Discover the phrases that shaped the last quarter-century.

Fact checked by Suzanne Kvilhaug
Reviewed by Katie Miller

Since its founding in 1999, Investopedia has been an online source of financial definitions, analysis, and advice. The site’s financial dictionary includes topics, terms, events, and technology that define the financial world. To celebrate Investopedia’s 25th anniversary, we looked back to 1999 to revisit the most important terms.

Cybersecurity

1999 marked the close of the century and the millennium, an era characterized by Prince’s “Little Red Corvette,” Y2K, and the launch of Investopedia. Many feared digital systems would not handle the numerical change from 1999 to 2000 and the infrastructure would experience interference or collapse. The term “cybersecurity” was defined as companies secured data and technology.

Broadband

The early days of the commercial internet included the sound of a telephone modem dialing up an ISP (internet service provider). Luckily, broadband, a.k.a. high-speed internet, appeared in the early 2000s.

Telephone companies and communications startups built ADSL (asymmetric digital subscriber lines) that transmitted data at speeds of 512k per second—nine times faster than dial-up. ADSL gave way to fiber-optic broadband and could transmit data at 30Mb per second—fast enough to watch feature films at the click of a mouse and trade stocks at lightning speeds.

Bubble

This term is synonymous with the Dotcom days of irrational exuberance when the stock market was flooded with internet companies in the late 1990s—or companies pretending to have an internet strategy—and Wall Street and Main Street investors rushed in. When the early money moved out, and many of these high-flying stocks fell short on profits, the bubble burst and sent the Nasdaq down nearly 80% from its peak. 

Insider Trading

The film Wall Street popularized the term “insider trading” in 1987. Martha Stewart helped bring it back to the headlines in 2001 when she was implicated in an insider trading case involving ImClone, a pharmaceutical company. Martha Stewart was convicted in 2004 of lying about the stock sale, conspiracy, and obstruction of justice. She served five months in prison, five months of home confinement, and two years probation.

Bear Market

Given that a bear market—a 20% decline of an index from its most recent high—occurs on average every 3.6 years, this term has been very popular over the past twenty-five years.

The bear markets of 1999 to 2001 and 2008 to 2010 cut the stock market in half and washed away wealth and investor confidence. The bear market at the onset of the COVID-19 pandemic in 2020 was swift and painful, lasting only 33 days.

Ponzi Scheme

Ponzi schemes were named after Charles Ponzi, who ran one of the largest fraudulent investment schemes in the 1920s. Ponzi promised 50% returns on investments in international mail coupons. In 2008, Bernie Madoff ran the largest Ponzi scheme in history, defrauding thousands of investors an estimated $65 billion over at least 17 years.

Subprime

The core of the Great Financial Crisis was the homeownership boom at the turn of the century fueled by lenders making risky loans to subprime borrowers—those with poor or no credit history. Subprime loans were then bundled into risky financial products called collateralized debt obligations, from which synthetic collateralized debt obligations were born.

Important

Investopedia celebrated its 25th anniversary in 2024 and looked back to see what’s changed, emerged, and shaped today’s financial ecosystem and your finances. Learn more here. 

Too Big To Fail

During the subprime crisis from 2006 to 2008, the world’s largest banks were dangerously exposed to the loans they made to less-than-credit-worthy borrowers. The collateralized debt obligations the banks owned were underwater due to plunging home prices and rising foreclosures. Storied financial institutions like Lehman Brothers and Bear Stearns were at risk of bankruptcy as shareholders abandoned ship and debt-holders demanded their money. 

U.S. Treasury Secretary Hank Paulson, Fed Chair Ben Bernanke, other regulators, and bank executives created a plan to rescue key banks deemed “too big to fail.” This included the Troubled Asset Relief Program (TARP) where the government bought over $400 billion in mortgage-backed securities and bank stocks in the largest financial bailout.

Great Financial Crisis

A recession lasted from December 2007 to June 2009—the longest since World War II—and a bear market that erased more than half of the market value of the S&P 500. The Great Financial Crisis crippled the U.S. economy, costing nearly 9 million job losses, or an average of 700,000 per month.

Dodd-Frank Act

Regulatory reform followed the crisis of 2008-2009 with laws like the Dodd-Frank Wall Street Reform and Consumer Protection Act, which curtailed bank lending and mandated minimum capital requirements for lending institutions. 

The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB), a regulatory watchdog established to help consumers navigate their financial choices, take action against predatory companies and practices, and promote financial education.

Occupy Wall Street 

The Occupy Wall Street movement was born and quickly spread through social media and civic protest when people took over Zuccotti Park in New York City in the heart of the financial district in 2011. Demanding reform and reining in bonuses and salaries for banking executives, the movement was one of the first major protests in the U.S. to use social media apps like Twitter and Facebook to organize and gain media attention.

Bitcoin

Even though the first Bitcoin was created or “mined” in 2009, the appeal and popularity of this decentralized cryptocurrency didn’t blossom until around 2014.

Creator Satoshi Nakamoto remains pseudonymous. Cryptocurrency was invented as a means of exchange and a tradable asset on a decentralized blockchain independent of the global banking system. By 2024, Bitcoin was a widely held and traded asset among retail and institutional investors. 

Note

In 2009, the first recorded value of one Bitcoin was $0.009. As of Feb. 2025, one Bitcoin traded over $99.000, and those long-time holders have created a name for their loyalty: HODL (Hold on for Dear Life).

Affordable Care Act

The Affordable Care Act (ACA) is the comprehensive health care reform signed into law by President Barack Obama in March 2010. Commonly referred to as Obamacare, the law includes a list of healthcare policies intended to expand access to health insurance to millions of uninsured Americans. The ACA expanded Medicaid eligibility, created a Health Insurance Marketplace, and prevented insurance companies from denying coverage due to preexisting conditions.

ESG

As the impact of climate change became more evident and younger generations of investors cared more about the ethics and governance of the companies they invested in, Environmental, Social, and Governance (ESG) investing took root across the financial services industry. New index funds and ETFs were launched. From 2014–2022, assets under management for ESG-related products worldwide doubled from around $15 trillion to $30 trillion. 

Black Swan

A Black Swan is an unpredictable event beyond what is normally expected of a situation with potentially severe consequences like the Great Financial Crisis and the COVID-19 pandemic.

FAANG Stocks

The FANG acronym represents the stocks of Facebook, Amazon, Netflix, and Google. They were four of the fastest-growing large-cap tech stocks in 2013, and CNBC’s Jim Cramer added Apple into the mix in 2017 and expanded FANG to FAANG. They dictated the direction of the market-weighted indexes like the S&P 500 and the Nasdaq.

Racketeering

Racketeering broadly refers to criminal acts involving extortion or schemes to extract illegal profits that involve a “racket” or group of people. The 1970 Racketeer Influenced and Corrupt Organizations Act (RICO) lists the federal crimes associated with racketeering.

These crimes include bribery, fraud, gambling offenses, money laundering, financial and economic crimes, obstructing justice or a criminal investigation, and murder for hire. Racketeering charges have been leveled against Donald Trump, the Gambino crime family, FIFA, and Young Thug, among others.

SWIFT

Financial institutions use the Society for Worldwide Interbank Financial Telecommunications (SWIFT) system to quickly, accurately, and securely send and receive information. The SWIFT system was formed in 1973 with 239 banks in 15 countries. By 2022, it had expanded to more than 11,000 institutional members from more than 200 countries and territories. In 2022, the U.S., U.K., and the E.U. disconnected seven Russian banks from the SWIFT network as sanctions in response to the war in Ukraine. 

Brexit

Brexit is a portmanteau of “Britain” and “exit.” This geopolitical divorce dominated headlines worldwide as the United Kingdom voted to leave the European Union in 2016, threatening to break up an economic and political alliance formed decades earlier. It took the U.K. four years to officially leave the European Union, which it formally did on January 31, 2020. Despite fears of economic chaos spreading through the region, Brexit came in like a lion but left like a lamb. 

Inflation

Inflation was the dominant economic theme in the U.S. during the recovery from the COVID-19 pandemic in 2021. A combination of trillions of dollars in stimulus funds and other government spending, combined with a shortage of goods, spiked the inflation rate to a multi-decade high of 8% in 2022, forcing the Federal Reserve to sharply raise interest rates to bring it down closer to its target of 2%. 

Meme Stocks

A new generation of day traders embraced meme stocks or speculative and shorted stocks like Gamestop and AMC Entertainment.  Day traders used social media community platforms such as Reddit’s r/wallstreetbets to encourage one another to bid these stocks higher and hold on with “Diamond Hands” (never sell) to rake in some “Tendies” (profits). Meme stocks gave birth to this new trading vocabulary and popularized market sensations like Roaring Kitty and Dave Portnoy. Many meme stocks lost up to 90% of their value between 2021 and 2024.

Inverted Yield Curve

When the yield on long-term U.S. Treasury debt is less than the yield on short-term, investors are pessimistic about the near-term future of the economy and a pretty reliable harbinger of a recession. An inverted yield curve used to be a sign that a downturn was on its way.

However, beginning in July 2022, the yield curve in U.S. Treasury bonds of various durations was inverted for over 650 days–the longest stretch on record–and there was no recession. 

Artificial Intelligence

The term “Artificial Intelligence” was originally coined in 1956 by Dartmouth College Professor John McCarthy. A.I. exploded into the investing universe in 2022 as Alphabet, Meta, Microsoft, and Nvidia, devoted R&D money to using machine learning across their products and services. 

Artificial intelligence is a buzzword for data processing, machine learning, language models, and consumer-facing applications like OpenAI’s ChatGPT and Google’s Gemini.

Tariffs

Tariffs are part of global trade and include raising fees on imports. After his election in 2016, President Donald Trump imposed over $300 billion in tariffs against China and the E.U. The Biden administration kept many of those tariffs in place and added a few more around semiconductor imports. In 2025, President Trump began his tenure with new tariff proposals on Mexico, Canada, and China.

American Dream

The term “American Dream” is much older than Investopedia. It was originally coined by American historian and writer James Truslow Adams in his 1931 book The Epic of America.

This has been one of the most popular and controversial terms on our site for many years as Investopedia has tried to provide readers with information to achieve the so-called American Dream—earning enough money to afford to raise a family, educate kids, afford a home, save enough for a comfortable retirement, and take a few vacations.

Common-law spouses may enjoy benefits similar to those with a marriage license

Reviewed by Khadija Khartit

What Is a Common-Law Marriage?

A common law marriage is a legally recognized marriage between two people who have not purchased a marriage license or engaged in a ceremony overseen by an officiant. In the United States, common-law marriage is allowed in several states. Not all states address common-law marriage with a statute but use public policy to determine validity.

Key Takeaways

• A common law marriage is a legally recognized marriage between two people who have not purchased a marriage license or engaged in a ceremony overseen by an officiant.
• Fewer than a dozen states and the District of Columbia recognize common-law marriages.
• Common-law spouses who meet their states’ requirements are eligible for most of the financial benefits of a married couple, including Social Security.
• Both married and common-law married couples must file for divorce if they wish to be separated.

Choosing Common-Law Marriage

Some couples choose to forgo the legalities of marriage and opt for a common-law relationship. This type of union recognizes a couple as somewhat equivalent to being legally married even if vows were not exchanged in a civil or religious ceremony and a marriage license was not obtained.

States that allow common-law marriage may not have statutes in place but require conditions to be met for a couple to be considered married by common law such as:

• The couple lives together in a state that recognizes common-law marriages.
• Live together for a consistent period, such as seven or 10 years.
• Introduce themselves to friends, neighbors, and coworkers as a married couple, calling each other “my husband” or “my wife” and perhaps using the same last name.
• Maintain joint finances such as leases/mortgages, bank accounts, and credit cards.
• Neither partner is married to someone else.

Note

If a state recognizes common law marriage and a couple does not want to be seen as married, they must sign a living together contract—especially if they own property together or use the same last name.

Benefits of Common-Law Marriage

• Tax Returns: Common-law couples where common-law marriage is not recognized cannot file joint tax returns with the IRS. Instead, they must either file separately or as head of household. However, couples recognized as married by common law enjoy many benefits as legally married couples, provided they have lived in a state that recognizes common law for most of their marriage.
• Separation: A common-law marriage can only be legally ended through a divorce. In states where the practice is recognized, it must be dissolved like a traditional marriage.
• Social Security: Partners can receive Social Security benefits if they can prove the number of years they lived together in a common-law state.
• Medical Benefits: When recognized as married in an eligible state, combining health insurance policies may reduce the amount paid in monthly premiums compared to those paid individually.
• Tax Benefits: Recognized common-law marriage partners are exempt from the gift tax for gifts to each other, enjoy unlimited marital exemptions for their estate up to the federal estate tax limit, and can claim deductions for mortgage interest if they co-own a house or have children.
• Wills: Inheritance of a common-law marriage spouse’s property is allowed with a valid will. However, if a spouse dies without a will, their children and other family members assume the inheritance rights, leaving the surviving common-law spouse with none.
• POA: Use of a medical power of attorney (POA) designating a common-law spouse as the person to make medical decisions when they are incapable.

If one spouse buys property without putting the other on the deed, it can be sold without the other’s consent. Couples should consider purchasing major assets using co-ownership agreements to avoid this.

Where It’s Legal

Fewer than a dozen states and the District of Columbia recognize common-law relationships, and each of those states has specific requirements that must be met:

• Colorado: If contracted on or after Sept 1, 2006. Common-law spouses must be 18 or older and not prohibited by other laws.
• Iowa: Intended to support dependents, but otherwise not banned.
• Kansas: Couples must be mentally capable of committing, must be 18 or older to marry, and must represent themselves as married in the community.
• Montana: Not prohibited and not invalidated by the state’s marriage chapter.
• New Hampshire: The statute uses the phrase “cohabitation” not “common-law marriage,” saying such unions can be recognized solely for inheritance purposes. This may occur when an estate is settled after one of the partners dies if the couple lived together for three years before the death.
• Oklahoma: Aside from unions formed before Nov. 1, 1998, common-law marriage has been the subject of conflict between state law and the courts. To be recognized as a qualified common-law marriage, the individuals must prove that they are living together, financially interdependent, not related by blood that would prohibit marriage, and are 18 or older.
• Rhode Island: Both partners must intend to be married and act as if they are married. This means they must live together and present themselves as married to friends and family.
• Texas: Both parties in an informal marriage must consent to be married, live together, and tell others they are married.
• Utah: For a “marriage not solemnized,” both partners must be able to agree to the marriage, and others must know them as a married couple.

Some states have ruled that only those unions that met the state requirements for a common-law marriage by a specified date will be recognized—not those that happened later. Those states and dates are:

• Alabama: Jan. 1, 2017
• Georgia: Jan. 1, 1997
• Idaho: Jan. 1, 1996
• Ohio: Oct. 10, 1991
• Pennsylvania: Jan. 1, 2005. Partners must also exchange vows to be married uttering “words in the present tense, uttered with the view and to establish the relation of husband and wife.”
• South Carolina: South Carolina abolished common-law marriages on July 24, 2019, but recognizes common-law marriages that occurred before that date.

Important

Filing taxes as a legal common-law couple allows partners to take advantage of many tax deductions, including the American Opportunity Tax Credit (AOTC), Child and Dependent Care Tax Credit, Earned Income Tax Credit (EITC), and the Lifetime Learning Credit (LLC).

History of Common-Law Marriage

Common-law unions were prevalent on the European continent in the Middle Ages. The Council of Trent mandated weddings performed by a priest and two witnesses and outlawed them in the Roman Catholic nations.

In October 1855, the concept of a common law marriage was defended at the New York Surrogate’s Court. The case involved the passing of John Tummalty who, though unmarried, had a long-standing relationship with someone in which he did not have a formal ceremonial marriage. The court ruled that society would not benefit if such relationships in which children could be born were no longer considered valid in the eyes of the law.

The U.S. Supreme Court ruled in Meister v. Moore in 1877 that if a state’s law did not specifically prohibit it, a non-ceremonial marriage could be lawful and enforceable.

Are Same-Sex Common-Law Marriages Permitted?

The U.S. Supreme Court’s decision in Obergefell v. Hodges made same-sex marriages legal in 2015. The Respect for Marriage Act passed in 2022 recognized any marriage between two individuals as valid under state law. This federal law creates statutory protections for same-sex marriages, including common-law marriages. Some states, like Pennsylvania, that recognize common-law marriages established by a specific date are retroactively determining if same-sex couples had common-law marriages established before the state’s timeline.

How Do Common-Law Marriages and Civil Unions Differ?

Common-law marriages are different than civil unions. A civil union is a legal relationship between two people that confers rights only on the state level. Civil unions were primarily a way for same-sex couples to have a legally recognized relationship before same-sex marriage became legal in all 50 states after the Supreme Court made its ruling in the 2015 case of Obergefell v. Hodges. Not all states recognize civil unions. Whether a couple is same- or opposite-sex, a civil union provides no right to federal protections or benefits.

Is There Common-Law Marriage in the U.K.?

Many people choose to live with their partners in the United Kingdom just as spouses do after they get married. But there is no definitive law surrounding common-law marriages in England and Wales. Couples in Scotland are able to make limited claims in the event of a separation or death while those in Northern Ireland only have access to legal protection in certain cases.

The Bottom Line

A common law marriage is legally recognized in several states. Couples who meet their states’ requirements are eligible for most of the financial benefits of a married couple, including Social Security and tax benefits.

Reviewed by JeFreda R. Brown
Fact checked by Kirsten Rohrs Schmitt

Many food entrepreneurs, including Martha Stewart, Debbie Fields—the famous Mrs. Fields—and Paul Newman began their food empires in their home kitchens.

For people skilled in cooking and baking, starting businesses in their home kitchens might sound easy enough, since they already have the equipment and ingredients needed to launch. However, owning a home-based food business has its challenges, including legal requirements and costs, which make some entrepreneurs wonder whether selling food from home is worth it.

Key Takeaways

• Those looking to start a home-based food business must look to their state’s cottage food laws.
• Cottage laws dictate what foods the sellers can offer and where they can sell those foods.
• Sellers of food made at home must have food-handler permits, which are typically granted following a brief training course.
• Sellers can’t offer anything that requires refrigeration, due to the risk of food-borne illness.
• Sellers must label products clearly, stating that they were made at home and have not been inspected. 
• Sellers can’t surpass a certain income limit without needing to comply with commercial food manufacturing laws.

Cottage Food Laws

Many states have enacted cottage food laws to create more income-earning opportunities for their residents. Cottage food laws, which are enacted by state legislatures and enforced by local health departments or state departments of agriculture, are designed to eliminate some of the red tape involved in commercial food production and make it easier for home-based businesses to sell food.

However, these laws limit the types of food that home-based entrepreneurs can sell. They also prohibit the amount of money that people can make; entrepreneurs who achieve financial success from their efforts may be required to submit to the same requirements as commercial food businesses.

Cottage food laws vary among the states, and those interested in selling food from home should consult their local laws before launching their businesses.

States also require home-based food business owners to have food handler permits, which typically require a brief training course. Most states charge a nominal fee that covers the course and the permit.

Prohibited Foods and Labeling

In a nutshell, people who sell food that they make at home are prohibited from selling any food that promotes food-borne illness, which typically boils down to foods that require refrigeration. This limits entrepreneurs from selling home favorites such as cheesecakes, ice cream, certain types of pies, and meat, poultry, and dairy products.

People who manufacture food at home can only sell low-risk foods such as coffee and tea blends, dry foods such as granola, chips, and popcorn, baked goods such as bread, cookies, and some cakes, and jams and preserves. Many food items fall within acceptable parameters.

Home-food business owners also must label their products. The labeling requirements are simple and involve including language along the lines of “This product is made at home and has not been inspected.”

Some states limit the places where home-based food manufacturers can sell their goods, which often includes farmers’ markets, roadside stands, and individual consumers. For their safety, home-based food entrepreneurs should carry business insurance.

Note

Coffee, tea, chips, popcorn, muffins, cookies, jams, and honey are among the items, all non-refrigerated, that home-based food entrepreneurs are allowed to sell.

Kitchen Inspections

In most cases, the local health department only inspects a home-based food manufacturer’s kitchen if a consumer makes a complaint.

States also require business owners to have their kitchens inspected if they’re planning to sell food to third parties, such as grocery stores. People who sell food only at farmers’ markets, roadside stands, and directly to consumers should take the normal precautions to keep their kitchens clean.

To pass inspection, people who want to sell food to third parties may need to invest in additional kitchen equipment, such as refrigerators, sinks, and storage areas, at their own expense.

Is It Worth It?

Figures are scant when it comes to determining how much money home-based food business owners make. Some earn a few hundred dollars a month from regular participation in farmers’ markets and from stands that sell popular niche products, while others may earn more money by focusing on festivals and larger events.

It’s important to note that states set limits as to how much home-based food businesses can earn before needing to comply with commercial food manufacturing laws. For example, California has a two-tier system. Tier 1 allows the sale of food at farmers’ markets, festivals, and home deliveries with a sales cap of $75,000. Tier 2 allows for sales at retail outlets and grocery stores with a sales cap of $150,000.

To determine whether it makes financial sense to start manufacturing and selling food from home, a person must start with a solid business plan, itemize the costs of getting into business, and conduct market research.

Can I Sell Food From Home?

Yes, you can sell food from home; however, the rules vary by state. Most states have cottage food laws that specify what kind of food you can sell and where. Some states require food safety training, permits, or kitchen inspections. It’s best to check your specific state’s laws on selling food from home.

Can I Turn My Home Into a Commercial Kitchen?

It is possible to turn your home into a commercial kitchen, however, it will depend on zoning laws. Many residential areas do not allow full-scale commercial operations due to the noise, traffic, and mess they attract. You would most likely need a zoning variance or special permit and it’s possible your neighbors may protest against it. Before you get started, check with your local health department and zoning office to see if it’s even possible.

Which Foods Are Not Regulated by the FDA?

Foods that are not regulated by the Food and Drug Administration (FDA) include meat, poultry, certain processed egg products, and catfish, all of which are regulated by the U.S. Department of Agriculture.

The Bottom Line

Starting a home-based food business can be an enjoyable and rewarding experience, especially if you love cooking. It can also be a great way to make money on the side as many of the initial costs, such as kitchen equipment, have already been purchased.

However, selling food from home comes with many legal and financial challenges. Cottage food laws determine what kind of food can be sold and where. Additionally, while it’s possible to make some profits at farmers’ markets and festivals, larger profits and continued success depend on meeting regulatory laws, research, and obtaining permits.

The first month of January saw a rout in tech stocks, with the Technology Select Sector SPDR Fund (XLK) down 2% year-to-date. Investors were caught off guard on Jan. 27 by the launch of a new free AI assistant from the Chinese startup DeepSeek. The model demonstrated logic and reasoning capabilities on par with market leader ChatGPT, at a fraction of the training and development cost.

Nvidia Corp (NVDA) was hit particularly hard, shedding nearly $600 billion in market cap amid reports that DeepSeek’s model required significantly less graphical processing power to train. While the full impact of the tech sector’s sell-off remains uncertain, it’s clear the AI landscape has been disrupted by DeepSeek’s entry.

Below is an analysis of the top tech stocks for February 2025, screened for best value, fastest growth, and most momentum. All stocks are listed on the Nasdaq or New York Stock Exchange. We excluded stocks with a price under $5, an average daily trading volume of less than 100,000, and a market cap of less than $300 million.

All data are current as of Feb. 3, 2025.

Best-Value Tech Stocks

Value investing is about finding stocks trading below their true worth, with the expectation that the market will eventually correct the mispricing. Investors often use price-to-earnings (P/E) ratio, looking for stocks with a low P/E ratio to uncover value. Typically, a lower P/E ratio signals an undervalued stock because it means the company is valued less than its fundamental value. These stocks may offer a stronger return after the market adjusts.

However, bargain hunters must exercise patience, as it may take multiple quarters (or years) before a turnaround materializes. Some stocks may also remain cheap for a reason, falling into a “value
trap,” continuing to underperform despite appearing undervalued. Moreover, the P/E ratio should not be viewed in isolation. Investors should ask why a stock is trading at a discount to its peers and whether that gap is likely to close due to a business recovery, or the market recognizing the value
opportunity.

• Yiren Digital Ltd: A fintech company based in China, Yiren Digital operates a financial marketplace connecting investors with borrowers. The company offers payment processing, loan services, insurance products, and ecommerce products. Yiren Digital reported a stable third quarter of 2024, with total revenue up 13% year-over-year. Overall, the company continues to ramp up its AI initiatives, deploying new technologies to increase operational efficiency.
• i3 Verticals, Inc: i3 Verticals specializes in developing and acquiring software solutions for the public sector and health care markets. On Dec. 19, i3 Verticals announced the signing of a partnership contract with Saskatchewan Province to provide motor carrier registration services, increasing its public sector presence in Canada.
• Weibo Corporation: Weibo Corporation is a leading social media platform in China. The company generates revenue primarily from advertising and marketing, as well as premium user services. As of September 2024, it had 587 million monthly active users.

Fastest-Growing Tech Stocks

Growth investors look for companies with increasing revenue and earnings per share (EPS), believing these metrics signal strong business fundamentals and potential for value
appreciation. However, relying on just one of these indicators can present an incomplete picture, as factors like tax law changes, mergers, or one-time gains can distort the numbers.

While growth investing offers the potential for high returns, it also comes with risks, such as inflated valuations, market volatility, and companies failing to sustain rapid expansion. Investors should
be cautious of excessive hype, unsustainable growth rates, and external economic factors that could impact performance. For a more balanced assessment, we employ a dual-metric approach. We equally weight the most recent year-over-year (YOY) percentage growth in both revenue and earnings per share (EPS), giving each consideration to provide a clearer view of each company’s true growth trajectory. In addition, we exclude companies that exhibit extraordinarily high growth rates—specifically, those with quarterly growth exceeding 1,000%—since these are outliers not likely on a sustainable trendline.

• Sportradar Group AG: Sportradar Group AG is a global sports technology company that provides data analytics, betting solutions, and media services to sports organizations, media outlets, and sportsbooks. Its core businesses include real-time sports data collection, AI-driven betting and gaming solutions, fan engagement tools, and integrity services that monitor and prevent match-fixing.
• ODDITY Tech Ltd: ODDITY is a consumer tech company leveraging AI and data science to create digital-first beauty and wellness brands, disrupting traditional offline markets. The company currently boasts 50 million users and recently announced the acquisition of the intellectual property and research team of AI fintech company Fionic.
• Applovin Corporation.: AppLovin is an advertising company that helps businesses reach and monetize audiences through its software platform and mobile gaming portfolio. The company operates two segments: Its Software Platform earns revenue by matching advertisers with publishers in real-time auctions, and its Apps business generates revenue through in-app purchases and in-app advertising on free-to-play mobile games.

Tech Stocks With the Most Momentum

Momentum investing is a strategy that seeks to capitalize on existing market trends by investing in stocks that have recently outperformed their peers or the broader market. The core idea is that stocks on an upward trajectory are likely to continue rising as long as the fundamental drivers
behind their growth remain intact.

This strategy is particularly popular in the tech sector, where innovation, product launches, and market disruptions often lead to rapid stock price appreciation. However, investors must carefully monitor stock valuations, as fast-rising stocks often outpace their fundamentals. When valuations become overstretched, they can form speculative bubbles that are vulnerable to sharp selloffs if market sentiment shifts. Here are the tech stocks with the highest total return in the last 12 months.

• Red Cat Holdings, Inc: Red Cat is a drone technology company specializing in integrating robotic hardware and software for military, government, and commercial applications. Owing to strong demand for its military drones, Red Cat guided 2025 revenues in the range of $80 million to $120 million, up from $17.8 million in fiscal 2024.
• Quantum Computing, Inc.: Quantum Computing is an integrated photonics and quantum technology company focused on developing accessible and affordable quantum computing solutions. While there is controversy around the commercial viability of quantum computers, the company has secured significant partnerships, including with NASA, for applications in space missions.
• Exodus Movement, Inc.: Exodus is a financial technology company that provides secure, user-friendly self-custodial cryptocurrency wallets, allowing users to manage, swap, buy, and sell digital assets.

Advantages of Tech Stocks

Growth Potential

Tech companies, especially those in emerging sectors like artificial intelligence, cloud computing, and cybersecurity, often experience rapid revenue and earnings growth. Many tech firms have scalable business models that allow them to expand globally, while maintaining high gross margins.

Innovation

The tech industry is constantly evolving, with companies pioneering groundbreaking innovations that reshape entire industries. Investors in leading tech firms can benefit from major technological shifts, such as AI, and automation, creating long-lasting competitive advantages.

Recurring Revenues

Many tech companies, particularly those in software, cloud computing, and digital services, operate on subscription-based or recurring revenue models, ensuring more stable and predictable cash flows. These models provide businesses with greater revenue visibility, reduce dependence on one-time sales, and enhance customer retention through long-term contracts and service integrations. Additionally, recurring revenue helps mitigate economic downturns by offering consistent income streams, while also enabling companies to reinvest in research, development, and expansion

Disadvantages of Tech Stocks

Volatility

Tech stocks are known for their high volatility because rapid technological changes and competitive pressures can lead to significant price fluctuations. They often carry high valuations based on growth expectations, making them susceptible to market corrections if they fail to meet these
projections. Furthermore, regulatory challenges and geopolitical tensions can impact the sector, introducing additional risks and uncertainties for investors.

Valuation Risks

Owing to their high growth potential, many tech companies trade at high earnings or revenue multiples, making them susceptible to overvaluation. If growth expectations do not materialize, these stocks can experience sharp declines, leading to potential losses for investors. Moreover,
early-stage tech companies often allocate a significant portion of their capital to staffing and marketing to sustain their high growth rates. As a result, they tend to remain unprofitable in their initial stages, often relying on outside capital to fund expansion, despite achieving higher gross margins than companies in non-technology sectors.

Regulatory and Competitive Challenges

The tech industry faces increasing scrutiny from regulators on issues like data privacy,
antitrust concerns, and cybersecurity. Tech giants such as Meta Platforms (META)
and Alphabet Inc (GOOGL) are no strangers to regulatory probes and fines.  Additionally, competition is fierce, with companies constantly innovating to maintain their market position, which can erode profitability and market share over time.

The Bottom Line

Tech stocks offer compelling investment opportunities due to their high growth potential, continuous innovation, and recurring revenue models, making them a dominant force in the global economy. AI is set to be a major driver of technological advancements in 2025, with the potential to
disrupt all major industries. However, the sector can be volatile, with regulatory scrutiny expected to increase along with innovation. Investors should exercise caution, ensuring that even the most promising tech stocks are evaluated critically to avoid getting caught up in market bubbles or
speculative hype.

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 securities.

Reviewed by Charles Potters
Fact checked by Vikki Velasquez

Economic inequality is easy enough to find statistics on, but these are often difficult to parse. For example, politician Bernie Sanders, a vocal campaigner for equality, has provided various data points over the years to get his message across.

Sanders has claimed at rallies, on his campaign website, and elsewhere at various points in time (2014 to 2016) that: The top 1% of the population takes in 23.5% of all of the nation’s income; the top 0.1% of the population controls roughly as much wealth as the bottom 90%; the top 1% accounted for 58% of real income growth from 2009 to 2014, with 42% going to the bottom 99%; and that the United States has the highest child poverty rate among developed countries.

These numbers hop around among the 0.1%, the 1%, and the 90%, and among wealth, income, income growth, and poverty rates. Not all of these variables are necessarily correlated: An American lawyer with student debt might make several hundred times what a Kenyan herder does but have much lower net wealth.

For the purposes of campaigning, this style of presentation is fine; the picture of pervasive unfairness emerges clearly enough. For purposes of comparison across time and space, however, we need a nice, clean headline number.

Of course, any single data point will distort the picture, leaving this out, overemphasizing that, and giving the dangerous impression that life is simpler than it is. So we need to pick the best metric possible.

Key Takeaways

• Inequality in a country is often measured using the Gini coefficient, which shows the share of total wealth or income by population segment.
• A higher Gini coefficient indicates greater inequality, with high-income individuals receiving much larger percentages of the total income of the population.
• Critics of the Gini coefficient argue that it is an imperfect measure, as it ignores the informal economy and flattens distortions in the income distribution, leading to nonintuitive interpretations.
• The Palma ratio, another way to measure inequality, better weights observed income distributions using a simple and easy-to-understand ratio.

“Putting the Gini Back in the Bottle”

For years, the number used to measure inequality has been the Gini coefficient. It’s not hard to see why, given its alluring simplicity: 0 denotes perfect equality, in which everyone’s income—or occasionally, wealth—is the same; 1 denotes perfect inequality, in which a single individual makes all the income (figures above 1 could theoretically result if some people make negative incomes).

The Gini coefficient gives us a single sliding scale to measure income inequality, but what does it actually mean? The answer is off-puttingly complex.

If you plot population percentiles by income on the horizontal axis against cumulative income on the vertical axis, you get something called the Lorenz curve. Take one of these curves, calculate the area beneath it, divide the result by the area beneath the straight line denoting perfect equality, and you have your Gini coefficient—none of which is very intuitive.

Nor is that the only problem with the Gini coefficient. Take a hypothetical society in which the top 10% of the population earns 25% of the total income, and so does the bottom 40%. You get a Gini coefficient of 0.225.

Now, cut the income of the bottom 40% by two-thirds—to 8.3% of the nation’s total income—and give the difference to the top 10%, who now earn 41.7% (the amount earned by the 40% to 90% chunk stays steady).

The Gini coefficient nearly doubles to 0.475. But if the income of the bottom 40% falls by another 45%, to just 4.6% of the total, and all of that lost income once again goes to the top 10%, then the Gini coefficient doesn’t rise all that much—it’s now just 0.532.

Note

Countries with higher Palma ratios face greater economic inequality, impacting poverty, health, and education.

The Palma Ratio

To economists Alex Cobham (chief executive of the United Kingdom’s Tax Justice Network) and Andy Sumner (professor of international development at King’s College London and director of the Economic and Social Research Council’s [ESRC’s] Global Challenges Strategic Research Network on Global Poverty and Inequality Dynamics), the Gini coefficient just doesn’t make much sense.

When the bottom 40% of a population loses half their income, and the richest 10% get dibs, a sensible measure of income inequality should rise more than incrementally.

In 2013, Cobham and Sumner proposed an alternative to the Gini coefficient: the Palma ratio. They named it after José Gabriel Palma, a Chilean economist. Palma noticed that in most countries, the middle class—defined as those in the fifth to ninth income deciles, or the 40% to 90%—takes in around half of the total income.

“The (relative) stability of the income share of the middle is a strikingly consistent finding, for different data sets, countries, and time periods,” Cobham told Investopedia by email. Given that insight, there seems to be little sense in using the Gini ratio, which is sensitive to changes at the middle of the income spectrum but relatively blind to shifts at the extremes.

The Palma ratio divides the income share of the top 10% by that of the bottom 40%. The result is a metric that is, in Cobham and Sumner’s words, “‘over’-sensitive to changes in the distribution at the extremes, rather than in the relatively inert middle.” The table below, from which the hypothetical Gini coefficients above are taken, shows how this effect plays out:

The near-halving of the income of the bottom 40%—and the resulting boost to the income of the richest 10%—causes the Palma ratio to shoot up from 5 to 10, whereas the Gini coefficient ticks up only slightly.

The Palma ratio has another advantage: Its real-world meaning is easy to grasp. It is not the product of statistical wizardry, but simple division: The highest-earning 10% of the population make X times more than the lowest-earning 40%.

The Gini ratio, Cobham and Sumner write, “yields no intuitive statement for a non-technical audience.” The best we can do is something like this: On a scale of 0 to 1, this country is 0.X unequal.

How Is the Palma Ratio Calculated?

The Palma ratio is calculated by dividing the richest 10% of the population’s share of gross national income (GNI) by the share of the poorest 40%.

Why Is the Palma Ratio Considered Better Than the Gini Coefficient?

The richest getting richer and the poorest getting poorer is the main driver of inequality. The Gini coefficient, however, is more sensitive to changes in the middle group, which is where shifts in income less frequently occur. The Palma ratio was developed to remedy this issue by focusing on the differences between those in the top and bottom income brackets.

What Does a High Palma Ratio Mean?

A high Palma ratio indicates higher inequality in a society. It compares the share of income held by the top 10% versus the bottom 40% of earners. A higher ratio shows that the richest 10% disproportionately earn a large share of income, while the poorest 40% earn much less, revealing increased income disparity.

The Bottom Line

So, should we expect the Palma ratio to put “the Gini back in the bottle,” as Cobham and Sumner’s paper put it? Perhaps in time. As Cobham lamented to Investopedia, “Ah, the tyranny of the Gini remains strong!”

Still, it didn’t take long for the Palma ratio to attract some big endorsements. The Organisation for Economic Co-operation and Development (OECD) and the United Nations (U.N.) included it in their databases, and Nobel Prize-winning economist Joseph Stiglitz used it as the basis of a proposal for the Sustainable Development Goals.

Fact checked by Vikki Velasquez
Reviewed by Thomas Brock

A negative, or inverse correlation, between two variables, indicates that one variable increases while the other decreases, and vice versa. This relationship may or may not represent causation between the two variables, but it does describe an observable pattern.

A negative correlation can be contrasted with a positive correlation, which occurs when two variables tend to move in tandem.

Understanding negative correlation is important for investors since including assets in a portfolio that tend to move in opposite directions is key to achieving a well-diversified portfolio.

In fact, it is because some asset classes—for instance, stocks and bonds—tend to exhibit a negative correlation with each other that diversification can increase expected returns while at the same time reducing overall portfolio risk.

Here, we dig deeper into how correlation is calculated and why negatively correlated assets work together to produce a net positive, as opposed to simply canceling each other out, for investors.

Key Takeaways

• A negative correlation occurs between two factors or variables when they consistently move in opposite directions to one another.
• Investors can utilize assets showing negative correlations to reduce the level of risk in their portfolios without harming returns.
• Even though two variables may have a strong negative correlation, this does not necessarily imply that the behavior of one has any causal influence on the other.
• The relationship between two variables can also change over time and may have periods of positive correlation as well.

Understanding Negative Correlation

When two variables are correlated, the relative changes in their values appear to be linked. This pattern may be the result of the same underlying cause or could be pure coincidence. It is thus important to recognize the adage “correlation does not imply causation.” Nevertheless, correlation is an important statistical tool used to measure the strength of a relationship between two or more variables.

This measure is expressed numerically by the correlation coefficient, sometimes denoted by “r” or the Greek letter rho (ρ). The values assigned to the correlation coefficients range from -1.0 and 1.0.

A “perfect” positive correlation of +1.0 would mean that two variables move exactly in lockstep with one another—so if variable A increases by two, so does variable B. A “perfect” negative correlation of -1.0, by contrast, would indicate that the two variables move in opposite directions with equal magnitude—if A increases by two, B decreases by two.

In reality, very few factors are perfectly correlated either way, and the correlation coefficient will fall somewhere within the negative-one-to-one range. Note that a correlation of zero suggests that there is no relationship between two variables and their movements are completely unrelated or random to one another.

Negative correlations occur naturally in many contexts. For instance, as the amount of snowfall increases, fewer drivers appear on the road. Or, as a cow gets older, her milk production drops. As you exercise more, you tend to lose weight. The more cats there are in a neighborhood is related to fewer mice. Negative correlations also appear in the world of economics and finance.

$begin{aligned}&r=frac{sum(X-overline{X})(Y-overline{Y})}{sqrt{sum(X-overline{X})^2}sqrt{(Y-overline{Y})^2}}\&textbf{where:}\&r=text{The correlation coefficient}\&overline{X}=text{The average of observations}\&qquadtext{ of variable }X\&overline{Y}=text{The average of observations}\&qquadtext{ of variable }Yend{aligned}$​r=∑(X−X)2​(Y−Y)2​∑(X−X)(Y−Y)​where:r=The correlation coefficientX=The average of observations of variable XY=The average of observations of variable Y​

How Investors Use Correlations

Investors can appreciate the concept of negative correlation simply by identifying two stocks that appear to be negatively correlated.

For instance, if stock A tends to fall when stock B rises, an investor who owns both shares would see the losses in one offset by gains in the other. The two stocks may be negatively correlated because they experience some negative feedback from one another directly, or because they react differently to the same external stimuli.

In the first case, imagine two competitors, such as Coca-Cola and PepsiCo. Because these two firms are locked in a perpetual battle for market share in the beverages sector, what is good for Coca-Cola may necessarily be bad news for Pepsi and vice versa.

A great new product by Pepsi may boost its share price while Coke falls. Therefore, close competitors in highly competitive markets may have a negative correlation.

In the second case, the two stocks may naturally react to the same external or indirect cause in an opposite fashion. For instance, financial stocks such as banks or insurance companies tend to get a boost when interest rates rise, while the real estate and utilities sectors get hit particularly hard given the same news.

Many investors study correlations between stocks, as well as between industries, geographies, and asset types. For example, an investor in oil might hedge a portfolio with stocks in airlines. The two industries have a negative correlation.

When oil prices slide, airline stocks rise. Adding more negatively correlated assets to a portfolio is the foundation of the concept of diversification. Modern portfolio theory (MPT), the formative theory behind portfolio diversification, points out that combining risky assets does not necessarily dictate that the overall portfolio risk will increase so long as there are negative correlations among them.

Important

A correlation may or may not be meaningful. Many complex factors could be in play, and the observed correlation could end up being spurious.

Negative Correlation Between Stocks and Bonds

One of the most widely recognized negative correlations among asset classes is that of stocks and bonds. Traditionally, financial experts have recommended owning both stocks and bonds with weights that vary with investment goals, time horizon, and risk tolerance. The reason behind holding both stocks and bonds is that when stocks fall, bonds tend to rise. This generates a risk reduction through diversification.

Why are stocks and bonds thought to be negatively correlated? The theory posits that inflation, which is a general rise in prices, benefits stock prices because increased costs will be passed on to consumers and translate into greater nominal profits.

Bonds, on the other hand, which often pay a fixed interest rate, will see the value of those coupon payments erode with inflation, making them less valuable.

Moreover, the amount initially invested in a long-term bond, known as the principal, will have less purchasing power when it is returned several years from now than it is today. As a result, inflation plays an important role in understanding the relationship between stock and bond prices.

Note

While computing correlation can be time-consuming, you can calculate it easily with software like Excel.

A second reason has to do with relative riskiness. Bonds are often seen as less volatile and more conservative, in general, than stocks. If investors feel that stocks are overbought or the economy is shaky and a selloff is likely, they may shift funds out of riskier assets like stocks and invest that money in bonds. This is known as “flight to safety,” where selling pressure in stocks accelerates downward prices while bonds get bid up.

Researchers looking at the price relationship between stocks and bonds, however, suggest the assumed negative correlation is not so straightforward and could be merely an illusion.

Empirical research looking at the historical movement of the two asset classes shows that there are periods of negative correlation, but mostly, they are positively correlated. Research looking as far back as 1926, in fact, shows that the stock/bond correlation has been positive for the vast majority of the time, with just three significant periods of negative correlation: 1929 to 1932, 1956 to 1965, and 1998 to 2003.

Negative Correlations and Forex Trading

The foreign exchange, or forex market, involves trading currencies that are priced in pairs. As such, no single pair trades completely independently of the others. Once you are aware of the correlations among and between different currencies and how they change, you can use them to your advantage.

The reason for the interdependence of currency pairs has a lot to do with the nature of international trade and global financial flows. Countries with large trade deficits have currencies that tend to be negatively correlated with countries showing a surplus. Likewise, the currencies of commodity-rich exporters will often be negatively correlated with countries that rely heavily on imports.

Negative Correlations and Business Management

In business, negative correlations can be identified by management as a way to naturally offset the risks of doing business. These are known as natural hedges. Executives may also look at existing relationships, such as between marketing expenditures and sales, as part of market analysis.

For example, if an expensive marketing campaign is met with declining sales, it could signal that the marketing is backfiring or alienating customers, and should be reconsidered. However, correlations should not be too quickly interpreted as evidence of one variable causing a change in another variable. Business environments often present highly complex causes and correlations that may or may not be meaningful.

What Does Negative Correlation Mean?

A negative correlation describes an inverse relationship between two factors or variables. For instance, X and Y would be negatively correlated if the price of X typically goes up when Y falls, and Y goes up when X falls.

What Is an Example of Negative Correlation?

In addition to the examples provided above, an often-cited example of a negative correlation is between the U.S. dollar and gold. As the U.S. dollar depreciates against major currencies or due to inflation, the dollar price of gold is generally observed to rise; and as the U.S. dollar appreciates, gold declines in price. This is why gold is considered a good hedge against inflation.

What Is Meant by Positive or Negative Correlation?

A positive correlation would be the opposite type of relationship to a negative correlation. In other words, X and Y would be positively correlated if they both rise together or fall together. Note that correlations can and often do change over time, and the fact that X and Y are positively correlated now does not mean they will remain so. They may become negatively correlated in the future.

What Is Considered a Weak Negative Correlation?

The strength of a correlation relationship is quantified by its correlation coefficient, the strongest possible being “perfectly” correlated. A perfect negative correlation has a value of -1.0 and indicates that when X increases by z units, Y decreases by exactly z, and vice versa. In general, -1.0 to -0.70 suggests a strong negative correlation, -0.50 a moderate negative relationship, and -0.30 a weak correlation.

Remember that even though two variables may have a very strong negative correlation, this observation by itself does not demonstrate a cause-and-effect relationship between the two.

The Bottom Line

Negative correlations describe a relationship between factors that move in opposite directions. While negative correlations occur in several contexts, they are particularly of interest in the financial world since negatively correlated assets are fundamental to portfolio diversification and risk reduction strategies.

Even though inverse relationships may persist, correlation does not necessarily mean causation. Furthermore, correlations tend to shift and change in both strength and direction over time.

Fact checked by Kirsten Rohrs Schmitt
Reviewed by Andy Smith

In 1958, Cuba was an investment powerhouse. Their workers were paid the eighth highest wages in the world, and the country’s per-capita income exceeded that of Austria and Japan. It was such a hot expat destination that more Americans lived there than Cubans in America.

Cuba’s investment landscape remains a subject of intense debate, balancing untapped potential against systemic challenges. Let’s explore the current situation and what it means for investors through several key aspects.

Key Takeaways

• Cuba’s socialist economic model prioritizes state control but is cautiously opening up to foreign investment, especially in sectors like tourism, renewable energy, and agriculture.
• The embargo put in place back in the 1960’s is still in place.
• Cuba’s demographic challenges include a growing elderly population and emigration, meaning it could be tough for future businesses to find adequate labor.
• The 2020s brought economic difficulties, including inflation and a downturn in tourism.
• Cuba remains a subject of debate, with untapped potential and systemic challenges, making it a high-risk investment destination.

Understanding Cuba

Cuba’s socialist economic model, shaped by decades of U.S. sanctions, prioritizes state control over key industries while cautiously opening to foreign investment. For example, the 2014 Foreign Investment Act underscores this dual approach, aiming to attract capital while maintaining sovereignty. The law emphasizes sectors like renewable energy, agriculture, and tourism to drive export growth, import substitution, and technological advancement – all desirable traits in a country worth investing in.

Demographic challenges persist, however. As of a 2022 survey by CEDA, over 20% of the population is aged 60+, meaning there’s a potentially depleting workforce. Consider future implications for Cuba as well in light of broader significant emigration having impacts on labor markets as well.

The U.S. Embargo

The U.S. embargo on Cuba began in the 1960s after Fidel Castro’s communist government took power, with restrictions on trade, travel, and financial transactions. Over time, the embargo became a central aspect of U.S.-Cuba relations, impacting Cuba’s economy and limiting its access to international markets.

In the 1990s, laws like the Helms-Burton Act strengthened the embargo, codifying the restrictions and demanding Cuba move toward democracy and a market economy before sanctions could be lifted. Despite some periods of diplomatic thawing, especially under President Obama, the embargo has remained largely in place, with certain exceptions for food, medicine, and humanitarian aid.

While U.S. policy has fluctuated over the years, the embargo continues to hinder Cuba’s economic growth by restricting foreign investments, trade, and access to resources. These sanctions are a major obstacle to Cuba’s ability to integrate into the global economy and to raise capital for modernization or expansion.

Inflation and Tourism

Cuba’s economy has gone through a lot at the start of the 2020’s. For starters, it’s country was hit hard by the pandemic. Cuba’s economy contracted by 10.9% in 2020 due to COVID-19, U.S. sanctions, and structural imbalances. Note that immediately following the pandemic, some experts were optimistic, citing growth for 2021. The country’s growth did happen, with GDP in 2022 growing 2.0%.

However, there’s an incredibly unfortunate downside here. Much like how the United States faced inflation due to eased monetary and fiscal policy in response to the pandemic, Cuba’s inflation has fared much, much worse. Their inflation was more than four times worse than the United States in 2022, reaching a peak of over 39%. Note that this isn’t even the worst of it, as Cuba reported year-over-year inflation of over 77% in 2021.

Since the return from the pandemic, Cuba, like much of the rest of the world, has struggled to operationally get “back to normal”. For example, tourism, a critical revenue source, rebounded to 1.97 million visitors in 2023, below pre-pandemic levels. Things looked almost as bad in a more functioning society in 2024. Though Cuba’s tourism numbers increased to 2.7 million visitors, this was still below the 2022 numbers. It also experienced a decrease in international visitors from the year prior.

Potential Investment Sectors

There are some promising areas of Cuba to explore for investment. For example:

• Renewable Energy: Cuba’s 2030 Energy Transition Plan aims for 24% renewable electricity generation through solar, wind, and biomass projects. One of the main areas of this plan is through the External Investment Law, which is a regulatory framework meant to expedite the deployment of capital towards this goal.
• Agriculture: The elimination of the ration book system signals a shift toward private food markets. In addition, the rise of tropical storms has presented logistical challenges to Cuba’s farms. You could speculate that there are opportunities in organic farming and increased crop yield technologies.
• Biotechnology: State-owned BioCubaFarma received private funding from foreign partners such as Russia for vaccine production and medical exports. The idea behind this investment was to “bring market innovation medicines against the most complex types of diseases.”

Note

On January 21, 2025, President Donald Trump revoked former President Joe Biden’s removal of Cuba from the country’s list of state sponsors of terrorism. The move highlights potential future tension between the U.S. and Cuba.

Risks and Challenges

The investment landscape in Cuba is fraught with significant challenges, primary among them being the ongoing U.S. sanctions. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) maintains strict prohibitions on U.S. persons engaging in business with Cuba without specific authorization. According to OFAC’s Cuban Assets Control Regulations, most transactions between U.S. persons and Cuba remain prohibited, with violations carrying severe penalties.

Currency instability presents another major hurdle for potential investors. Earlier we discussed Cuba’s inflation issue. Though Cuba is undergoing monetary reform, the Central Bank of Cuba’s 2021 Monetary Reform eliminated the Cuban Convertible Peso. Ths means Cuba has just one sole currency, though that still left the country with a materially divergent exchange rate. It may be some until Cuba sees more reasonable economic stability on that front.

Infrastructure deficits also pose substantial operational challenges. In some major cities, only 18% of roads were maintained in 2023, and road maintenance was slated to drop to just 10% in 2024. These potential bottlenecks could impede efficient business operations in local companies. This is also important in the context that roughly half of Cuba’s roads are paved; though sufficient for today’s usage, it may be able to handle accelerated traffic due to economic expansion.

Is It Time to Invest in Cuba?

Investing in Cuba is risky due to its economic challenges, political instability, and the ongoing U.S. embargo. However, with Cuba’s gradual economic opening and potential in sectors like tourism and renewable energy, it may present opportunities for long-term investors willing to navigate its complex environment.

What Is the Current State of Cuba’s Economy?

Cuba’s economy has faced significant challenges due to long-standing trade restrictions, limited access to foreign markets, and a reliance on state-controlled industries. While there has been some gradual opening to private enterprise and tourism, the country’s economic growth remains constrained and it’s currency continues to devalue.

What Are the Key Sectors Driving Cuba’s Economy?

Tourism, healthcare, and biotechnology are key sectors driving Cuba’s economy. Tourism brings in much-needed foreign currency, while healthcare and biotech industries, despite limited resources, are highly regarded for their achievements in medical research and services. Agriculture also plays a role, though it faces productivity challenges primarily due to harsh, unpredictable natural disasters.

The Bottom Line

If you do choose to invest, it could be wise to limit exposure. Cuba’s significant risks, not to mention the politics that are involved, make Cuban investment speculative at best. This could mean impressive returns if you’re right, though consider the risk you’re taking on should you chose to invest in Cuba.

Procurement and access to financing are two barriers that minority owners face

Reviewed by JeFreda R. Brown

Small business contract discrimination refers to the notable disparity in the number of government contracts that go to minority- and women-owned businesses compared with other small businesses.

Government contracts represent a significant source of income for small businesses. The U.S. government has made it a priority to send federal contracts to small businesses since the second half of the 20th century. And the amount of money spent on government contracts is increasing.

Reports have suggested that differences in contracts received can be attributed to outright discrimination or structural access to capital that aids some firms over others in competing for these contracts. The government has attempted to decrease these disparities through affirmative action programs, but it is unclear how successful the programs have been, and court rulings have narrowed their scope.

Transparency has also been an issue. It wasn’t until 2021 that the U.S. government started disclosing racial and ethnic breakdowns of the business owners who win contract awards. And the large companies that win the big government contracts continue to not disclose the smaller firms they call upon to help them out.

Key Takeaways

• In the United States, federal, state, and local governments represent significant sources of procurement contracts for small businesses, especially since the second half of the 20th century.
• Some studies have suggested that minority-owned businesses have received a smaller proportion of those contracts than one would expect.
• Barriers that affect small business discrimination include the actual procurement of contracts and limited access to financing.

Federal Contracts

When the government purchases goods and services from private businesses, it is called procurement. In the United States, this type of contract spending is increasing.

In fiscal year 2023, the federal government spent about $759 billion on contracts, an increase of about $33 billion from fiscal year 2022 after adjusting for inflation and a big jump on the $586 billion spent in fiscal year 2019, according to figures from the U.S. Government Accountability Office (GAO). Of that sum, $171.5 billion went to small businesses.

It is an explicit goal of the government to move a portion of its expenditures into small businesses. The federal government, for example, automatically sets aside most contracts under $150,000 for small businesses. Moreover, since the end of the 20th century, much of government expenditure has been spent on contractors rather than on employees. Consequently, a significant chunk of governmental budgetary expenses goes to small businesses.

However, a disproportionately smaller percentage of this federal money finds its way to minority-owned businesses. According to the U.S. Small Business Administration and government, about 10% of all annual federal contracting dollars go to small disadvantaged businesses. Until recently, the government had a target of 5%. In other words, minority-owned businesses receive a smaller share of government contracts than the proportion of the population that they represent.

The government is trying to address this issue, with the Biden administration claiming to prioritize giving more contracts to small disadvantaged businesses. However, it still has a long way to go to meet its 2025 target.

50%

The share of contracts the government wants to go to small disadvantaged businesses by 2025.

Shortly after former President Joe Biden issued an executive order on advancing equity, the federal government revealed just over 1.6% of the budget allocated to federal contracts for small businesses was awarded to Black-owned small businesses and just under 1.8% to Latino- or Hispanic-owned small businesses.

State and Local Contracts

State and local governments also represent a significant source of contracting money for small businesses. In 1990, for instance, procurement at all government levels was at $450 billion, or 10% of the U.S. gross national product (GNP). State and local government made up about $250 billion of that total.

Localities are also subject to allegations of discrimination. In December 2020, for instance, the Civil Rights Division of the U.S. Department of Justice opened an investigation to determine whether procurement practices in Kansas City, Missouri, were discriminatory and violated the Civil Rights Act.

In Boston, Massachusetts, a 2021 study commissioned by Mayor Martin J. Walsh’s office showed that only 1.2% of the city’s $2.2 billion in procurements from 2014 to 2019 went to Black- or Latinx-owned businesses, triggering federal civil rights complaints. Note that in fiscal year 2023, Boston had awarded 14% of their contracts (in dollars) to these demographics – a 133% increase in the amount of awards from when the study has originally been procured. For certain demographics, Boston further increased contracting with minority demographics in fiscal year 2024.

D.C. government agencies have also been accused of discrimination. Research spanning several years showed they have been allocating funds to person of color- and woman-owned businesses. However, those funds weren’t distributed fairly and went to a relatively small number of firms.

Research shows that state and local discrimination in procurement is long-standing. A 1997 Urban Institute study found that members of minority groups received a disproportionately small share of government contracts.

The study, which looked at rates among local and state contracts, concluded that disparities existed for Black-, Latinx-, Asian-, Native American-, and women-owned firms across all industries that the study examined—construction, goods, professional services, and other services, with the exception of construction subcontracting, which showed a relatively small disparity.

The study revealed that minority-owned firms received just 57 cents out of every dollar in government contracts they would have expected to see.

1.2%

Since the very discouraging report about diversity contracting, Boston implemented a comprehensive strategy to boost minority- and women-owned business participation in city contracts. ,This included streamlining procurement processes, reserving specific contracts, and launching a business accelerator program..

Federal Regulations

Government contracting is subject to the anti-discriminatory laws that apply to private contracts, and federal contracting is also regulated heavily by Congress.

The U.S. Congress has made investing in small businesses a priority since the 20th century. Shortages during World War II and the Korean War led to the creation of the current regulatory framework.

In 1953, during the Dwight D. Eisenhower administration, Congress passed the Small Business Act, which led to the creation of the Small Business Administration (SBA). To promote free trade, Congress set out to give a “fair proportion” of federal contracts and subcontracts to small businesses in the United States. There is generally bipartisan support for this sort of program.

Congress also created the Small Disadvantaged Business and the Women-Owned Small Business programs to encourage fair contracting across race and gender. And the Small Business Reauthorization Act of 2000 created an Office of Advocacy in the SBA, which looked to strengthen minority- and women-owned businesses and guarantee limited small business loans.

According to the SBA, the federal government’s goal is to award at least 5% of all federal contracting dollars to women-owned small businesses (WOSB) each year. Small disadvantaged businesses (SDBs) can also get a better shot at winning contracts. To qualify:

• The business must be 51% or more owned and controlled by one or more disadvantaged persons.
• The disadvantaged person or people must be socially disadvantaged and economically disadvantaged.
• The firm must be small, according to the SBA’s size standards.

Businesses that sign up will be identified as SDBs or WOSBs, which, according to the SBA, increases their chance of winning contracts.

Important

Certain federal contracts are allocated specifically to small businesses owned by minorities or women in a bid to try and level the playing field.

Affirmative Action

Local, state, and federal governments have attempted to correct disparities through affirmative action programs.

Affirmative action dates back to the John F. Kennedy administration’s Executive Order 10925, which tried to free projects connected to federal funds from racial discrimination. That executive order established the President’s Committee on Equal Employment Opportunity. Since the 1964 Civil Rights Act, discrimination based on race and sex has been illegal.

A 1965 order from the Lyndon B. Johnson administration, Executive Order 11246, required federal contractors to document steps to encourage hiring equality. It was expanded in 1967 to include gender-based equality. Johnson’s order took the question out of committees and handed it to the secretary of labor, giving it to a Cabinet-level official with the authority to enforce equal opportunity, which led to the creation of the Office of Federal Contract Compliance.

President Barack Obama’s 2014 amendments to the order sought to make gender pay disparities easier to spot by increasing wage transparency and to include lesbian, gay, bisexual, and transgender employees under the order’s protections.

President Biden pledged to adopt a broad “racial equity agenda” and expand opportunities for minorities to win more government contracts. However, these efforts have been coming under attack.

For example, in 2024. a judge in Texas ordered a federal agency created to help minority-owned businesses to open its doors to all races. This ruling suggests Blacks, Latinos, and other minorities shouldn’t be presumed disadvantaged and marked another defeat for affirmative action, which has been coming under increasing pressure from conservative groups.

Important

Affirmative action has become an area of heated controversy, involving multiple high-profile court cases and executive actions.

Since Johnson’s time, the scope of affirmative action programs has been limited by court cases, including Regents of the University of California v. Bakke (1978) and the City of Richmond v. Croson (1989), which labeled affirmative action a “highly suspect tool” in combating disparity in state- and local-run programs.

The 1997 Urban Institute study mentioned above suggested that, where present, affirmative action has reduced but not eliminated disparities in contract awards.

Continuing Sources of Discrimination

Discrimination has historically fallen into two broad categories: that which affects the growth or formation of a firm, and that which affects the ability of those firms to participate in the government contracting process.

Businesses owned by women and minorities have less access to capital that can be used to finance or grow a firm. Minority-owned businesses, for instance, have had less access to loans.

In a 2010 congressional hearing, Chair for the Subcommittee on Government Management, Organization, and Procurement Diane E. Watson identified three main sources of discrimination in these processes.

Minority-owned businesses face “ongoing and persistent” discrimination in contract awards, she said. They also face structural barriers, such as access to financing, bonding, and resistance from trade unions. Finally, court decisions that restrict the scope and purpose of minority contracting harm the ability of these firms to compete for contracts.

What Is Discrimination?

Discrimination is treating a person or group of people unfairly because of their race, gender, age, sexual orientation, religion, social background, and so forth.

What Is the U.S. Government Agency That Assists the Small Business?

The Small Business Administration (SBA) was created in 1953 to help small businesses grow.

What Is Considered a Small Business by the U.S. Government?

The SBA defines small businesses by revenue (from $1 million to over $40 million) and the number of employees it has (from 100 to over 1,500). Thresholds vary depending on the industry.

The Bottom Line

Governments have been pledging for years to level the playing field of federal contracts, giving small businesses a bigger chance of winning them and particularly those small businesses owned by minorities and women. However, despite notable progress, many of these businesses are still being marginalized and struggling to compete, partly because of limited access to capital and structural discrimination.

Reviewed by Margaret James
Fact checked by Michael Logan

What Is a Non-Governmental Organization (NGO)?

A non-governmental organization (NGO) is a mission-driven organization that operates independently of the government. Also known as a civil society organization, an NGO may be established at the community, national, or international level to serve a cause, such as protecting the environment.

Most are non-profits, and some receive government funding.

Key Takeaways

• NGOs, or non-governmental organizations, play a major role in international development, aid, and philanthropy.
• NGOs are often non-profit and may run budgets of millions or billions of dollars each year.
• NGOs rely on a variety of funding sources, from private donations and membership dues to government grants.
• Advocacy NGOs work to influence public policy.
• Some well-known NGOs include the American Red Cross, the Salvation Army, and Amnesty International.

Types of Non-Governmental Organizations (NGOs)

The term NGO is generally accepted to refer to usually non-profit, private organizations that operate outside of government control. Some NGOs rely primarily on volunteers while others support a paid staff. The World Bank identifies two broad groups of NGOs.

• Operational NGOs, which focus on the design and implementation of development projects
• Advocacy NGOs, which defend or promote a specific cause and seek to influence public policy

Some NGOs may fall under both categories simultaneously.

Note

There are about 1.5 million NGOs operating in the U.S.

How NGOs Work

According to the U.S. State Department, U.S. regulations were created to assist in the formation of NGOs.

NGOs focus on a wide range of issues and areas. These might include women’s rights, the environment, healthcare, political advocacy, labor unions, religious faith, care of aging adults, and youth empowerment.

While the government is not involved in the activities of NGOs, U.S. law normally regulates them via their filing of information returns that show an NGO’s funding, management, and activities.

Forming an NGO

Any group of people may form an NGO without government approval or involvement. In addition, one need not be a U.S. citizen to form an NGO in the U.S. However, should an NGO wish to obtain legal benefits such as exemption from state and federal taxes, it should incorporate and register as an NGO under the relevant laws of the state in which it’s located.

An NGO doesn’t have to incorporate. For instance, to form a charitable NGO, all that’s required (as is for any charitable trust) is a legal contract and deed that conveys property.

While no federal government involvement comes into play, states in the U.S. may require NGOs with religious, educational, or charitable missions that ask for donations to register with a state charity.

Tax-Exempt Status

To obtain tax-exempt status, an NGO must apply to the U.S. Internal Revenue Service (IRS). Many types of NGOs are eligible.

Non-profit NGOs are welcome to apply for exemption from federal income tax. For state tax exemption, NGOs should apply to a state’s tax authority.

NGOs that engage in political activities may receive some tax benefits for the income they receive from the public, membership dues, and fundraising events.

Contributions to NGOs may be tax-deductible for donors.

NGOs may be subject to certain IRS restrictions and rules.

How Are NGOs Funded?

NGOs rely on a variety of sources for funding, including:

• Membership dues
• Private donations from individuals, businesses, and philanthropic organizations
• The sale of goods and services
• Grants
• Funding from foreign governments and organizations

Despite their independence from governments, some NGOs rely on government funding. 

Large NGOs may have budgets in the millions or billions of dollars.

Important

Federal and state governments may not make decisions about whether to grant or revoke an NGO’s tax-exempt status based on their opinions of the NGO’s value or mission.

Variations of NGOs

There are many variations of the NGO acronym.

• INGO: An INGO is an international NGO. For example, the Conference of INGOs of the Council of Europe is comprised of more than 300 participating INGOs.
• QUANGO: A QUANGO is a quasi-autonomous non-governmental organization that relies on public funding. Its senior officials are appointed by the government.
• ENGO: An ENGO is an environmental NGO. Examples include Greenpeace and the World Wildlife Fund.

What Is an Example of a Non-Governmental Organization?

The American Red Cross is a well-known NGO, as is Greenpeace.

How Does an NGO Work?

An NGO can be formed by any group of people that wants to carry out a mission in the public interest. They can have staff or volunteers, and operate with a range of budgets. They work independently of the government, but may receive government funding. They can be non-profit, and usually are.

What Is the Difference Between an NGO and an NPO?

NGO stands for non-governmental organization. NPO stands for non-profit organization. A non-profit organization returns any profits it makes to the organization to pay expenses and salaries and further its goals. It doesn’t pay out profits to shareholders or owners. It isn’t a business that exists to make a profit. Some NGOs may be NPOs. Not all NPOs are NGOs.

The Bottom Line

Non-governmental organizations (NGOs) work towards a mission on local, national, and international levels. They work outside the frame of the government, are usually not-for-profit, and can obtain tax-exempt status if they meet certain criteria.

Companies are becoming more diverse, slowly

Reviewed by Samantha Silberstein

Many of America’s leading companies are increasingly focusing on racial equity. However, there’s a noticeable scarcity of executives from underrepresented groups at the helm of these prominent organizations. Experts frequently point out that these companies struggle to identify and nurture young talent, or to effectively assist their team members in progressing through the ranks of management.

Key Takeaways

• Eight Black chief executive officers (CEOs) led companies on Fortune 500 ranking, only accounting for less than 2% of companies in the S&P 500.
• While boardrooms are only slightly more diverse than top management, the number of Black directors increased after the death of George Floyd.
• Research indicates that diversity in the workplace offers numerous benefits to organizations, including increased profitability, enhanced creativity, stronger governance, and improved problem-solving abilities.

Diversity Efforts

Consumer brands are often accused of sidestepping controversy. But several assumed an advocacy role in the wake of George Floyd’s killing in 2020. Nike ran a video on social media in which the apparel giant asked the audience not to “pretend there’s not a problem in America.”

Meanwhile, Amazon pledged $10 million to nonprofits focusing on “justice and equity.” Employee donations—and the company’s 100% match—raised an additional $17 million. In total, the Amazon community gave $27 million to 12 organizations that the Black Employee Network (BEN) helped choose.

Internally, many organizations are making a concerted effort to diversify their ranks. For example, a 2024 report from executive recruiting firm Crist|Kolder Associates, which examined 671 S&P 500 and Fortune 500 companies, found that:

• In the past decade, the representation of women and racially or ethnically diverse individuals in CEO and CFO positions at large companies has seen significant growth. The number of women and racially or ethnically diverse CEOs has more than doubled, and the number of racially or ethnically diverse CFOs has more than tripled.
• In 2023, women represented 9.7% of sitting CEOs and 17.6% of CFOs, while 13.5% of CEOs and 14.9% of CFOs are racially or ethnically diverse.
• As of 2024, there are 66 female CEOs in all Fortune 500 and S&P 500 companies, up from 32 in 2014; there are 92 ethnically diverse CEOs, a significant increase from 41 in 2014.
• In the study of 674 companies, an all-time high of 99 CFO positions, or 15% of the total, are held by people of color. This includes 9.9% by Asian-Americans, 2.4% by Hispanic individuals, and 2.6% by African Americans.

Race and Power in the Fortune 500

CEOs

Despite Latinx and Hispanic individuals being the largest racial or ethnic minority group in the United States, making up 19.1% of the population according to the latest U.S. Census Bureau data, the Crist|Kolder Associates report shows 26 Latinx/Hispanic CEOs in 2024, down one from 27 in 2023, but up four from 22 in 2022.

And while Black people make up about 13.6% of the country, only 11 were CEOs in 2024, down from 12 in 2023 but up from 8 in 2022. Of the racial and ethnic minority groups, Asian Americans, who comprise 6.3% of the U.S. population, had the most representation at the CEO level: 55 during 2024, up from 50 in 2023, and 42 in 2022.

While the latest report highlights ongoing underrepresentation, it also underscores a positive trend in diversity among corporate leadership. From 2014 to 2024, the representation of Latinx/Hispanic CEOs in the studied companies has significantly increased, doubling from 12 to 26. Similarly, the number of Asian American CEOs has risen from 23 to 55 in that timeframe. The number of Black CEOs has also almost doubled from 6 in 2014 to 11 in 2024, albeit at much smaller numbers.

This chart shows the number of companies with ethnically and racially diverse CEOs from 2014 to 2024:

Boardrooms

And what about the boardrooms that help steer these enormously influential companies? Racial and ethnic minority populations are somewhat better represented, although in most cases, they still bear little resemblance to the customers served by these companies. Of course, the addition of new directors from underrepresented groups is hampered by persistently low boardroom turnover.

The 2024 S&P 500 New Director and Diversity Snapshot from Spencer Stuart, a leadership consulting firm based in Chicago, looked at the latest proxy statements from 489 companies filed between May 1, 2023, and April 30, 2024. According to the report:

• 58% of the new directors appointed are diverse, defined as individuals who self-identify as female and/or underrepresented minorities (including Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or two or more races or ethnicities), and/or LGBTQ+. This decreased from 67% in 2023 to 72% in 2022.
• 42% of new directors were women, a slight decrease from 46% in 2023 but a 40% increase over the past decade.
• While diversity overall has increased, the number of new directors who self-identify as underrepresented minorities has dropped to 26% in 2024 from 36% in 2023.

Also note that there has been an increase in the transparency of diversity reporting. Nearly all S&P 500 boards (99%) disclose their gender balance, and 99% disclose their composition relating to underrepresented minorities. And 58% of boards disclosed a Rooney Rule-type commitment to include diverse candidates in their searches, indicating a strong focus on enhancing diversity in board recruitment processes.

Smaller Companies

At smaller companies, members of racial and ethnic minority groups are more likely to be in key leadership positions. Still, the data here again suggests a long way to go before America reaches something resembling racial equity.

In 2024, the U.S. Bureau of Labor Statistics reported that Latinx/Hispanic individuals held 6.1% of chief executive positions across the economy. Black executives also accounted for 6.1% of these roles. Asian American executives, representing 6.4% of top leadership positions, now slightly exceed their proportion of the U.S. population, marking a shift from previous years where their representation was closer to their demographic share.

The Elusive Quest for Diversity

For diversity advocates, there are some recent signs of progress at the boardroom level, in no small part due to the national discussion of racial disparities in the wake of Floyd’s murder in 2020 and the rise of the Black Lives Matter movement. 

For example, a group of Silicon Valley leaders launched The Board Challenge, which calls for companies to appoint a Black director within the next year. And Institutional Shareholder Services, an influential advisory firm, announced that its research reports would start calling out large companies “that lack racial and ethnic diversity.”

Efforts like these seem to be bearing fruit. The recruiting platform BoardProspects reported that companies in the Russell 3000 index named 130 Black directors in the five months following Floyd’s death. In the five months prior, they only hired 38.

The question is whether such progress will be sustained over time. While changing the look of boardrooms is important and challenging, tackling the lack of minority leadership in the C-suite is an even bigger hurdle. Experts say most companies simply lack a strong pipeline that delivers Black, Latinx/Hispanic, and Asian American executives to top leadership positions.

Or perhaps companies just don’t look hard enough. “There is no shortage of minority candidates who can compete for these jobs,” Dick Parsons, former CEO of Time Warner and chairman of Citigroup, told USA Today. “It’s not that they get overlooked. They don’t get looked period.”

Minority group members who find employment at top firms report pervasive biases hindering their advancement. For example, a recent survey by McKinsey & Co. found that minority employees were more likely to report being excluded from social activities with co-workers or having to correct false assumptions that colleagues made about their personal lives.

Business Benefits of Diverse Leadership

Greater equity does more than keep stakeholders happy—it can also improve the bottom line, according to a body of research on the subject. For example, a separate analysis by McKinsey found that companies in the top quartile for gender diversity on executive teams were 25% more likely to achieve above-average profitability, and those in the top quartile for ethnic and cultural diversity outperformed their peers by 36% in profitability.

Additionally, a study by Boston Consulting Group concluded that greater minority representation at the top also leads to more innovation. Companies with above-average diversity in their management teams generated significantly more income from products launched within the past three years than less diversified companies. “People with different backgrounds and experiences often see the same problem in different ways and come up with different solutions, increasing the odds that one of those solutions will be a hit,” the authors noted.

How Many Women Are Fortune 500 CEOs?

The number of women running businesses on the Fortune 500 list hit 52 in 2024. Some view the 69-year-old Fortune 500 list as a barometer for leadership diversity in the country’s largest companies. While 52 is a record, it still means that just over 10% of Fortune 500 companies have women at the helm.

Does Diversity Help Companies?

Yes, the benefits of a diverse workforce are increasingly recognized and supported by recent findings. Companies with diverse executive teams are more likely to outperform their less diverse peers in terms of profitability and demonstrate higher levels of innovation and employee satisfaction. Workplaces that are committed to diversity and inclusion also experience lower turnover rates and are better positioned to attract top talent.

What Is Diversity, Equity, and Inclusion?

Diversity, equity, and inclusion (abbreviated as DE&I or DEI) refers to programs and policies that encourage participation and representation from diverse groups. DEI aims to hire a diverse workforce, give workers a voice, and include workers in business happenings.

Specifically, diversity refers to the numerous ways that people differ, such as race, ethnicity, nationality, age, gender identity, physical ability, mental ability, socioeconomic status, experience, and education (among others). Equity means creating a level playing field through fair access and opportunities. Inclusion is the extent to which team members feel a sense of belonging and value within an organization.

The Bottom Line

Corporate leadership in America is gradually evolving towards greater diversity and inclusion, though challenges remain. In recent years, there has been a notable increase in the representation of women and racially or ethnically diverse individuals in top executive positions. This shift is seen in the growing number of women CEOs leading Fortune 500 companies, tying an all-time high of 52 in 2024 (reached in 2023), or just over 10% of all companies.

The representation of underrepresented minorities in boardrooms has seen some progress, albeit at a slower pace. The 2024 S&P 500 New Director and Diversity Snapshot from Spencer Stuart highlights that 56% of new directors appointed are diverse, a decrease from previous years but still indicative of a broader trend towards inclusivity.

Companies have become increasingly aware of the business benefits of diversity, as it has been shown to improve retention and reduce the costs associated with employee turnover. Businesses are focused not just on hiring but also on creating inclusive environments where all employees feel valued.