade acquisition adds to Schwab's existing 400+ branch locations * Customer service satisfaction guarantee * Huge library of original and third-party research and commentary * Excellent phone and live chat customer support Cons * No fractional share trading in ETFs * No direct cryptocurrency trading * High fees for some mutual funds * Low interest rate on uninvested cash * Broker-assisted trade fees apply ## Overview Originally formed as First Commander Corporation by its founder Chuck Schwab and his partners in April 1971, the company’s name was changed to Charles Schwab & Co., Inc. in 1973. Since the start, the company has put customers first as part of its “Through Clients’ Eyes” philosophy. As one of the largest [discount brokerages](https://www.investopedia.com/charles-schwab-vs-vanguard-4587941) in the world, with $8.52 trillion in client assets and 34.8 million brokerage accounts as of Dec. 31, 2023, Charles Schwab provides a full-service approach to the entire range of investor types, as well as to employers and independent advisors. Charles Schwab announced that it had acquired TD Ameritrade for $26 billion in November 2019. The deal closed a year later and Charles Schwab has been working to integrate TD Ameritrade into its business ever since. Schwab customers have long enjoyed wide-ranging and responsive customer service and excellent educational resources. But Charles Schwab's acquisition of TD Ameritrade has created an educational and service-rich powerhouse that caters to investors' diverse needs. Schwab even goes so far as to offer a satisfaction guarantee to customers for the services it provides. Charles Schwab's dedication to investor education has been a hallmark, and the acquisition of TD Ameritrade amplifies its already stellar collection of articles, videos, webcasts, live branch events, and podcasts. Customers will especially like that Schwab now offers live trading seminars that have been a top draw at TD Ameritrade for years. And when it comes to customer service, investors of all levels will be even closer to in-person support now that Schwab’s 400-plus branch locations will increase with the addition of many TD Ameritrade branches. All told, beginners will not find a deeper bench of financial advisor access, frequently asked questions (FAQs), and 24/7 live phone and chat support to help them navigate the complexities of investing. ## E\*TRADE: Best Broker for Ease of Use 4.1 [:max_bytes(150000):strip_icc()/Etrade2022-22aa6950945a4c6c9b263e56e4263fba.jpg)](https://www.investopedia.com/e-trade-review-4587893) [Open an Account](https://us.etrade.com/) * **Account** **Minimum**: $0 * **Fees**: No commission for stock, ETF, and mutual fund trades. Options are $0.50-$0.65 per contract, depending on trading volume. [Read full review](https://www.investopedia.com/e-trade-review-4587893) [Open an Account](https://us.etrade.com/) ## Why We Chose It E\*TRADE wins our Best Broker for Ease of Use thanks to user-friendly desktop and mobile experiences to go along with readily accessible tools and features. ## Pros & Cons Pros * Two exceptionally designed mobile apps for investors with different interests * Prebuilt portfolios and automated portfolio builder let users invest quickly * Paper trading account offers ability to test platform and strategies before investing * Excellent educational tools and content library Cons * Fractional shares are only offered through a dividend reinvestment plan (DRIP) * Trading on international exchanges is not offered * No direct crypto trading ## Overview E\*TRADE has been a leading broker since its founding in 1982, thriving as an innovative electronic platform with the evolution of the internet in the early ‘90s and building a reputation as a seamless, powerful trading service. In 2020, Morgan Stanley acquired E\*TRADE for $13 billion. Morgan Stanley's ownership has been a net positive for E\*TRADE, leading directly to E\*TRADE eliminating all commissions for mutual funds on the platform in December 2022. E\*TRADE has diligently worked on enhancing an already strong desktop and mobile experience, implementing a number of app enhancements ranging from position details to site navigation optimization. Continuing improvements to educational material help investors move swiftly from research to investing. New investors can get started with ease due to straightforward site menus and research tools, although the platform is built for users of all backgrounds and experience levels. A wide range of pre-built portfolios and automated portfolio-building tools let beginners enter the market without having to spend an exorbitant amount of time learning the ropes. The paper trading account option lets users experience the site and test trading approaches without putting real money in the market.  Two mobile apps are offered that cater to investors of different experience levels and trading styles. The E\*TRADE mobile app is intuitive, aesthetically pleasing, and geared toward users looking to stay in touch with their brokerage accounts while maintaining full feature parity. The Power E\*TRADE mobile app builds on this by providing even more interactive charts and technical analysis to ensure investors have everything they need in the palm of their hand. User reviews focus on a continually enhanced, intuitive experience, and low or eliminated trading fees. Overall, E\*TRADE is one of the most advanced mobile trading platforms, as it’s extremely well-designed and offers a wide range of useful features. ## Final Verdict Fidelity, Charles Schwab, and E\*TRADE are all strong full-service brokers with many outstanding qualities. They all offer a solid menu of trading resources, educational content, research tools, and demo accounts to help beginners get started. All have invested heavily in making their platforms intuitive and easy to navigate to provide users with a smooth experience. These are the critical tools necessary to help ease new investors into the complex world of investing.  That said, Fidelity takes the top spot as the best broker for beginners due to its overall corpus of features that are critical to helping beginner traders and investors thrive. Educational resources and customer support are key elements in this evaluation, and Charles Schwab’s execution in these two areas is unmatched throughout the industry. Still, E\*TRADE has been continually enhancing desktop and mobile offerings, particularly when it comes to education, making the difference between platforms nearly imperceptible. As a result, new investors would do well utilizing any of these industry titans to grow their investment expertise and capabilities. ## Trading vs. Investing Generally, when people talk about investing, they are referring to the practice of purchasing assets to be held for a long period of time. Investors hold their assets long-term so that they may reach a retirement goal or their money can grow more quickly than it would in a standard savings account. In contrast, trading involves buying and selling assets in a short period of time with the goal of making quick profits. Trading is typically seen as riskier than investing, and those new or inexperienced in trading should do so cautiously. Before selecting an online [broker](https://www.investopedia.com/terms/b/brokerage-company.asp) to use, you'll need to ask yourself questions including: * **Am I a beginner?** If so, you'll want to find a broker with solid education resources and ideally a paper trading account to practice in. You'll also want calculators and analysis tools to help you plan, invest, and manage your portfolio. The quality of tools and resources can vary widely by broker but, generally, the [larger brokers](https://www.investopedia.com/do-i-need-broker-to-buy-stocks-5213282) have a much wider selection. * **How much can I afford to invest right now?** Some brokers require a larger initial investment to open an account and access the trading platform. If you have a small amount of money, you'll want a broker with a low to no account minimum. * **Am I a trader or an investor?** While investors can usually get away with a web platform or app, the complex needs of traders generally require a customizable desktop platform with all the bells and whistles. * **What kind of assets would I like to invest in?** While most brokers offer the basics of stocks and ETFs, you may find other seemingly standard offerings like bonds and options are far from universal. If you are interested in trading forex, futures, cryptocurrency, and so on, you will be looking to larger brokers with asset offerings far beyond the basics. ## How to Pick a Brokerage You’ll also need to decide the [type of brokerage account](https://www.investopedia.com/investing/types-brokerage-accounts/) you’ll want, the fees involved, and how involved you want to be, day-to-day, with your account. Also consider your investment preferences, such as your need for research, tools, and portfolio tracking features, to ensure the broker you end up choosing will be a match. You can also read our [guide to choosing the right online broker](https://www.investopedia.com/investing/complete-guide-choosing-online-stock-broker/) for additional assistance in choosing the right brokerage account. ## What About Robinhood? For new investors looking to enter the market, [Robinhood provides easy access to trading](https://www.investopedia.com/robinhood-vs-webull-6754841). However, when run through our scoring criteria, Robinhood is a middle-to-low-end broker with a well-optimized app. This discount broker does next to nothing to prepare investors to be successful. In addition to an overall lack of screeners and other basic tools, [Robinhood's use of gamification tactics may be hurting investors](https://www.investopedia.com/robinhood-pays-settlement-but-gamification-remains-a-concern-5093195) more than its publicity-grabbing GameStop debacle or high payment for order flow. As such, we don't recommend it for new investors, even though we recognize that many new investors are coming into the market that way. ## What’s the Difference Between an Online Broker and a Robo Advisor? Brokers give you all the research tools and market insights needed so that you can create investment strategies that match your preferences. They don’t act as advisors or manage your portfolio, but rather empower you with the resources needed to implement your trading approach. Robo advisors manage a portfolio on your behalf based on your investing experience, goals, and timeline. While you won’t have as much influence over your portfolio makeup, robo advisor platforms do all the work for you to keep you on track for the long term. ## Do You Need a Lot of Money to Use an Online Brokerage? Fortunately, you don't need a lot of money to open a brokerage account. Many discount brokers typically offer $0 account minimums, making it easy for almost anyone to get started. ## What Do You Need to Open a Brokerage Account? To [open a brokerage account](https://www.investopedia.com/how-to-open-an-online-brokerage-account-7973796), you'll need several pieces of information available, including: * Name * Address * Date of birth * Social Security number (or taxpayer identification number) * Telephone number * Email address * Driver's license, passport, or other government-issued identification * Employment status and occupation * Annual income * Net worth ## Is My Money Safe in a Brokerage? All brokerages operating within the U.S. are required to have $500,000 of SIPC protection, which includes a $250,000 limit for cash. This means that any holdings with a brokerage that exceed $500,000 could be lost in the event that a brokerage goes bankrupt or is liquidated. That said, retail investors, especially beginners, are unlikely to have accounts that exceed $500,000, giving little cause for concern for new investors. ## Can I Withdraw Money From a Brokerage? Withdrawing your money from a brokerage is relatively straightforward. Excess cash that is in the account but not invested can be withdrawn at any time, similar to a bank account withdrawal. The other money that is invested can only be withdrawn by liquidating the positions held. This means selling the assets that you purchased like stocks, ETFs, and mutual funds.  ## Terms Beginners Should Know * **[Cash account](https://www.investopedia.com/terms/c/cashaccount.asp):** A cash account is a brokerage account in which a customer is required to pay the full amount for securities purchased, and [buying on margin](https://www.investopedia.com/terms/b/buying-on-margin.asp) is prohibited. The Federal Reserve's [Regulation T](https://www.investopedia.com/terms/r/regulationt.asp) governs cash accounts and the purchase of securities on margin. This regulation gives investors two business days to pay for securities. * [**Margin account**](https://www.investopedia.com/terms/m/marginaccount.asp): A margin account is a [brokerage account](https://www.investopedia.com/terms/b/brokerageaccount.asp) in which the broker lends the customer cash to purchase stocks or other financial products. The loan in the account is collateralized by the securities purchased and cash, and comes with a [periodic interest rate](https://www.investopedia.com/terms/p/periodic_interest_rate.asp). Because the customer is investing with borrowed money, the customer is using leverage which will magnify profits and losses for the customer. * [**Retirement account**](https://www.investopedia.com/articles/personal-finance/051613/how-start-saving-retirement.asp): Brokerages offer all types of retirement accounts like traditional IRAs, Roth IRAs, and 401(k)s. Anyone who would like to get involved in the stock market should know some basic terminology: * [**Stock**](https://www.investopedia.com/terms/s/stock.asp): A stock (also known as "shares" or "equity") is a type of security that signifies proportionate ownership in the issuing [corporation](https://www.investopedia.com/terms/c/corporation.asp). This entitles the stockholder to that proportion of the corporation's assets and earnings. * [**Price-to-earnings ratio**](https://www.investopedia.com/terms/p/price-earningsratio.asp): The price-to-earnings ratio (P/E ratio) is a ratio for valuing a company that measures its current share price relative to its earnings-per-share ([EPS](https://www.investopedia.com/terms/e/eps.asp)). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple. * [**Market capitalization**](https://www.investopedia.com/terms/m/marketcapitalization.asp): Market capitalization, commonly referred to as "market cap," refers to the total dollar market value of a company's outstanding [shares](https://www.investopedia.com/terms/s/shares.asp). Market cap is calculated by multiplying a company's shares outstanding by the current market price of one share. * [**Dividend**](https://www.investopedia.com/terms/d/dividend.asp): A dividend is the distribution of reward from a portion of the company's earnings and is paid to a class of its shareholders. * [**Exchange-traded fund (ETF)**](https://www.investopedia.com/terms/e/etf.asp): An exchange-traded fund (ETF) is a collection of securities—such as stocks—that typically tracks an underlying [index](https://www.investopedia.com/terms/m/marketindex.asp). * [**Bond**](https://www.investopedia.com/terms/b/bond.asp): A bond is a [fixed income instrument](https://www.investopedia.com/terms/f/fixed-incomesecurity.asp) that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the [lender](https://www.investopedia.com/terms/l/lender.asp) and borrower which includes the details of the loan and its payments. * [**Mutual fund**](https://www.investopedia.com/terms/m/mutualfund.asp): A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional [money managers](https://www.investopedia.com/terms/m/moneymanager.asp), who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. * [**Limit order**](https://www.investopedia.com/terms/l/limitorder.asp): A limit order is the use of a pre-specified price to buy or sell a [security](https://www.investopedia.com/terms/s/security.asp). For example, if a trader is looking to buy XYZ’s stock but has a limit of $14.50, they will only buy the stock at a price of $14.50 or lower. If the trader is looking to sell shares of XYZ’s stock with a $14.50 limit, the trader will not sell any shares until the price is $14.50 or higher. * [**Market order**](https://www.investopedia.com/terms/m/marketorder.asp): A market order is a request by an investor—usually made through a [broker](https://www.investopedia.com/terms/b/broker.asp)—to buy or sell a security at the best available price in the current market. It is widely considered the fastest and most reliable way to enter or exit a trade and provides the most likely method of getting in or out of a trade quickly. For many [large-cap](https://www.investopedia.com/terms/l/large-cap.asp) liquid stocks, market orders fill nearly instantaneously. If you're interested in learning more about the stock market, you can check out our [guide to investing](https://www.investopedia.com/articles/basics/11/3-s-simple-investing.asp). ## How We Picked the Best Brokers for Beginners Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of online brokers. This year, we revamped the review process by conducting an extensive survey of customers who are actively looking to start trading and investing with an online broker. We then combined this invaluable information with our subject matter expertise to develop the framework for a quantitative rating model that is at the core of how we compiled our list of the best online broker and trading platform companies. This model weighs key factors like trading technology, range of offerings, mobile app usability, research amenities, educational content, portfolio analysis features, customer support, costs, account amenities, and overall trading experience according to their importance. Our team of researchers gathered 2,425 data points and weighted 66 criteria based on data collected during extensive research for each of the 25 companies we reviewed.  Many of the brokers we reviewed also gave us live demonstrations of their platforms and services, either at their New York City offices or via video conferencing methods. Live brokerage accounts were also obtained for most of the platforms we reviewed, which our team of expert writers and editors used to perform hands-on testing to lend their qualitative point of view.  Read our [full Methodology](https://www.investopedia.com/broker-ranking-methodology-4587135) for reviewing online brokers. #### Everything You Need to Know About Brokerage Accounts

According to our research, Fidelity is the best online broker for beginners due to its abundant educational materials, low costs, excellent customer support, and more. We researched 25 online brokers and trading platforms and evaluated them based on 11 major categories and 66 criteria, including fees, usability, account services, mobile app experience, and additional features.  Our research previously determined TD Ameritrade to be the best platform for beginners, the best platform for educational materials, and the best platform for customer service. However, now that TD Ameritrade is no longer accepting new customers as its integration into Charles Schwab nears completion, a reevaluation of our quantitative ratings model has determined that Fidelity and Charles Schwab are now the best brokers for beginner traders who want top educational materials and customer service.    Best Online Brokers for Beginners of 2024 Best Broker for Beginners: Fidelity Best Broker for Investor Education: Charles Schwab Best Broker for Customer Service: Charles Schwab Best Broker for Ease of Trading Experience: E*TRADE Fidelity: Best for Beginners 4.8 Open an Account Account Minimum: $0 Fees: $0 for stock/ETF trades, $0 plus $0.65/contract for options trades Read full review Open an Account Why We Chose It Fidelity is our choice for the best overall broker for beginners due to its low fees, wide-ranging educational content, strong customer service options, vast array of investment resources, and ongoing enhancements to improve the user experience. Pros & Cons Pros Top-notch trade executions Low costs Extensive educational content Strong customer service Fractional shares trading in over 7000 U.S. stocks and ETFs Cons No futures or commodities trading Available to the U.S. and main island residents only High broker-assisted trading fees Overview Founded in 1943 and headquartered in Boston, Fidelity is one of the largest brokerages in the U.S., with 43 million individual investors, $11.5 trillion in assets under administration, and $4.4 trillion in discretionary assets. Beginner traders and investors will find Fidelity’s account setup process to be a breeze. The company offers three platforms that can be used simultaneously. Fidelity excels at providing a user-friendly experience, with ongoing enhancements designed to create an increasingly intuitive interface that simplifies the complexities of investing. Navigating through Fidelity’s web-based, downloadable, and mobile trading platforms is seamless, making it ideal for those taking their first steps in the financial markets. Of course, when it comes to determining which broker is the best for beginners, education is a top-weighted criteria. One of Fidelity's standout features is its expansive Online Learning Center, which utilizes machine learning to highlight educational materials that match the customer’s investing behavior. The platform offers a wealth of educational materials, including articles, webinars, videos, tutorials, and live events and seminars catering to various learning styles. Additionally, Fidelity provides a powerful simulated trading environment with a paper trading feature. This allows beginners to practice their strategies and get a feel for the market without risking real money. It's a valuable tool for building confidence and honing skills before diving into live trading. Whether you're looking to grasp the basics of investing or delve into more advanced strategies, Fidelity's educational tools empower beginners to make informed decisions. Customer support, another feature critical to the development of new traders and investors, is also top notch at Fidelity, which offers assistance through various channels. For beginners encountering uncertainties, responsive and knowledgeable customer service is available through several channels, including 24/7 live phone support, live online chat, a chatbot (Fidelity Virtual Assistant), and email. Perhaps most importantly, customers can talk to a live broker (there is a surcharge for any trades placed via the broker) and get face-to-face assistance at one of any 200 investment centers across the U.S. Charles Schwab: Best for Investor Education and Customer Service 4.5 Open an Account Account Minimum: $0 Fees: $0 for stock/ETF trades, $0.65 per contract for options Read full review Open an Account Why We Chose It Best for Investor Education With the recent integration of TD Ameritrade, Charles Schwab has bolstered its already strong educational offering to an industry-best level. For beginners looking to improve their investment knowledge and trading skills, the resources Charles Schwab now offers are unmatched. Best for Customer Service Charles Schwab has long been a close runner-up to TD Ameritrade when it comes to customer service. With TD Ameritrade nearly fully integrated into the Schwab ecosystem, customers will not find a better breadth and quality of service options backed by a satisfaction guarantee. Pros & Cons Pros Access to TD Ameritrade’s award-winning thinkorswim trading platforms TD Ameritrade acquisition adds to Schwab's existing 400+ branch locations Customer service satisfaction guarantee Huge library of original and third-party research and commentary Excellent phone and live chat customer support Cons No fractional share trading in ETFs No direct cryptocurrency trading High fees for some mutual funds Low interest rate on uninvested cash Broker-assisted trade fees apply Overview Originally formed as First Commander Corporation by its founder Chuck Schwab and his partners in April 1971, the company’s name was changed to Charles Schwab & Co., Inc. in 1973. Since the start, the company has put customers first as part of its “Through Clients’ Eyes” philosophy. As one of the largest discount brokerages in the world, with $8.52 trillion in client assets and 34.8 million brokerage accounts as of Dec. 31, 2023, Charles Schwab provides a full-service approach to the entire range of investor types, as well as to employers and independent advisors. Charles Schwab announced that it had acquired TD Ameritrade for $26 billion in November 2019. The deal closed a year later and Charles Schwab has been working to integrate TD Ameritrade into its business ever since. Schwab customers have long enjoyed wide-ranging and responsive customer service and excellent educational resources. But Charles Schwab's acquisition of TD Ameritrade has created an educational and service-rich powerhouse that caters to investors' diverse needs. Schwab even goes so far as to offer a satisfaction guarantee to customers for the services it provides. Charles Schwab's dedication to investor education has been a hallmark, and the acquisition of TD Ameritrade amplifies its already stellar collection of articles, videos, webcasts, live branch events, and podcasts. Customers will especially like that Schwab now offers live trading seminars that have been a top draw at TD Ameritrade for years. And when it comes to customer service, investors of all levels will be even closer to in-person support now that Schwab’s 400-plus branch locations will increase with the addition of many TD Ameritrade branches. All told, beginners will not find a deeper bench of financial advisor access, frequently asked questions (FAQs), and 24/7 live phone and chat support to help them navigate the complexities of investing. E*TRADE: Best Broker for Ease of Use 4.1 Open an Account Account Minimum: $0 Fees: No commission for stock, ETF, and mutual fund trades. Options are $0.50-$0.65 per contract, depending on trading volume. Read full review Open an Account Why We Chose It E*TRADE wins our Best Broker for Ease of Use thanks to user-friendly desktop and mobile experiences to go along with readily accessible tools and features. Pros & Cons Pros Two exceptionally designed mobile apps for investors with different interests Prebuilt portfolios and automated portfolio builder let users invest quickly Paper trading account offers ability to test platform and strategies before investing Excellent educational tools and content library Cons Fractional shares are only offered through a dividend reinvestment plan (DRIP) Trading on international exchanges is not offered No direct crypto trading Overview E*TRADE has been a leading broker since its founding in 1982, thriving as an innovative electronic platform with the evolution of the internet in the early ‘90s and building a reputation as a seamless, powerful trading service. In 2020, Morgan Stanley acquired E*TRADE for $13 billion. Morgan Stanley's ownership has been a net positive for E*TRADE, leading directly to E*TRADE eliminating all commissions for mutual funds on the platform in December 2022. E*TRADE has diligently worked on enhancing an already strong desktop and mobile experience, implementing a number of app enhancements ranging from position details to site navigation optimization. Continuing improvements to educational material help investors move swiftly from research to investing. New investors can get started with ease due to straightforward site menus and research tools, although the platform is built for users of all backgrounds and experience levels. A wide range of pre-built portfolios and automated portfolio-building tools let beginners enter the market without having to spend an exorbitant amount of time learning the ropes. The paper trading account option lets users experience the site and test trading approaches without putting real money in the market.  Two mobile apps are offered that cater to investors of different experience levels and trading styles. The E*TRADE mobile app is intuitive, aesthetically pleasing, and geared toward users looking to stay in touch with their brokerage accounts while maintaining full feature parity. The Power E*TRADE mobile app builds on this by providing even more interactive charts and technical analysis to ensure investors have everything they need in the palm of their hand. User reviews focus on a continually enhanced, intuitive experience, and low or eliminated trading fees. Overall, E*TRADE is one of the most advanced mobile trading platforms, as it’s extremely well-designed and offers a wide range of useful features. Final Verdict Fidelity, Charles Schwab, and E*TRADE are all strong full-service brokers with many outstanding qualities. They all offer a solid menu of trading resources, educational content, research tools, and demo accounts to help beginners get started. All have invested heavily in making their platforms intuitive and easy to navigate to provide users with a smooth experience. These are the critical tools necessary to help ease new investors into the complex world of investing.  That said, Fidelity takes the top spot as the best broker for beginners due to its overall corpus of features that are critical to helping beginner traders and investors thrive. Educational resources and customer support are key elements in this evaluation, and Charles Schwab’s execution in these two areas is unmatched throughout the industry. Still, E*TRADE has been continually enhancing desktop and mobile offerings, particularly when it comes to education, making the difference between platforms nearly imperceptible. As a result, new investors would do well utilizing any of these industry titans to grow their investment expertise and capabilities. Trading vs. Investing Generally, when people talk about investing, they are referring to the practice of purchasing assets to be held for a long period of time. Investors hold their assets long-term so that they may reach a retirement goal or their money can grow more quickly than it would in a standard savings account. In contrast, trading involves buying and selling assets in a short period of time with the goal of making quick profits. Trading is typically seen as riskier than investing, and those new or inexperienced in trading should do so cautiously. Before selecting an online broker to use, you'll need to ask yourself questions including: Am I a beginner? If so, you'll want to find a broker with solid education resources and ideally a paper trading account to practice in. You'll also want calculators and analysis tools to help you plan, invest, and manage your portfolio. The quality of tools and resources can vary widely by broker but, generally, the larger brokers have a much wider selection. How much can I afford to invest right now? Some brokers require a larger initial investment to open an account and access the trading platform. If you have a small amount of money, you'll want a broker with a low to no account minimum. Am I a trader or an investor? While investors can usually get away with a web platform or app, the complex needs of traders generally require a customizable desktop platform with all the bells and whistles. What kind of assets would I like to invest in? While most brokers offer the basics of stocks and ETFs, you may find other seemingly standard offerings like bonds and options are far from universal. If you are interested in trading forex, futures, cryptocurrency, and so on, you will be looking to larger brokers with asset offerings far beyond the basics. How to Pick a Brokerage You’ll also need to decide the type of brokerage account you’ll want, the fees involved, and how involved you want to be, day-to-day, with your account. Also consider your investment preferences, such as your need for research, tools, and portfolio tracking features, to ensure the broker you end up choosing will be a match. You can also read our guide to choosing the right online broker for additional assistance in choosing the right brokerage account. What About Robinhood? For new investors looking to enter the market, Robinhood provides easy access to trading. However, when run through our scoring criteria, Robinhood is a middle-to-low-end broker with a well-optimized app. This discount broker does next to nothing to prepare investors to be successful. In addition to an overall lack of screeners and other basic tools, Robinhood's use of gamification tactics may be hurting investors more than its publicity-grabbing GameStop debacle or high payment for order flow.As such, we don't recommend it for new investors, even though we recognize that many new investors are coming into the market that way. What’s the Difference Between an Online Broker and a Robo Advisor? Brokers give you all the research tools and market insights needed so that you can create investment strategies that match your preferences. They don’t act as advisors or manage your portfolio, but rather empower you with the resources needed to implement your trading approach.Robo advisors manage a portfolio on your behalf based on your investing experience, goals, and timeline. While you won’t have as much influence over your portfolio makeup, robo advisor platforms do all the work for you to keep you on track for the long term. Do You Need a Lot of Money to Use an Online Brokerage? Fortunately, you don't need a lot of money to open a brokerage account. Many discount brokers typically offer $0 account minimums, making it easy for almost anyone to get started. What Do You Need to Open a Brokerage Account? To open a brokerage account, you'll need several pieces of information available, including:NameAddressDate of birthSocial Security number (or taxpayer identification number)Telephone numberEmail addressDriver's license, passport, or other government-issued identificationEmployment status and occupationAnnual incomeNet worth Is My Money Safe in a Brokerage? All brokerages operating within the U.S. are required to have $500,000 of SIPC protection, which includes a $250,000 limit for cash. This means that any holdings with a brokerage that exceed $500,000 could be lost in the event that a brokerage goes bankrupt or is liquidated. That said, retail investors, especially beginners, are unlikely to have accounts that exceed $500,000, giving little cause for concern for new investors. Can I Withdraw Money From a Brokerage? Withdrawing your money from a brokerage is relatively straightforward. Excess cash that is in the account but not invested can be withdrawn at any time, similar to a bank account withdrawal.The other money that is invested can only be withdrawn by liquidating the positions held. This means selling the assets that you purchased like stocks, ETFs, and mutual funds.  Terms Beginners Should Know Cash account: A cash account is a brokerage account in which a customer is required to pay the full amount for securities purchased, and buying on margin is prohibited. The Federal Reserve's Regulation T governs cash accounts and the purchase of securities on margin. This regulation gives investors two business days to pay for securities. Margin account: A margin account is a brokerage account in which the broker lends the customer cash to purchase stocks or other financial products. The loan in the account is collateralized by the securities purchased and cash, and comes with a periodic interest rate. Because the customer is investing with borrowed money, the customer is using leverage which will magnify profits and losses for the customer. Retirement account: Brokerages offer all types of retirement accounts like traditional IRAs, Roth IRAs, and 401(k)s. Anyone who would like to get involved in the stock market should know some basic terminology: Stock: A stock (also known as "shares" or "equity") is a type of security that signifies proportionate ownership in the issuing corporation. This entitles the stockholder to that proportion of the corporation's assets and earnings. Price-to-earnings ratio: The price-to-earnings ratio (P/E ratio) is a ratio for valuing a company that measures its current share price relative to its earnings-per-share (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple. Market capitalization: Market capitalization, commonly referred to as "market cap," refers to the total dollar market value of a company's outstanding shares. Market cap is calculated by multiplying a company's shares outstanding by the current market price of one share. Dividend: A dividend is the distribution of reward from a portion of the company's earnings and is paid to a class of its shareholders. Exchange-traded fund (ETF): An exchange-traded fund (ETF) is a collection of securities—such as stocks—that typically tracks an underlying index. Bond: A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower which includes the details of the loan and its payments. Mutual fund: A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. Limit order: A limit order is the use of a pre-specified price to buy or sell a security. For example, if a trader is looking to buy XYZ’s stock but has a limit of $14.50, they will only buy the stock at a price of $14.50 or lower. If the trader is looking to sell shares of XYZ’s stock with a $14.50 limit, the trader will not sell any shares until the price is $14.50 or higher.   Market order: A market order is a request by an investor—usually made through a broker—to buy or sell a security at the best available price in the current market. It is widely considered the fastest and most reliable way to enter or exit a trade and provides the most likely method of getting in or out of a trade quickly. For many large-cap liquid stocks, market orders fill nearly instantaneously. If you're interested in learning more about the stock market, you can check out our guide to investing. How We Picked the Best Brokers for Beginners Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of online brokers. This year, we revamped the review process by conducting an extensive survey of customers who are actively looking to start trading and investing with an online broker. We then combined this invaluable information with our subject matter expertise to develop the framework for a quantitative rating model that is at the core of how we compiled our list of the best online broker and trading platform companies. This model weighs key factors like trading technology, range of offerings, mobile app usability, research amenities, educational content, portfolio analysis features, customer support, costs, account amenities, and overall trading experience according to their importance. Our team of researchers gathered 2,425 data points and weighted 66 criteria based on data collected during extensive research for each of the 25 companies we reviewed.  Many of the brokers we reviewed also gave us live demonstrations of their platforms and services, either at their New York City offices or via video conferencing methods. Live brokerage accounts were also obtained for most of the platforms we reviewed, which our team of expert writers and editors used to perform hands-on testing to lend their qualitative point of view.  Read our full Methodology for reviewing online brokers. Everything You Need to Know About Brokerage Accounts

https://www.investopedia.com/irs-changes-digital-filing-8419491

IRS Changes Means More Taxpayers May File Returns Digitally This Year

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The IRS has made significant filing changes by digitizing its systems, which means filers may have a new experience when filing their 2023 taxes. While filers have been able to file online in the past, 2024 is the first year where some eligible taxpayers can do so within the IRS system for free.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> In response to this and the typical annual IRS adjustments, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxbracket.asp">income limits for tax brackets</a>, Investopedia has released a new print magazine to guide taxpayers of all kinds—self-employed individuals, couples, homeowners, and more—through the latest to help them maximize their 2023 returns.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Investopedia’s Guide to Tax Savings also explains key tax principles surrounding existing assets and earned income, plus how to be a tax-efficient investor.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The new, 96-page Guide To Tax Savings hit newsstands, Amazon, and Magazines.com on Jan. 5, and shares everything readers need to know ahead of the April 2024 personal income tax filing deadline, and provides unique strategies for maximizing returns, as recommended by Investopedia-approved experts.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> In addition to recent filing changes and best practices for increasing your tax refund, Investopedia’s Guide to Tax Savings covers:  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <li>The most overlooked <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0312/how-to-get-the-most-money-back-on-your-tax-return.aspx">tax credits and deductions</a> </li> <li>Key tax prep terms The top tax advantages for homeowners</li> <li>Tips for reducing income taxes </li> <li>Insights from Investopedia’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/inv-100-top-financial-advisors-7556227">top financial advisors</a> and planners</li> <li>How to choose between filing with an accountant or an online tax prep software </li> <li>How to file your taxes when you have a complicated tax situation, like living in one state and working in another</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> “We’ll help you make smarter decisions to minimize losses and optimize returns, creating the most tax-advantaged strategies for everyone’s unique situations,” said <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/contributors/54471/">Caleb Silver</a>, editor in chief of Investopedia. “While on the surface, taxes are about as pleasant as a trip to the dentist, making smart moves to protect your money can ensure that the visit is as painless as possible.” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>Investopedia’s Guide to Tax Savings is now available on newsstands across the U.S. and Canada, as well as online via <a data-component="amazon" data-ordinal="1" data-source="affiliate" data-type="externalLink" href="https://www.amazon.com/Investopedia-Your-Guide-Tax-Savings/dp/1547865083/ref=sr_1_5?qid=1704229043&amp;refinements=p_27%3AInvestopedia&amp;s=books&amp;sr=1-5&amp;text=Investopedia" rel="nofollow">Amazon</a> and Magazines.com for $14.99. <br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Apple News+ subscribers also have access to digital versions, released in two parts. Section one—Get Ready To File—is available on Jan. 12. Section two—Maximize Your Savings—will debut later in 2024. <br> </br></p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

The IRS has made significant filing changes by digitizing its systems, which means filers may have a new experience when filing their 2023 taxes. While filers have been able to file online in the past, 2024 is the first year where some eligible taxpayers can do so within the IRS system for free.  In response to this and the typical annual IRS adjustments, including [income limits for tax brackets](https://www.investopedia.com/terms/t/taxbracket.asp), Investopedia has released a new print magazine to guide taxpayers of all kinds—self-employed individuals, couples, homeowners, and more—through the latest to help them maximize their 2023 returns.  Investopedia’s Guide to Tax Savings also explains key tax principles surrounding existing assets and earned income, plus how to be a tax-efficient investor.  The new, 96-page Guide To Tax Savings hit newsstands, Amazon, and Magazines.com on Jan. 5, and shares everything readers need to know ahead of the April 2024 personal income tax filing deadline, and provides unique strategies for maximizing returns, as recommended by Investopedia-approved experts.  In addition to recent filing changes and best practices for increasing your tax refund, Investopedia’s Guide to Tax Savings covers:  * The most overlooked [tax credits and deductions](https://www.investopedia.com/financial-edge/0312/how-to-get-the-most-money-back-on-your-tax-return.aspx) * Key tax prep terms The top tax advantages for homeowners * Tips for reducing income taxes * Insights from Investopedia’s [top financial advisors](https://www.investopedia.com/inv-100-top-financial-advisors-7556227) and planners * How to choose between filing with an accountant or an online tax prep software * How to file your taxes when you have a complicated tax situation, like living in one state and working in another “We’ll help you make smarter decisions to minimize losses and optimize returns, creating the most tax-advantaged strategies for everyone’s unique situations,” said [Caleb Silver](https://www.investopedia.com/contributors/54471/), editor in chief of Investopedia. “While on the surface, taxes are about as pleasant as a trip to the dentist, making smart moves to protect your money can ensure that the visit is as painless as possible.” ### Investopedia’s Guide to Tax Savings is now available on newsstands across the U.S. and Canada, as well as online via [Amazon](https://www.amazon.com/Investopedia-Your-Guide-Tax-Savings/dp/1547865083/ref=sr_1_5?qid=1704229043&refinements=p_27%3AInvestopedia&s=books&sr=1-5&text=Investopedia) and Magazines.com for $14.99.  Apple News+ subscribers also have access to digital versions, released in two parts. Section one—Get Ready To File—is available on Jan. 12. Section two—Maximize Your Savings—will debut later in 2024.  Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

The IRS has made significant filing changes by digitizing its systems, which means filers may have a new experience when filing their 2023 taxes. While filers have been able to file online in the past, 2024 is the first year where some eligible taxpayers can do so within the IRS system for free.  In response to this and the typical annual IRS adjustments, including income limits for tax brackets, Investopedia has released a new print magazine to guide taxpayers of all kinds—self-employed individuals, couples, homeowners, and more—through the latest to help them maximize their 2023 returns.  Investopedia’s Guide to Tax Savings also explains key tax principles surrounding existing assets and earned income, plus how to be a tax-efficient investor.  The new, 96-page Guide To Tax Savings hit newsstands, Amazon, and Magazines.com on Jan. 5, and shares everything readers need to know ahead of the April 2024 personal income tax filing deadline, and provides unique strategies for maximizing returns, as recommended by Investopedia-approved experts.  In addition to recent filing changes and best practices for increasing your tax refund, Investopedia’s Guide to Tax Savings covers:  The most overlooked tax credits and deductions  Key tax prep terms The top tax advantages for homeowners Tips for reducing income taxes  Insights from Investopedia’s top financial advisors and planners How to choose between filing with an accountant or an online tax prep software  How to file your taxes when you have a complicated tax situation, like living in one state and working in another “We’ll help you make smarter decisions to minimize losses and optimize returns, creating the most tax-advantaged strategies for everyone’s unique situations,” said Caleb Silver, editor in chief of Investopedia. “While on the surface, taxes are about as pleasant as a trip to the dentist, making smart moves to protect your money can ensure that the visit is as painless as possible.” Investopedia’s Guide to Tax Savings is now available on newsstands across the U.S. and Canada, as well as online via Amazon and Magazines.com for $14.99.  Apple News+ subscribers also have access to digital versions, released in two parts. Section one—Get Ready To File—is available on Jan. 12. Section two—Maximize Your Savings—will debut later in 2024.  Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/terms/o/offset.asp

What Is an Offset? Definition, Example, and How It's Used

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-an-offset"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is an Offset? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> An offset is a financial market strategy that requires a trader to take an opening position and then take a directly opposite position. For example, if you are long 100 shares of XYZ, selling 100 shares of XYZ would be the offsetting position. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> An offsetting position can also be generated through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp">hedging</a> instruments such as futures or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/optionscontract.asp">options</a>. In the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp">derivatives</a> markets, to offset a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a> position a trader enters an equivalent but opposite transaction that eliminates the <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/physicaldelivery.asp">delivery</a> obligation of the physical product that it represents. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The goal of offsetting is to reduce an investor's net position in an investment to zero so that no further gains or losses are experienced from that position. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> In business, an offset refers to the generation of gains in one business unit that makes up for losses in another unit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_11-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>In accounting, an offset is the recording of a gain that nullifies the effect of the recording of a loss.</li><li>An offset in futures trading is taking two opposite positions on a commodity to cancel the delivery of the commodity.</li><li>In certain markets, an offset is used to reduce risk exposure.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-an-offset-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> How an Offset Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Offsetting is used in several types of businesses. Its effect is to remove or limit liabilities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>In accounting, an entry can be offset by an equal but opposite entry that nullifies the original entry. For example, a loss in one division can be eliminated by an equal profit in another division.</li><li>In banking, the right to offset provides financial institutions with the ability to seize debtor assets in the case of delinquency.</li><li>For investors in the futures market, an offsetting position eliminates the need to receive physical delivery of the underlying asset or commodity by selling the associated goods to another party.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-subheading__text"> Offsetting Losses </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Businesses may offset losses in one business division by reallocating gains from another. This allows the profitability of one activity to support the other activity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> For example, a business that is successful in the smartphone market may decide to produce a tablet as a new product line. The profits from smartphone sales can help offset the early losses associated with expanding into a new arena. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Similarly, companies with global sales may offset losses in one currency with gains in another. One unit may have risk exposure to a decline in the Swiss franc compared to the euro, while another may benefit from a declining franc. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <span class="heading-toc" id="toc-offsetting-in-derivatives-contracts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_24-0"> <span class="mntl-sc-block-heading__text"> Offsetting in Derivatives Contracts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Investors offset futures contracts and other investment positions to remove themselves from any associated <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liability.asp">liabilities</a>. Almost all futures positions are offset before the terms of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futurescontract.asp">futures contract</a> are realized. Even though most positions are offset near the delivery term, the benefits of the futures contract as a hedging mechanism are still realized. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> A futures contract is an agreement to purchase a particular commodity at a specific price on a future date. If a contract is held until the agreed-upon date, the investor could become responsible for accepting the physical delivery of the commodity in question. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> The purpose of offsetting a futures contract on a commodity, for most investors, is to avoid having to physically receive the goods associated with the contract. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-subheading__text"> Offsetting to Reduce Risk </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> In the options markets, traders often look to offset certain risk exposures, sometimes referred to as their "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/greeks.asp">Greeks</a>." For instance, if an options book is exposed to declines in implied volatility (long <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vega.asp">vega</a>), a trader may sell related options to offset that exposure. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Or, if an options position is exposed to directional risk, a trader may buy or sell the underlying security to become <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deltaneutral.asp">delta neutral</a>. Dynamic hedging (or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deltagamma-hedging.asp">delta-gamma hedging</a>) is a strategy employed by derivatives traders to maintain offsetting positions on an ongoing basis. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_36-0"><span class="heading-toc" id="toc-why-would-i-take-an-offset-position"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Would I Take an Offset Position?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One definition of the word offset is "something that serves to counterbalance or to compensate for something else." In all of the businesses in which offsets are used, they are employed to eliminate a loss or some other downside risk inherent in a previous decision.<span class="ql-inline-citation" data-cite="1"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_38-0"><span class="heading-toc" id="toc-what-does-it-mean-to-offset-a-payment"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does It Mean to Offset a Payment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An offset in a payment is a reduction in the total amount owed. It occurs when one party successfully argues that the amount due should be reduced due to some compensation owed to the payer.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_40-0"><span class="heading-toc" id="toc-what-is-a-tax-refund-offset"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Tax Refund Offset?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If your tax refund is offset, the federal government has seized a portion of your refund to put towards a state or federal debt you owe. Unpaid child support is an example.<span class="ql-inline-citation" data-cite="2"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_42-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> If the initial investment was a purchase, a sale in the same amount is made to neutralize the position. To offset an initial sale, a purchase is made to neutralize the position. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> With futures related to stocks, investors may use hedging to assume an opposing position to manage the risk associated with the futures contract. For example, if you wanted to offset a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/long.asp">long position</a> in a stock, you could short-sell an identical number of shares. </p></div>

## What Is an Offset? An offset is a financial market strategy that requires a trader to take an opening position and then take a directly opposite position. For example, if you are long 100 shares of XYZ, selling 100 shares of XYZ would be the offsetting position. An offsetting position can also be generated through [hedging](https://www.investopedia.com/terms/h/hedge.asp) instruments such as futures or [options](https://www.investopedia.com/terms/o/optionscontract.asp). In the [derivatives](https://www.investopedia.com/terms/d/derivative.asp) markets, to offset a [futures](https://www.investopedia.com/terms/f/futures.asp) position a trader enters an equivalent but opposite transaction that eliminates the [delivery](https://www.investopedia.com/terms/p/physicaldelivery.asp) obligation of the physical product that it represents. The goal of offsetting is to reduce an investor's net position in an investment to zero so that no further gains or losses are experienced from that position. In business, an offset refers to the generation of gains in one business unit that makes up for losses in another unit. ### Key Takeaways * In accounting, an offset is the recording of a gain that nullifies the effect of the recording of a loss. * An offset in futures trading is taking two opposite positions on a commodity to cancel the delivery of the commodity. * In certain markets, an offset is used to reduce risk exposure. ## How an Offset Works Offsetting is used in several types of businesses. Its effect is to remove or limit liabilities. * In accounting, an entry can be offset by an equal but opposite entry that nullifies the original entry. For example, a loss in one division can be eliminated by an equal profit in another division. * In banking, the right to offset provides financial institutions with the ability to seize debtor assets in the case of delinquency. * For investors in the futures market, an offsetting position eliminates the need to receive physical delivery of the underlying asset or commodity by selling the associated goods to another party. ### Offsetting Losses Businesses may offset losses in one business division by reallocating gains from another. This allows the profitability of one activity to support the other activity. For example, a business that is successful in the smartphone market may decide to produce a tablet as a new product line. The profits from smartphone sales can help offset the early losses associated with expanding into a new arena. Similarly, companies with global sales may offset losses in one currency with gains in another. One unit may have risk exposure to a decline in the Swiss franc compared to the euro, while another may benefit from a declining franc. ## Offsetting in Derivatives Contracts Investors offset futures contracts and other investment positions to remove themselves from any associated [liabilities](https://www.investopedia.com/terms/l/liability.asp). Almost all futures positions are offset before the terms of the [futures contract](https://www.investopedia.com/terms/f/futurescontract.asp) are realized. Even though most positions are offset near the delivery term, the benefits of the futures contract as a hedging mechanism are still realized. A futures contract is an agreement to purchase a particular commodity at a specific price on a future date. If a contract is held until the agreed-upon date, the investor could become responsible for accepting the physical delivery of the commodity in question. The purpose of offsetting a futures contract on a commodity, for most investors, is to avoid having to physically receive the goods associated with the contract. ### Offsetting to Reduce Risk In the options markets, traders often look to offset certain risk exposures, sometimes referred to as their "[Greeks](https://www.investopedia.com/terms/g/greeks.asp)." For instance, if an options book is exposed to declines in implied volatility (long [vega](https://www.investopedia.com/terms/v/vega.asp)), a trader may sell related options to offset that exposure. Or, if an options position is exposed to directional risk, a trader may buy or sell the underlying security to become [delta neutral](https://www.investopedia.com/terms/d/deltaneutral.asp). Dynamic hedging (or [delta-gamma hedging](https://www.investopedia.com/terms/d/deltagamma-hedging.asp)) is a strategy employed by derivatives traders to maintain offsetting positions on an ongoing basis. ## Why Would I Take an Offset Position? One definition of the word offset is "something that serves to counterbalance or to compensate for something else." In all of the businesses in which offsets are used, they are employed to eliminate a loss or some other downside risk inherent in a previous decision. ## What Does It Mean to Offset a Payment? An offset in a payment is a reduction in the total amount owed. It occurs when one party successfully argues that the amount due should be reduced due to some compensation owed to the payer. ## What Is a Tax Refund Offset? If your tax refund is offset, the federal government has seized a portion of your refund to put towards a state or federal debt you owe. Unpaid child support is an example. ## The Bottom Line If the initial investment was a purchase, a sale in the same amount is made to neutralize the position. To offset an initial sale, a purchase is made to neutralize the position. With futures related to stocks, investors may use hedging to assume an opposing position to manage the risk associated with the futures contract. For example, if you wanted to offset a [long position](https://www.investopedia.com/terms/l/long.asp) in a stock, you could short-sell an identical number of shares.

What Is an Offset? An offset is a financial market strategy that requires a trader to take an opening position and then take a directly opposite position. For example, if you are long 100 shares of XYZ, selling 100 shares of XYZ would be the offsetting position. An offsetting position can also be generated through hedging instruments such as futures or options. In the derivatives markets, to offset a futures position a trader enters an equivalent but opposite transaction that eliminates the delivery obligation of the physical product that it represents. The goal of offsetting is to reduce an investor's net position in an investment to zero so that no further gains or losses are experienced from that position. In business, an offset refers to the generation of gains in one business unit that makes up for losses in another unit. Key Takeaways In accounting, an offset is the recording of a gain that nullifies the effect of the recording of a loss.An offset in futures trading is taking two opposite positions on a commodity to cancel the delivery of the commodity.In certain markets, an offset is used to reduce risk exposure. How an Offset Works Offsetting is used in several types of businesses. Its effect is to remove or limit liabilities. In accounting, an entry can be offset by an equal but opposite entry that nullifies the original entry. For example, a loss in one division can be eliminated by an equal profit in another division.In banking, the right to offset provides financial institutions with the ability to seize debtor assets in the case of delinquency.For investors in the futures market, an offsetting position eliminates the need to receive physical delivery of the underlying asset or commodity by selling the associated goods to another party. Offsetting Losses Businesses may offset losses in one business division by reallocating gains from another. This allows the profitability of one activity to support the other activity. For example, a business that is successful in the smartphone market may decide to produce a tablet as a new product line. The profits from smartphone sales can help offset the early losses associated with expanding into a new arena. Similarly, companies with global sales may offset losses in one currency with gains in another. One unit may have risk exposure to a decline in the Swiss franc compared to the euro, while another may benefit from a declining franc. Offsetting in Derivatives Contracts Investors offset futures contracts and other investment positions to remove themselves from any associated liabilities. Almost all futures positions are offset before the terms of the futures contract are realized. Even though most positions are offset near the delivery term, the benefits of the futures contract as a hedging mechanism are still realized. A futures contract is an agreement to purchase a particular commodity at a specific price on a future date. If a contract is held until the agreed-upon date, the investor could become responsible for accepting the physical delivery of the commodity in question. The purpose of offsetting a futures contract on a commodity, for most investors, is to avoid having to physically receive the goods associated with the contract. Offsetting to Reduce Risk In the options markets, traders often look to offset certain risk exposures, sometimes referred to as their "Greeks." For instance, if an options book is exposed to declines in implied volatility (long vega), a trader may sell related options to offset that exposure. Or, if an options position is exposed to directional risk, a trader may buy or sell the underlying security to become delta neutral. Dynamic hedging (or delta-gamma hedging) is a strategy employed by derivatives traders to maintain offsetting positions on an ongoing basis. Why Would I Take an Offset Position? One definition of the word offset is "something that serves to counterbalance or to compensate for something else." In all of the businesses in which offsets are used, they are employed to eliminate a loss or some other downside risk inherent in a previous decision. What Does It Mean to Offset a Payment? An offset in a payment is a reduction in the total amount owed. It occurs when one party successfully argues that the amount due should be reduced due to some compensation owed to the payer. What Is a Tax Refund Offset? If your tax refund is offset, the federal government has seized a portion of your refund to put towards a state or federal debt you owe. Unpaid child support is an example. The Bottom Line If the initial investment was a purchase, a sale in the same amount is made to neutralize the position. To offset an initial sale, a purchase is made to neutralize the position. With futures related to stocks, investors may use hedging to assume an opposing position to manage the risk associated with the futures contract. For example, if you wanted to offset a long position in a stock, you could short-sell an identical number of shares.

https://www.investopedia.com/london-vs-new-york-financial-districts-7552437

Comparing the Financial Districts of London and New York

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> There are many cities around the world that are key nodes in the network of global finance. These important financial hubs often have strategic locations and a storied history of leadership in the worldwide economy. Examples include Shanghai, Tokyo, and Hong Kong in Asia, as well as Zurich, Amsterdam, and Frankfurt in Europe.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Any list of the world's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/091114/worlds-top-financial-cities.asp">top financial cities</a>, however, is likely to lead off with London and New York. The U.K. capital remains a vital center for the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/insurance.asp">insurance</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/f/foreign-exchange-markets.asp">foreign exchange</a> markets, while the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/050815/top-10-most-developed-cities-us.asp#:~:text=New%20York%20is%20the%20most,10%20most%20populated%20U.S.%20cities.">largest U.S. city</a> is home to the world's two biggest <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/04/092404.asp">stock exchanges</a>. Let's take a look at how these two English-speaking financial capitals compare.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>New York edged out London on the Global Financial Centres Index 33, a ranking of the world's most important financial hubs.</li><li>Having the world's two largest stock exchanges by market capitalization helps ensure New York's global reach, while London leads on insurance and foreign exchange.<br/></li><li>London's firm grip on second place suggests that its financial reputation has been withstanding uncertainties related to the U.K.'s departure from the EU.</li></ul></div></div></div> <span class="heading-toc" id="toc-london-vs-new-york-how-do-they-compare"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> London vs. New York: How Do They Compare? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> New York holds the top spot on the 33rd annual Global Financial Centres Index (GFCI), published by Long Finance in March 2023. It aims to rank the vital roles that different cities play in global finance. London is in second place.<span class="ql-inline-citation" data-cite="1"></span> However, this hasn't always been the case, with New York ranking below its across-the-pond rival as recently as March 2018.<span class="ql-inline-citation" data-cite="2"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> It may seem difficult to quantify the importance of a financial center, but the GFCI ranks the world's major financial cities and evaluates their future competitiveness by analyzing 153 "instrumental factors." These data points include quantitative measures gathered from third parties like the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/worldbank.asp">World Bank</a> and the United Nations. The index also accounts for the results of questionnaires asking more than 10,000 respondents around the world to assess different financial centers.<span class="ql-inline-citation" data-cite="1"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> In the edition of the GFCI released in March 2023, New York came in first with an overall rating of 760, followed by London with a rating of 731. The third and fourth spots went to Singapore and Hong Kong, which posted ratings of 723 and 722, respectively.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_14-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">The Global Financial Centres Index 33 for 2023</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Rank</b></td> <td><b>Financial Center</b></td> <td><b>Rating</b></td> </tr> <tr> <td>1</td> <td>New York</td> <td>760</td> </tr> <tr> <td>2</td> <td>London</td> <td>731</td> </tr> <tr> <td>3</td> <td>Singapore</td> <td>723</td> </tr> <tr> <td>4</td> <td>Hong Kong</td> <td>722</td> </tr> <tr> <td>5</td> <td>San Francisco</td> <td>721</td> </tr> <tr> <td>6</td> <td>Los Angeles</td> <td>719</td> </tr> <tr> <td>7</td> <td>Shanghai</td> <td>717</td> </tr> <tr> <td>8</td> <td>Chicago</td> <td>716</td> </tr> <tr> <td>9</td> <td>Boston</td> <td>715</td> </tr> <tr> <td>10</td> <td>Seoul</td> <td>714</td> </tr> </tbody> </table> <figcaption>Source: GFCI 33</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The fact that four other U.S. cities—San Francisco, Los Angeles, Chicago, and Boston—join New York in the top 10 points to strength and resilience in the U.S. financial markets. Meanwhile, London's solid grip on second place suggests that the U.K.'s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/030315/what-financial-services-sector.asp">financial services sector</a> has maintained its relevance and reputation, even amid questions about its future following <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brexit.asp">Brexit</a> and heightened competition with financial centers that remain in the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/europeanunion.asp">European Union</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> A deeper dive into the data from the GFCI shows New York and London firmly entrenched in their No. 1 and No. 2 positions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_21-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The index breaks down its evaluation of financial centers into five "areas of competitiveness"—business environment, human capital, infrastructure, financial sector development, and reputational and general. Among all the cities included in the GFCI, New York and London rank first and second, respectively, across the board in all these categories.<span class="ql-inline-citation" data-cite="4"></span></p></div></div></div> <span class="heading-toc" id="toc-key-differences"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> Key Differences </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> New York and London earn their status as global finance powerhouses by showing leadership in different areas of the financial markets. New York stakes its claim as the world's financial capital partly because it's home to the world's two largest stock exchanges by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketcapitalization.asp">market capitalization</a>—the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nyse.asp">New York Stock Exchange (NYSE)</a> and the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nasdaq.asp">Nasdaq</a>.<span class="ql-inline-citation" data-cite="8"></span> Companies from countries around the globe opt to list their shares on exchanges based in New York, showing concrete proof of the Big Apple's global reach.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> While London is also home to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lse.asp">London Stock Exchange (LSE)</a>, one of the world's oldest and most important stock exchanges, the global impact of the U.K. financial services sector may be strongest in the insurance and foreign exchange markets. London is also an important player in the international <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/05/021605.asp">commodities</a> market, with the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/londonmetalexchange.asp">London Metals Exchange (LME)</a> among the world's largest commodities exchanges.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <span class="heading-toc" id="toc-which-city-is-the-financial-capital-of-the-world"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_27-0"> <span class="mntl-sc-block-heading__text"> Which City Is the Financial Capital of the World? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> There may not be a definitive answer to the question of which city truly deserves the title of the world's financial capital. People from the U.S. may be quick to answer that it's New York, and the most recent Global Financial Centres Index seems to confirm the argument that the home of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wallstreet.asp">Wall Street</a> is the top financial city. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> However, it's worth noting that London also has taken the top spot on this list of the most important global <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-hub.asp">financial hubs</a> in the past.<span class="ql-inline-citation" data-cite="6"></span> There is no telling how shifts in the global economy might eventually reshape the relative influence and importance of worldwide financial centers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-the-future-of-these-financial-capitals"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> The Future of these Financial Capitals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> New York and London appear unlikely to give up their leadership positions in the global financial markets anytime soon. Both cities look poised to embrace the future of finance—New York came in at No. 1 in the GFCI's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fintech.asp">fintech</a> rankings, while London was in third place, just behind San Francisco.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> While there are plenty of reasons to be optimistic about both cities retaining their global financial relevance, New York and London also face their own sets of risks. The Federal Reserve's campaign of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/010616/impact-fed-interest-rate-hike.asp">inflation-fighting rate hikes</a> could slow economic growth in the U.S. and hamper New York's financial markets. Meanwhile, plenty of unknowns remain in London about the evolving impact of Brexit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-is-london-or-new-york-the-financial-capital-of-the-world"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is London or New York the Financial Capital of the World?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>London and New York are both key financial hubs that play an important role in the global economy. According to the Global Financial Centres Index 33, released in March 2023, New York is the top world financial center, followed by London in second place.<span class="ql-inline-citation" data-cite="1"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_39-0"><span class="heading-toc" id="toc-what-is-the-most-powerful-financial-institution-in-the-us"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Most Powerful Financial Institution in the U.S.?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Federal Reserve is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/centralbank.asp">central bank</a> of the U.S., endowed with the power to set <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/monetarypolicy.asp">monetary policy</a> that can determine the direction of the nation's entire economy and influence the entire world. Other powerful financial institutions include large banks, some of which are considered "<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/too-big-to-fail.asp">too big to fail</a>."</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_41-0"><span class="heading-toc" id="toc-what-is-londons-financial-district-called"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is London's Financial District Called?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>London's financial services industry has never left the city's historical center, which is often referred to as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-city-of-london-corporation-7547068">City of London</a> or the Square Mile.<span class="ql-inline-citation" data-cite="9"></span> In addition, following its construction in the 1980s, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/londons-financial-districts-7548716">Canary Wharf</a> has been a focal point for London's insurance companies and other financial firms.<span class="ql-inline-citation" data-cite="10"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_43-0"><span class="heading-toc" id="toc-what-is-london-known-for-in-finance"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is London Known for in Finance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/100115/most-expensive-neighborhoods-london.asp">London</a> is home to important financial institutions such as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/boe.asp">Bank of England (BoE)</a>, the London Stock Exchange, and the London Metals Exchange. It's also a key player in many areas of the global economy, particularly when it comes to forex markets and insurance.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> The Global Financial Centres Index 33 lists New York as the world's top financial hub in 2023, followed by London. Both cities have a long history as key players in the global economy, and despite the challenges they face, New York and London will likely remain at the center of world finance. </p></div>

There are many cities around the world that are key nodes in the network of global finance. These important financial hubs often have strategic locations and a storied history of leadership in the worldwide economy. Examples include Shanghai, Tokyo, and Hong Kong in Asia, as well as Zurich, Amsterdam, and Frankfurt in Europe. Any list of the world's [top financial cities](https://www.investopedia.com/articles/investing/091114/worlds-top-financial-cities.asp), however, is likely to lead off with London and New York. The U.K. capital remains a vital center for the [insurance](https://www.investopedia.com/terms/i/insurance.asp) and [foreign exchange](https://www.investopedia.com/terms/forex/f/foreign-exchange-markets.asp) markets, while the [largest U.S. city](https://www.investopedia.com/articles/personal-finance/050815/top-10-most-developed-cities-us.asp#:~:text=New%20York%20is%20the%20most,10%20most%20populated%20U.S.%20cities.) is home to the world's two biggest [stock exchanges](https://www.investopedia.com/articles/basics/04/092404.asp). Let's take a look at how these two English-speaking financial capitals compare. ### Key Takeaways * New York edged out London on the Global Financial Centres Index 33, a ranking of the world's most important financial hubs. * Having the world's two largest stock exchanges by market capitalization helps ensure New York's global reach, while London leads on insurance and foreign exchange. * London's firm grip on second place suggests that its financial reputation has been withstanding uncertainties related to the U.K.'s departure from the EU. ## London vs. New York: How Do They Compare? New York holds the top spot on the 33rd annual Global Financial Centres Index (GFCI), published by Long Finance in March 2023. It aims to rank the vital roles that different cities play in global finance. London is in second place. However, this hasn't always been the case, with New York ranking below its across-the-pond rival as recently as March 2018. It may seem difficult to quantify the importance of a financial center, but the GFCI ranks the world's major financial cities and evaluates their future competitiveness by analyzing 153 "instrumental factors." These data points include quantitative measures gathered from third parties like the [World Bank](https://www.investopedia.com/terms/w/worldbank.asp) and the United Nations. The index also accounts for the results of questionnaires asking more than 10,000 respondents around the world to assess different financial centers. In the edition of the GFCI released in March 2023, New York came in first with an overall rating of 760, followed by London with a rating of 731. The third and fourth spots went to Singapore and Hong Kong, which posted ratings of 723 and 722, respectively. | The Global Financial Centres Index 33 for 2023 | | | | --- | --- | --- | | **Rank** | **Financial Center** | **Rating** | | 1 | New York | 760 | | 2 | London | 731 | | 3 | Singapore | 723 | | 4 | Hong Kong | 722 | | 5 | San Francisco | 721 | | 6 | Los Angeles | 719 | | 7 | Shanghai | 717 | | 8 | Chicago | 716 | | 9 | Boston | 715 | | 10 | Seoul | 714 | Source: GFCI 33 The fact that four other U.S. cities—San Francisco, Los Angeles, Chicago, and Boston—join New York in the top 10 points to strength and resilience in the U.S. financial markets. Meanwhile, London's solid grip on second place suggests that the U.K.'s [financial services sector](https://www.investopedia.com/ask/answers/030315/what-financial-services-sector.asp) has maintained its relevance and reputation, even amid questions about its future following [Brexit](https://www.investopedia.com/terms/b/brexit.asp) and heightened competition with financial centers that remain in the [European Union](https://www.investopedia.com/terms/e/europeanunion.asp). A deeper dive into the data from the GFCI shows New York and London firmly entrenched in their No. 1 and No. 2 positions. ### The index breaks down its evaluation of financial centers into five "areas of competitiveness"—business environment, human capital, infrastructure, financial sector development, and reputational and general. Among all the cities included in the GFCI, New York and London rank first and second, respectively, across the board in all these categories. ## Key Differences New York and London earn their status as global finance powerhouses by showing leadership in different areas of the financial markets. New York stakes its claim as the world's financial capital partly because it's home to the world's two largest stock exchanges by [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp)—the [New York Stock Exchange (NYSE)](https://www.investopedia.com/terms/n/nyse.asp) and the [Nasdaq](https://www.investopedia.com/terms/n/nasdaq.asp). Companies from countries around the globe opt to list their shares on exchanges based in New York, showing concrete proof of the Big Apple's global reach. While London is also home to the [London Stock Exchange (LSE)](https://www.investopedia.com/terms/l/lse.asp), one of the world's oldest and most important stock exchanges, the global impact of the U.K. financial services sector may be strongest in the insurance and foreign exchange markets. London is also an important player in the international [commodities](https://www.investopedia.com/articles/trading/05/021605.asp) market, with the [London Metals Exchange (LME)](https://www.investopedia.com/terms/l/londonmetalexchange.asp) among the world's largest commodities exchanges. ## Which City Is the Financial Capital of the World? There may not be a definitive answer to the question of which city truly deserves the title of the world's financial capital. People from the U.S. may be quick to answer that it's New York, and the most recent Global Financial Centres Index seems to confirm the argument that the home of [Wall Street](https://www.investopedia.com/terms/w/wallstreet.asp) is the top financial city. However, it's worth noting that London also has taken the top spot on this list of the most important global [financial hubs](https://www.investopedia.com/terms/f/financial-hub.asp) in the past. There is no telling how shifts in the global economy might eventually reshape the relative influence and importance of worldwide financial centers. ## The Future of these Financial Capitals New York and London appear unlikely to give up their leadership positions in the global financial markets anytime soon. Both cities look poised to embrace the future of finance—New York came in at No. 1 in the GFCI's [fintech](https://www.investopedia.com/terms/f/fintech.asp) rankings, while London was in third place, just behind San Francisco. While there are plenty of reasons to be optimistic about both cities retaining their global financial relevance, New York and London also face their own sets of risks. The Federal Reserve's campaign of [inflation-fighting rate hikes](https://www.investopedia.com/articles/investing/010616/impact-fed-interest-rate-hike.asp) could slow economic growth in the U.S. and hamper New York's financial markets. Meanwhile, plenty of unknowns remain in London about the evolving impact of Brexit. ## Is London or New York the Financial Capital of the World? London and New York are both key financial hubs that play an important role in the global economy. According to the Global Financial Centres Index 33, released in March 2023, New York is the top world financial center, followed by London in second place. ## What Is the Most Powerful Financial Institution in the U.S.? The Federal Reserve is the [central bank](https://www.investopedia.com/terms/c/centralbank.asp) of the U.S., endowed with the power to set [monetary policy](https://www.investopedia.com/terms/m/monetarypolicy.asp) that can determine the direction of the nation's entire economy and influence the entire world. Other powerful financial institutions include large banks, some of which are considered "[too big to fail](https://www.investopedia.com/terms/t/too-big-to-fail.asp)." ## What Is London's Financial District Called? London's financial services industry has never left the city's historical center, which is often referred to as the [City of London](https://www.investopedia.com/the-city-of-london-corporation-7547068) or the Square Mile. In addition, following its construction in the 1980s, [Canary Wharf](https://www.investopedia.com/londons-financial-districts-7548716) has been a focal point for London's insurance companies and other financial firms. ## What Is London Known for in Finance? [London](https://www.investopedia.com/articles/personal-finance/100115/most-expensive-neighborhoods-london.asp) is home to important financial institutions such as the [Bank of England (BoE)](https://www.investopedia.com/terms/b/boe.asp), the London Stock Exchange, and the London Metals Exchange. It's also a key player in many areas of the global economy, particularly when it comes to forex markets and insurance. ## The Bottom Line The Global Financial Centres Index 33 lists New York as the world's top financial hub in 2023, followed by London. Both cities have a long history as key players in the global economy, and despite the challenges they face, New York and London will likely remain at the center of world finance.

There are many cities around the world that are key nodes in the network of global finance. These important financial hubs often have strategic locations and a storied history of leadership in the worldwide economy. Examples include Shanghai, Tokyo, and Hong Kong in Asia, as well as Zurich, Amsterdam, and Frankfurt in Europe. Any list of the world's top financial cities, however, is likely to lead off with London and New York. The U.K. capital remains a vital center for the insurance and foreign exchange markets, while the largest U.S. city is home to the world's two biggest stock exchanges. Let's take a look at how these two English-speaking financial capitals compare. Key Takeaways New York edged out London on the Global Financial Centres Index 33, a ranking of the world's most important financial hubs.Having the world's two largest stock exchanges by market capitalization helps ensure New York's global reach, while London leads on insurance and foreign exchange.London's firm grip on second place suggests that its financial reputation has been withstanding uncertainties related to the U.K.'s departure from the EU. London vs. New York: How Do They Compare? New York holds the top spot on the 33rd annual Global Financial Centres Index (GFCI), published by Long Finance in March 2023. It aims to rank the vital roles that different cities play in global finance. London is in second place. However, this hasn't always been the case, with New York ranking below its across-the-pond rival as recently as March 2018. It may seem difficult to quantify the importance of a financial center, but the GFCI ranks the world's major financial cities and evaluates their future competitiveness by analyzing 153 "instrumental factors." These data points include quantitative measures gathered from third parties like the World Bank and the United Nations. The index also accounts for the results of questionnaires asking more than 10,000 respondents around the world to assess different financial centers. In the edition of the GFCI released in March 2023, New York came in first with an overall rating of 760, followed by London with a rating of 731. The third and fourth spots went to Singapore and Hong Kong, which posted ratings of 723 and 722, respectively. The Global Financial Centres Index 33 for 2023 Rank Financial Center Rating 1 New York 760 2 London 731 3 Singapore 723 4 Hong Kong 722 5 San Francisco 721 6 Los Angeles 719 7 Shanghai 717 8 Chicago 716 9 Boston 715 10 Seoul 714 Source: GFCI 33 The fact that four other U.S. cities—San Francisco, Los Angeles, Chicago, and Boston—join New York in the top 10 points to strength and resilience in the U.S. financial markets. Meanwhile, London's solid grip on second place suggests that the U.K.'s financial services sector has maintained its relevance and reputation, even amid questions about its future following Brexit and heightened competition with financial centers that remain in the European Union. A deeper dive into the data from the GFCI shows New York and London firmly entrenched in their No. 1 and No. 2 positions. The index breaks down its evaluation of financial centers into five "areas of competitiveness"—business environment, human capital, infrastructure, financial sector development, and reputational and general. Among all the cities included in the GFCI, New York and London rank first and second, respectively, across the board in all these categories. Key Differences New York and London earn their status as global finance powerhouses by showing leadership in different areas of the financial markets. New York stakes its claim as the world's financial capital partly because it's home to the world's two largest stock exchanges by market capitalization—the New York Stock Exchange (NYSE) and the Nasdaq. Companies from countries around the globe opt to list their shares on exchanges based in New York, showing concrete proof of the Big Apple's global reach. While London is also home to the London Stock Exchange (LSE), one of the world's oldest and most important stock exchanges, the global impact of the U.K. financial services sector may be strongest in the insurance and foreign exchange markets. London is also an important player in the international commodities market, with the London Metals Exchange (LME) among the world's largest commodities exchanges. Which City Is the Financial Capital of the World? There may not be a definitive answer to the question of which city truly deserves the title of the world's financial capital. People from the U.S. may be quick to answer that it's New York, and the most recent Global Financial Centres Index seems to confirm the argument that the home of Wall Street is the top financial city. However, it's worth noting that London also has taken the top spot on this list of the most important global financial hubs in the past. There is no telling how shifts in the global economy might eventually reshape the relative influence and importance of worldwide financial centers. The Future of these Financial Capitals New York and London appear unlikely to give up their leadership positions in the global financial markets anytime soon. Both cities look poised to embrace the future of finance—New York came in at No. 1 in the GFCI's fintech rankings, while London was in third place, just behind San Francisco. While there are plenty of reasons to be optimistic about both cities retaining their global financial relevance, New York and London also face their own sets of risks. The Federal Reserve's campaign of inflation-fighting rate hikes could slow economic growth in the U.S. and hamper New York's financial markets. Meanwhile, plenty of unknowns remain in London about the evolving impact of Brexit. Is London or New York the Financial Capital of the World? London and New York are both key financial hubs that play an important role in the global economy. According to the Global Financial Centres Index 33, released in March 2023, New York is the top world financial center, followed by London in second place. What Is the Most Powerful Financial Institution in the U.S.? The Federal Reserve is the central bank of the U.S., endowed with the power to set monetary policy that can determine the direction of the nation's entire economy and influence the entire world. Other powerful financial institutions include large banks, some of which are considered "too big to fail." What Is London's Financial District Called? London's financial services industry has never left the city's historical center, which is often referred to as the City of London or the Square Mile. In addition, following its construction in the 1980s, Canary Wharf has been a focal point for London's insurance companies and other financial firms. What Is London Known for in Finance? London is home to important financial institutions such as the Bank of England (BoE), the London Stock Exchange, and the London Metals Exchange. It's also a key player in many areas of the global economy, particularly when it comes to forex markets and insurance. The Bottom Line The Global Financial Centres Index 33 lists New York as the world's top financial hub in 2023, followed by London. Both cities have a long history as key players in the global economy, and despite the challenges they face, New York and London will likely remain at the center of world finance.