MSFT, ORCL, and SAP lead the 10 biggest software companies list

Reviewed by Gordon Scott
Fact checked by Ryan Eichler

Software is so central to our technology that it’s impossible to imagine the modern world without all those lines of code instructing machines and sometimes humans as to what to do and when and often how to do it. Software is computer code so it can be reproduced at negligible marginal cost. Applications are more useful when they’re widely used and this makes the industry especially prone to large network effects.

The largest software suppliers have enviable revenue and profit margins as a result. The industry-wide shift to cloud computing and software-as-a-service subscription models has given many leading software suppliers a large base of recurring revenue.

This list is limited to companies with stocks that publicly trade in the U.S. or Canada either directly or through ADRs. Some companies outside the U.S. report profits semi-annually instead of quarterly and their 12-month trailing data may be older than that for companies making quarterly reports.

Data is courtesy of Yahoo! Finance as of Jan. 23, 2025.

Key Takeaways

• The largest software suppliers have enviable revenue and profit margins.
• Our list of the biggest is limited to companies with stocks that publicly trade in the U.S. or Canada either directly or through American depository receipts.
• Not surprisingly, Microsoft takes the top spot.
• Some of this data can change by the hour.

#1 Microsoft Corp. (MSFT)

• Revenue (TTM): $254.19 billion
• Net Income (TTM): $90.51 billion
• Market Cap: $3.31 trillion
• 1-Year Trailing Total Return: 13.02%
• Exchange: NASDAQ

Microsoft provides the Windows computer operating systems software, the Office applications suite, and the Azure cloud computing service. It’s the largest software company in the world. It also develops server applications, tablets, and video game consoles.

#2 Oracle Corp. (ORCL)

• Revenue (TTM): $54.93 billion
• Net Income (TTM): $11.62 billion
• Market Cap: $517.43 billion
• 1-Year Trailing Total Return: 69.49%
• Exchange: New York Stock Exchange

Oracle supplies cloud infrastructure and enterprise software applications including the database software that drove its success. It also provides server and storage hardware and it distributes Java programming tools. Oracle develops sales, service, marketing, finance, human resources, logistics, and manufacturing software.

#3 Salesforce, Inc. (CRM)

• Revenue (TTM): $37.18 billion
• Net Income (TTM): $5.93 billion
• Market Cap: $320.69 billion
• 1-Year Trailing Total Return: 20.22%
• Exchange: New York Stock Exchange

Salesforce is a leading provider of customer relationship management software and services for business clients. It offers tools for marketing automation, customer service, operations, sales, and more. It also owns Slack, the workplace collaboration messaging service.

Important

Salesforce also operates a cloud platform that allows customers and developers to create and run business-related applications.

#4 SAP SE (SAP)

• Revenue (TTM): $33.26 billion
• Net Income (TTM): $2.74 billion
• Market Cap: $320.63 billion
• 1-Year Trailing Total Return: 70.53%
• Exchange: New York Stock Exchange

SAP is a Germany-based multinational software company that specializes in enterprise applications. SAP provides management and e-commerce software as well as a range of services that include training and consulting on software management and integrations.

#5 Block Inc. (SQ)

• Revenue (TTM): $23.86 billion
• Net Income (TTM): $1.05 billion
• Market Cap: $53.89 billion
• 1-Year Trailing Total Return: 30.39%
• Exchange: New York Stock Exchange

Block, formerly Square, is a payments software company. Its CashApp is a popular peer-to-peer payment service. The company also provides point-of-sale software and hardware as well as software tools for digital receipts, sales reports, and inventory analysis.

#6 Adobe Inc. (ADBE)

• Revenue (TTM): $21.5 billion
• Net Income (TTM): $55.6 billion
• Market Cap: $190.19 billion
• 1-Year Trailing Total Return: -27.62%
• Exchange: NASDAQ

Adobe sells the popular Illustrator graphic design software, Acrobat document reader and editor, and Photoshop photo editing tools. It also develops other multimedia, creativity, and digital marketing product offerings.

#7 Intuit Inc. (INTU)

• Revenue (TTM): $16.59 billion
• Net Income (TTM): $2.91 billion
• Market Cap: $167.47 billion
• 1-Year Trailing Total Return: -4.54%
• Exchange: NASDAQ

Business and financial software provider Intuit is best known for its QuickBooks accounting and TurboTax tax preparation software. The company markets its products to consumers, small businesses, and accountants.

#8 ServiceNow Inc. (NOW)

• Revenue (TTM): $10.46 billion
• Net Income (TTM): $1.33 billion
• Market Cap: $234 billion
• 1-Year Trailing Total Return: 50.73%
• Exchange: New York Stock Exchange

ServiceNow is a cloud computing platform that’s focused on optimizing digital workflows and providing IT services management for enterprise clients.

#9 Adyen N.V. (ADYEN.AS)

• Revenue (TTM): $1.86 billion
• Net Income (TTM): $698.32 million
• Market Cap: $47.73 billion
• 1-Year Trailing Total Return: 31.28%
• Exchange: Over-the-counter markets

Adyen is a payment platform that offers point-of-sale services and online and mobile payments with data analysis integrations for businesses.

What Is Recurring Revenue?

Recurring revenue is that which a company can reasonably expect to continue coming in. It can be calculated monthly or as long as annually. It’s a measurement of the company’s growth.

What Is an ADR?

An ADR is an American depository receipt. ADRs provide a means by which American investors can deal in foreign stock markets. The shares trade on U.S. exchanges but the companies typically operate globally. ADRs can be issued by banks or brokers.

When Was Microsoft Founded?

Microsoft was founded in 1975. It was incorporated in 1981 and introduced its first personal computer two months later. Its stock went public in March of 1986. Windows 3.0 was launched in 1990 and Xbox was born in 2001.

The Bottom Line

It’s hard to imagine a world without software. The personal computer was introduced in 1977 with Apple at the forefront and software suppliers have thrived ever since, enjoying significant revenue.

Microsoft takes the honor of the biggest supplier on our list but the others generate excellent net income and boast solid market caps as well. Keep in mind that any one of these companies or others not mentioned here might introduce new, greatest-ever products tomorrow that could change the whole landscape.

Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.

Foreign ownership of U.S. debt through Treasury holdings

Reviewed by Robert C. Kelly
Fact checked by Yarilet Perez

The U.S. government incurs debt when it issues Treasury securities to fund the deficit between the amount of money that it receives in taxes and other revenues versus the amount of money that it spends on defense, welfare programs, interest, and more. As of Jan. 23, 2025, the government’s total debt is $36.22 trillion. The foreign countries that hold the most U.S. debt are Japan, China, the U.K., the Cayman Islands, and Luxembourg as of the latest information from November 2024.

Key Takeaways

• The Bureau of the Fiscal Service classifies national debt as intragovernmental debt and debt held by the public. 
• About four-fifths of the total national debt is public debt, which includes Treasury holdings by foreign countries.
• Japan is the largest foreign holder of public U.S. government debt, owning $1.09 billion in debt as of November 2024.
• China ranks second in total U.S. debt owned by foreign countries, with the U.K., Luxembourg, and the Cayman Islands rounding out the top five.
• The total national debt is $36.22 trillion as of Jan. 23, 2024.

Types of Debt

U.S. national debt is categorized as intragovernmental debt and public debt. Intragovernmental debt is debt held within the U.S. by federal agencies and entities. It makes up about a fifth of the total outstanding U.S. debt. This debt includes money owed to Social Security, military retirement funds, Medicare, and other retirement funds.

The remainder is public debt. Foreign governments hold a large portion of the public debt, while the rest is owned by U.S. banks and individual investors, the Federal Reserve, state and local governments, mutual funds, pensions funds, insurance companies, and holders of savings bonds.

As of Jan. 23, 2025, $28.88 trillion of the national debt is held by the public.

Important

Congress sets a ceiling on the debt that can be raised periodically. On Dec. 16, 2021, the debt ceiling was raised by $2.5 trillion to $31.4 trillion. This is the largest dollar amount increase in the national debt. In June 2023, the debt ceiling was suspended by Congress until 2025 as the national debt passed the $31.4 trillion mark.

1. Japan

Japan held $1.09 trillion in Treasury securities as of November 2024, beating out China as the largest foreign holder of U.S. debt.

2. China

China gets a lot of attention for holding a big chunk of the U.S. government’s debt. Given that its economy expanded rapidly in the last decades, perhaps this shouldn’t come as a surprise. China takes the second spot behind Japan among foreign holders of U.S. debt with $768.6 billion in Treasury holdings as of November 2024.

While Chinese-owned debt is frequently drummed up as a political talking point, there’s nothing particularly sinister about an export-oriented economy investing in Treasury securities. Treasuries are a logical investment for a country with high foreign currency reserves.

3. United Kingdom

British investors hold $765.6 billion of U.S. debt as of November 2024. The U.K.’s investment in U.S. debt may be linked to its difficult economic situation.

Note

The largest owner of U.S. debt by far is actually the U.S. government, which holds Treasury securities in various government accounts and pension funds.

4. Luxembourg

Luxembourg is the fourth-largest holder of U.S. debt among foreign countries while having one of the highest GDP per capita—$128,678 as of 2023, the latest data available. This ranking may be due to Luxembourg’s status as a tax haven, where wealthy investors park their funds in local holding companies. Much of this wealth is then invested in various securities, including Treasuries.

As of November 2024, Luxembourg held $424.5 billion of U.S. Debt.

5. Cayman Islands

The Cayman Islands is a global tax haven. Additionally, many investment firms are headquartered in the Cayman Islands, holding much of the chunk of U.S. Treasuries. As of November 2024, the Cayman Islands holds $397 billion of U.S.

Who Owns U.S. Debt Besides Foreign Governments?

Other holders of U.S. national debt include U.S. banks and investors, state and local governments, mutual funds, pension funds, insurance companies, and investors in savings bonds. Various agencies and entities within the U.S. government also own debt, which is known as intragovernmental debt.

What Is the Current National Debt?

As of Jan. 23, 2025, the U.S. national debt is $36.22 trillion. At the end of 2019, before the COVID-19 pandemic, the national debt was $23 trillion. One year later, it rose to $27.7 trillion. Since then, it has steadily increased.

Why Is the National Debt So High?

The national debt is so high because the U.S. continues to spend more than it receives in revenue. Therefore, it must issue more debt to cover the difference. The national debt is an accumulation of federal budget deficits. Every spending program and tax cut adds to the debt, unless paid for by new appropriations.

Why Is the U.S. in Debt to China?

The U.S. doesn’t restrict who may buy its securities. China invests in U.S. debt because of the positive effect these low-risk, stable investments can have on its economy. By investing in dollar-denominated securities, the value of the dollar increases relative to the value of China’s currency, the yuan. This, in turn, makes Chinese goods cheaper and more attractive than U.S. goods to buyers. That increases sales and strengthens the economy.

The Bottom Line

U.S. Treasury securities are considered to be some of the most liquid and safest assets in the world. For this reason, and because a majority of global trade is conducted in U.S. dollars, many countries hold U.S. debt as an investment.

With the Internal Revenue Service (IRS) issuing $2.4 billion in stimulus payments to about 1 million eligible taxpayers who didn’t claim their 2021 Recovery Rebate Credit, many are wondering what’s the best thing to do with it.

Payments are up to $1,400 per person, and checks are being sent out throughout January 2025. Below, we walk you through how to check if you’re eligible and how much an index fund could gain for you over 20 years should you invest your stimulus check in one.

Key Takeways

• The IRS is automatically sending stimulus payments of up to $1,400 per person to eligible taxpayers who didn’t claim the 2021 Recovery Rebate Credit, with payments arriving via direct deposit or check by late January 2025.
• Eligibility depends on 2021 income thresholds ($80,000 for single filers, $160,000 for joint filers), and taxpayers can check their status through their IRS online account or by waiting for an official notification letter.
• Those who missed claiming these funds can still receive the payment by filing a 2021 tax return by April 15, 2025, even if they had minimal or no income that year.

Why Is the IRS Sending Out the Stimulus Checks?

The IRS is distributing about $2.4 billion in stimulus payments to around 1 million taxpayers who didn’t put the Recovery Rebate Credit on their 2021 tax returns. These payments, up to $1,400 per individual, are being issued automatically to ensure eligible taxpayers receive the financial support they missed during the initial distribution of Economic Impact Payments.

Taxpayers don’t need to file amended returns to claim the credit.

How To Know If You’re Due a Stimulus Check

To figure out if you’re eligible for a stimulus check, review your 2021 tax return to see if you claimed the Recovery Rebate Credit. If you didn’t file a tax return or overlooked the credit, you might still qualify for the payment.

In addition, eligibility depends on income, filing status, and other criterion, such as citizenship or residency requirements. Typically, the IRS notifies eligible individuals, but you can also use the IRS’s online tools or contact their support services for confirmation.

To see your stimulus payment status, use the IRS’ “Get My Payment” tool available on its website.

This tool provides information on whether your payment has been processed, the payment method (direct deposit or mailed check), and the expected delivery date.

How To Invest the $1,400 in an Index Fund

When it comes to investing your $1,400 stimulus check, one smart way is to buy shares in an index fund that can grow your money over time. First, select a low-cost index fund, such as one that tracks the S&P 500 Index or a total market index. These types of funds offer broad diversification across major companies.

Next, open an account with a reputable brokerage or investment platform, and ensure there are no minimum investment restrictions for your chosen fund. Once your account is set up, deposit the funds and place a buy order for the index fund, specifying the amount to invest.

How Much Would You Gain?

Using data from TradingView on the returns for the S&P 500 for the 20 years up to year-end 2024, while reinvesting any dividends, your nominal return (not adjusting for inflation, taxes, and fees) on $1,400 would be 632.57%. This means by 2025, you would have had $10,256.04 in your pocket. Adjusting for inflation, your investment would have grown 342.51% or $6,195.19.

The Bottom Line

The IRS’s stimulus payment rollout offers an opportunity to kickstart long-term savings. By investing the $1,400 in a low-cost S&P 500 index fund, historical data suggests you might grow it to over $10,000 in nominal terms or $6,000 adjusted for inflation over two decades. Whether you choose to invest or use the funds differently, check your eligibility and payment status through the IRS website to ensure you don’t miss out on any unclaimed cash.

Find out how these Wall Street high-rollers landed themselves in hot water

Fact checked by Suzanne Kvilhaug
Reviewed by Samantha Silberstein

Over the years, Wall Street has had its share of scandals, many of which left despair and loss in their wakes. These include everything from insider trading to fraud that cost investors millions of dollars. To fully understand the impact these crooked individuals had on financial history, we must examine the people themselves, what they did and the legacy their misdeeds left behind.

While no two are alike, what these fraudsters share is the lasting effects of their crimes, which are still felt by Main Street many years later. This article will examine five of the most famous and unscrupulous Wall Streeters: Michael de Guzman, Richard Whitney, Ivan Boesky, Michael Milken, and Bernard Ebbers.

Key Takeaways

• The financial world has more than its share of high-profile criminals, some of them defrauding billions from retail investors.
• Michael Milken used junk bonds to finance mergers and leveraged buyouts.
• Richard Whitney was the president of the New York Stock Exchange and embezzled money from several funds under his control.
• Bernard Ebbers, CEO of WorldCom, famously used accounting fraud to finance mergers and acquisitions.
• Michael de Guzman committed fraud and Ivan Boesky was deemed a market manipulator.

The Canadian Miner: Michael de Guzman

Many believe Michael de Guzman was the perpetrator of the famous Bre-X debacle. Bre-X is a Canadian company, but de Guzman was Filipino. As the company’s chief geologist, de Guzman had access to core samples retrieved from a mine in Indonesia.

When the gold deposit numbers came in a little below average, de Guzman helped contribute to the biggest mining fraud in modern history by faking the samples to indicate a massive gold find. As time went on, the estimates were increased to as much as 200 million ounces. To get a handle on this number, the U.S. Treasury Department has about 250 million ounces of gold in its reserves.

This fraud was accomplished by inserting gold into the samples to make it look like there was much more gold in the Indonesian mine than there was. As a result, the 30-cent penny stock quickly climbed to as high as CAN $250 (adjusted for splits). For investors, this meant that a $200 investment would have ballooned to over $166,000.

However, independent geologists were suspicious of the mine’s supposed riches, and the Indonesian government started moving in. De Guzman eventually jumped to his death from a helicopter. Bre-X stock plummeted, costing its investors $3 billion.

The Unlucky Gambler: Richard Whitney

He was the president of the New York Stock Exchange (NYSE) from 1930 to 1935. On Oct. 24, 1929 (Black Thursday), acting as an agent for a pool of bankers, he bought shares in many companies, creating a dramatic turnaround in the market. This caused him to be falsely hailed as a hero to the market, but the inflated stocks inevitably crashed five days later.

Whitney was an unlucky gambler who played penny stocks and blue-chip stocks aggressively. To cover his losses, he would borrow money from friends, relatives, and business acquaintances. This allowed him to buy even more stock in a market that was collapsing, which made his problems even worse.

Despite his losses, he continued to live a lavish lifestyle. When he could no longer borrow any more money, he began to embezzle it from his customers as well as from an organization that helped widows and orphans. His fraud became more perverse when he looted the NYSE’s Gratuity Fund, which was supposed to pay $20,000 to each member’s estate upon death.

The crime was discovered through an audit and he was charged with two counts of embezzlement and sentenced to five to 10 years in prison. As a result of his misdeeds, the newly formed Securities and Exchange Commission (SEC) set caps on how much debt firms can have and separated customer accounts from the property of brokerage companies.

Important

To prevent financial fraud, the SEC has strict rules on how companies may handle client assets in their custody.

The Market Manipulator: Ivan Boesky

His career on Wall Street began in 1966 as a stock analyst. In 1975, he started an arbitrage firm, and by the 1980s, his net worth was estimated to be in the hundreds of millions. Boesky looked for companies that were takeover targets. He would then buy a stake in those companies on speculation that news of a takeover was going to be announced, then sell the shares after the announcement for a profit.

Throughout the 1980s, corporate mergers and takeovers were enormously popular. According to a 1986, article in Time Magazine, there were almost 3,000 mergers worth $130 billion in that year alone.

Boesky’s alarming success in this strategy was not all instinct: Before the deals were announced, the prices of the stocks would rise as a result of someone acting on inside information that a takeover or leveraged buyout (LBO) was going to be announced. This is a sign of illegal insider trading, and Boesky’s involvement in this illegal activity was discovered in 1986 when Maxxam Group offered to purchase Pacific Lumber. Three days before the deal was announced, Boesky had purchased 10,000 shares.

Boesky was charged with stock manipulation based on inside information on Nov. 14, 1986. He agreed to pay a $100 million fine and serve time in prison. He was also banned from trading stock professionally for life. He cooperated with the SEC, taping his conversations with junk bond firms and takeover artists. This led to both investment bank Drexel Burnham Lambert and its highest-profile executive, Michael Milken, being charged with securities fraud.

As a result of Boesky’s actions, Congress passed the Insider Trading Act of 1988. The act increased penalties for insider trading, provided cash rewards to whistle-blowers, and allowed individuals to sue for damages caused by insider trading violations.

The Junk Bond King: Michael Milken

In the 1980s, Michael Milken was known as the junk bond king. A junk bond (also called a high-yield bond) is nothing more than a debt investment in a corporation that has a high probability of default but provides a high rate of return if it does pay the money back. If you wanted to raise money through these bonds, Milken was the person to call. He used them to finance mergers and acquisitions (M&As) as well as LBOs for corporate raiders. Despite their reputation, junk bonds may reduce risk in your portfolio.

But what he was doing was nothing more than creating a complex pyramid scheme. When one company would default, he would then refinance some more debt. Both Milken and Drexel Burnham Lambert would continue to make their fees as a result of this behavior. The company made at least half of its profits from the work of Milken.

Milken also started purchasing stock in companies that he knew would become potential takeover targets. Boesky, when charged with insider trading in 1986, helped implicate both the firm and Milken in several insider trading scandals. This led to criminal charges against the firm and nearly a hundred charges against Milken, who pleaded guilty, was sentenced to 10 years in prison, and paid $600 million in fines.

It is argued that the savings and loan crisis (S&L) in the late 1980s and early 1990s occurred because so many institutions held large amounts of Milken junk bonds. After he was released from prison, Milken focused his attention on his foundation, which supports cancer research.

Note

Although he was sentenced to ten years in prison, Milken only served two years. He was later pardoned by President Donald Trump in 2020.

The Financial Statement Fraudster: Bernard Ebbers

Bernard “Bernie” Ebbers was the chief executive officer (CEO) of a long-distance telecommunications company called WorldCom. In less than two decades, he took the company to a position of dominance in the telecommunications industry, but shortly thereafter, in 2002, the company filed for the largest bankruptcy in U.S. history.

Under Ebbers’ leadership, the company made 70 acquisitions, the largest of which was MCI in 1997. All of these acquisitions created problems for the company because it was difficult to integrate the old company with each new one. The acquisitions also threw massive amounts of debt on the company’s balance sheet. To keep earnings growing, the company would write off millions of dollars in losses it acquired in the current quarter and then move smaller losses going forward to create the perception that the company was making more money than it was. This gave WorldCom the ability to take small charges against its earnings every year and spread the large losses over the decades.

This scheme worked until the U.S. Justice Department denied the company’s acquisition of Sprint in 2000, fearing that the combined companies would dominate the nation’s telecommunications industry. This forced WorldCom to make the previous mergers work for them and meant that it would only be a matter of time before all the losses that they were taking from other acquisitions would affect the company’s growth.

When WorldCom filed for bankruptcy, it admitted that it inappropriately booked the losses from its acquisitions from 1999 to 2002. Ebbers also took personal loans from the company. He resigned as CEO in April 2002 and was later convicted of fraud, conspiracy, and filing false documents with the SEC. He was sentenced to 25 years in prison.

Ebbers’ legacy led to tighter reporting standards with the creation of the Sarbanes-Oxley Act of 2002, as well as the forbidding of personal loans to company officers and stiffer penalties for financial crimes.

What Was the Original Ponzi Scheme?

Charles Ponzi was an Italian swindler who is now famous for the financial fraud that bears his name. The original scheme used postage coupons, which were cheaper in other countries than in the United States. By buying coupons abroad, Ponzi could make a profit by selling them in the United States.
However, that’s not what made him famous. Rather than simply arbitraging the postage coupons, Ponzi found an even faster way to make money: he would attract investors with promises of outlandish profits, while actually using their money to repay old investors. The scheme worked until he ran out of gullible investors, and Ponzi was ultimately convicted of mail fraud.

What Was the Crime in Wolf of Wall Street?

Jordan Belfort, the stockbroker depicted in The Wolf of Wall Street, ran a boiler room to pump the value of penny stocks. Belfort’s traders would pressure unsophisticated retail traders to buy shares of companies that Belfort owned, thereby artificially inflating the stock prices and allowing Belfort to sell his shares at a high profit.

What Was the Crime in Wall Street?

The main financial crime in the original Wall Street (1987) was insider trading. Gordon Gekko (Michael Douglas) is depicted as an unscrupulous corporate raider, and Bud Fox (Charlie Sheen) is a novice stockbroker. In order to gain an edge for Gekko’s stock trades, Bud Fox spies on the executives of other companies to gain inside information. Because it is illegal to trade on inside information, this attracts the interest of the SEC, which arrests Fox at the conclusion of the movie.

The Bottom Line

Since Wall Street’s earliest days, there have been criminals who have tried to disguise themselves as honest business people. Many of these crooks rose quickly to power only to have a hard crash landing in the end. This was exactly the case with Michael de Guzman, Ivan Boesky, Michael Milken, Bernard Ebbers, and Richard Whitney. What their examples show is that in spite of regulations, people will still try to find ways around the laws or simply disregard them for one purpose: greed at all costs.

Reviewed by Thomas J. Catalano
Fact checked by Michael Rosenston

Patagonia, a manufacturer of upscale outdoor clothing, is known for its various environmental sustainability efforts. The privately held company has been known to promote used wear and ask consumers to think twice before buying its products.

In spite of what looks like an anti-marketing effort, the company has seen its revenues grow in the face of a challenging environment for traditional retailers and is valued at about $3 billion. How has Patagonia managed to pull this off?

Key Takeaways

• Patagonia is an apparel retailer known for its upscale outdoor clothing and various environmental sustainability efforts.
• The company continues to grow by offering products that are designed to last.
• Patagonia announced in 2017 that it would give merchandise credits for used apparel.
• The company has been active on the environmental and political fronts, which resonates well with Patagonia’s loyal customer base.

‘Don’t Buy This Jacket’

With consumers becoming more frugal during the Great Recession and its aftermath, they were less inclined to buy on impulse and tended to shop more for value. Consumers were becoming more interested in goods that lasted long, and Patagonia saw an opportunity there to tout its own long-lasting wares.

The marketing strategy led to the company’s running an advertisement during the 2011 Thanksgiving season that read “Don’t Buy This Jacket.” The advertisement talked about the cost to the environment of one of the company’s best-selling fleece jackets, asked consumers to reconsider before buying the product, and instead, opt for a used Patagonia product. In spite of this, or because of this, the company saw its revenues grow about 30% to $543 million in 2012, followed by another 5% growth in 2013. By 2017, the company reached $1 billion in sales.

Walking the Walk

What resonates with Patagonia customers is that the company doesn’t just talk the environmental talk. Patagonia founder Yvon Chouinard, an accomplished rock climber, also backs up the company’s talk with its actions. The company donates a portion of its revenue to environmental causes and uses recycled, “Fair Trade” certified, and organic material in its clothing. It also uses solar energy at its company headquarters in Ventura, California, and is one of the founders of the Sustainable Apparel Coalition, a group of companies that has promised to reduce its environmental footprint.

Patagonia has also engaged in initiatives such as sending out an environmentally friendly truck on a trip across the country, in a bid to help consumers repair their outdoor gear and sell used Patagonia wares to them. Moreover, as a way to promote used Patagonia wear, the company has invested in Yerdle, a startup that aims to cut down on people’s purchases of new products. And another Patagonia advertising campaign in 2013 warned against the sort of development that used up the planet’s resources.

In 2017, the company said that certain Patagonia merchandise that is in good condition could be returned for credits. The used merchandise is cleaned, repaired, and sold on Patagonia’s “Worn Wear” website.

The company was active on the political front in 2017 as well. It organized a boycott of the Outdoor Retailer trade show in Salt Lake City after Utah passed a bill to cancel the Bears Ears National Monument. Later, Patagonia also sued the U.S. government and then-President Donald Trump in 2017 regarding proclamations to significantly reduce the size of the Grand Staircase-Escalante National Monument and reduce the size of the Bears Ears National Monument by 85%. Trump’s successor, Joe Biden, restored the original boundaries as president in 2021. Trump returned to office in 2025 and has not yet indicated whether he will reduce the monuments’ size again.

In 2022, Chouinard announced that he was donating Patagonia to fight climate change. He transferred 100% of Patagonia’s voting stock to the Patagonia Purpose Trust, “created to protect the company’s values.” Meanwhile, 100% of its nonvoting stock was moved to the Holdfast Collective, a nonprofit “dedicated to fighting the environmental crisis and defending nature.” About $100 million in annual profits are expected to go to this cause.

Resonates with Target Audience

It seems that the company’s message has resonated with the sort of environmentally conscious and upscale consumers that Patagonia sees as its target audience. These sorts of consumers like the idea of buying a product that is made by an environmentally friendly company in an environmentally friendly manner.

Beyond lasting a long time, the products can also be recycled for further use. As the company has tapped into more consumers in this target market, it has managed to expand its sales. And the company’s consumers could also have taken advantage of its efforts to facilitate the sale of used products and have used the money to buy new Patagonia products.

Of course, others who were not so environmentally conscious just bought the company’s products because they became trendy. Those customers tend to be less interested in recycling, used clothing, and the company’s environmental initiatives.

Note

In 2018, Patagonia donated $10 million that it received from then-President Trump’s 2017 tax cuts to groups committed to protecting the environment and finding solutions to the climate crisis.

As a result of its successful marketing and quality products, Patagonia has achieved a high degree of success with over 70 stores worldwide. The company also launched an environmentally friendly food business.

What Is Patagonia?

Patagonia is a privately held American outdoor apparel company known for its high-quality clothing and gear, with a strong focus on environmental sustainability and activism.

What Is a Target Market?

A target market is a group of people that have been identified as the most likely potential customers for a product because of their shared characteristics, such as age, income, and lifestyle. Patagonia’s target market is environmentally conscious and upscale consumers who like the idea of buying a product that is made by an environmentally friendly company in an environmentally friendly manner.

What Is the Status of Patagonia’s Monuments Lawsuit?

Patagonia sued the U.S. government and then-President Donald Trump in 2017 regarding proclamations to significantly reduce the size of the Grand Staircase-Escalante National Monument and reduce the size of the Bears Ears National Monument by 85%. For administrative purposes, a U.S. district court consolidated Patagonia’s lawsuit with four other lawsuits about the two monuments.

Joe Biden, who succeeded Trump as president, restored the original boundaries in 2021. In light of Biden’s action, the consolidated lawsuit was stayed (or paused) by a federal district court and remains in that status as of this writing.

Voters again elected Trump president in 2024, and it is not yet known in 2025 whether he will reduce the monuments’ size again now that he is back in office.

The Bottom Line

Even as Patagonia has led an effort to expand the useful life of its products, an effort that is at odds with the planned obsolescence approach of many manufacturers today, it has seen its sales rise. It seems the company’s environmentally friendly efforts have resonated with the sort of consumer it targets. More of these people are buying Patagonia products as they see the company’s long-lasting wares as a way to express their values.

Advertising and data licensing are the major sources of revenue

Fact checked by Kirsten Rohrs Schmitt
Reviewed by Margaret James

X (formerly Twitter), the social media company founded in 2006, is now ubiquitous via its posts—formerly called tweets—on the internet and all forms of media. It’s best known for news-breaking tweets from politicians and celebrities, but it provides a platform for millions of users to publish their thoughts, interact, share content, and read breaking news.

The platform itself is free to use for individuals and businesses alike, though many of the features that enhance user experiences (such as editing posts and user verification) are now locked behind a X Premium subscription with prices starting at $3 a month up to $32 a year.

X Premium (formerly Twitter Blue and X Blue) first launched in 2021 as a subscription service, offering enhanced features like undoing a tweet and saving bookmarks to folders. X owner Elon Musk relaunched the program in November 2022 and introduced major changes like a blue checkmark in the features for paying users.

Once a user has created an account, they can post messages of up to 280 characters and up to 2,400 times per day, which are automatically distributed to followers in a feed that is constantly refreshed.

X parent, X Corp. (formerly Twitter Inc.), divides its revenue into three categories: the sale of advertising services, the sale of data licensing and other services, and the Premium subscription. Although X has lost nearly half of its advertising revenue since Musk’s takeover, it still constitutes the vast majority of the company’s revenue.

X’s major competitors include other social media companies like Facebook parent Meta Platforms Inc. (META), Google and YouTube parent Alphabet Inc. (GOOG), Snap Inc. (SNAP), and others.

Key Takeaways

• X is a social media company providing a platform for users to interact in real time.
• On April 25, 2022, Twitter reported it would be acquired and taken private by Elon Musk in a $44-billion acquisition. After a rocky period, including Musk stating that he would no longer buy the company, the deal was completed on Oct. 27, 2022.
• Parent company Twitter Inc. changed its name to X Corp., with the social media platform continuing to be called Twitter for a while, until it also changed its name to X in July 2023.
• X generated $3.4 billion revenue in 2023, a 22% decline year-on-year.
• The company generated the vast majority of its revenue (75%) through advertising services in 2023.
• X generated $11 million via X Blue (now X Premium) in its first three months since it was relaunched in December 2022.

X’s Industry

Twitter Inc. was initially a social media company based in San Francisco, California. It operated the social networking service Twitter and previously the Vine app and Periscope livestreaming service. In 2023, Twitter Inc. ceased to be an independent company after merging with a newly formed shell firm called X Corp.

Instagram, TikTok, YouTube, Facebook, and WhatsApp are also leaders in the social media industry with monthly active users ranging from 3.03 billion (Facebook) to 1.59 billion (TikTok).

According to Grand View Research, the social networking app market was valued at $49.09 billion in 2022 and is expected to grow at a compound annual growth rate of 26.2% from 2023 to 2030. Key factors that are driving the social networking app market growth include the rising demand for 5G technology, the surge in adoption of personalized feed-based apps, and the growing demand for encrypted and self-destructive messaging-based social apps.

X operates worldwide as a microblogging service through a platform for putting out content in a fast way. X solved the problem of Facebook posts and popular blogs that provide articles that can be too long to read.

Note

As of 2025, X has an estimated 206 million monthly active users worldwide.

X’s Financials

X generated $3.4 billion revenue in 2023, a 22% decline from 2022 ($4.4 billion).

Revenue was expected to decrease in 2023 due to a loss of advertising, and in fact, the company has lost almost half of its advertising revenue since Musk’s acquisition in October 2022. Many global advertisers left the company after changes to X’s service and content moderation rules. Agency executives who have worked with X said their clients continued to limit spending on the platform due to “inconsistent support from Twitter and concerns about the persistent presence of misleading and toxic content.”

Musk declared that the company hasn’t seen yet an increase in sales and confirmed cash flow remains negative and the company is struggling with heavy debt. Still, X generates the majority of its revenue through advertising (75%, or $2.5 billion in 2023). It also generated about $900 million from data licensing (about 26% of total revenue) in 2023.

The loss of advertising demand has fueled the need to find alternative revenue streams and rebuild the company’s revenue model. X Premium is part of this strategy: a subscription service that allows users to access premium features and benefits on the app and that is available for $11 per month (or the local equivalent and $114.99 a year) on iOS and Android, and $8 ($84 a year) on the web.

X Premium was originally called X Blue, and it made just $11 million on mobile in its first three months since it was relaunched on Nov. 4, 2022. Although the $11 million seems small when compared to the two other revenue streams, this figure doesn’t cover web-based subscriptions. It’s still uncertain how this revenue stream will evolve, in part because the $11 million figure doesn’t specify how much comes from monthly subscriptions vs. annual subscriptions.

X’s History, Leadership, and Developments

Important

In July 2023, Twitter officially changed its name to X. The rebrand was yet another step in the transformation of the social media company, which changed the blue bird icon to the new black and white X logo. X debuted the new logo on its desktop version, and a sign reflecting the company’s new name appeared on its San Francisco headquarters.

Twitter was created by former Odeo employees Jack Dorsey, Noah Glass, Evan Williams, and Biz Stone, and publicly launched in July 2006. Originally, the site used SMS to send tweets onto the network and its defining features were the tight limits placed on each post or “tweet” (140 characters, doubled to 280 in 2017).

On April 25, 2022, Twitter announced that Elon Musk, founder and chief executive officer (CEO) of Tesla Inc., would acquire the company for $44 billion. Upon closing, the company would become privately held with all shareholders receiving $54.20 in cash for each share of the company owned.

The road to sealing the deal was rocky, but Musk completed his acquisition of Twitter on Oct. 27, 2022. Musk acted as CEO of Twitter until he stepped down in June 2023 and was replaced by Linda Yaccarino, who previously was the chair of advertising sales for NBCUniversal.

Soon, Musk began making changes to the company and introduced a series of reforms and management changes, raising concerns about the company’s ability to maintain its platform. Its workforce was drastically reduced by laying off half of the employees on Nov. 4, 2022, in order to cut costs (a measure taken to compensate for the drop in the company’s revenue). In total, about 80% of X’s staff has been laid off since Musk took over the company, or more than 6,000 people. As of 2023, the social media platform has only 1,500 employees, down from under 8,000 who were employed at the time of the acquisition.

On Nov. 20, 2022, Musk also reinstated Donald Trump’s account (the then-former U.S. president was banned from the platform for inciting violence at the Capitol riots in 2021), causing advertisers to pull off due to what was seen as relaxed content moderation policies. More than half of Twitter’s top 1,000 advertisers in September 2022 (including major brands such as Coca-Cola, Unilever, Jeep, and Wells Fargo) were no longer spending on the platform as of January 2023.

(Musk’s ties to Trump grew closer in 2024, with the X owner donating to and campaigning for Trump’s election. After Trump was elected president in November 2024, he tapped Musk and Vivek Ramaswamy to head what he called the Department of Government Efficiency (DOGE) to focus on regulating government spending. Following Trump’s inauguration on Jan. 20, 2025, he signed an executive order officially creating DOGE.)

Also in December 2022, the Twitter Blue (now X Premium) subscription service was relaunched as a way to generate revenue. In 2023, Twitter Inc. ceased to be an independent company after merging with a newly formed shell X Corp., a privately owned company operating within the X Holding Co.

What Is the Financial Status of X?

On July 15, 2023, Elon Musk declared in a post that his company is having a negative cash flow due to a “50% drop in advertising revenue plus heavy debt load.” Eighteen months later, on Jan. 24, 2025, Musk said “user growth is stagnant, revenue is unimpressive, and we’re barely breaking even.”

What Is X Premium?

X Premium is a paid subscription service intended to “elevate quality conversations on the platform.” The additional features designed to improve user experience and promote higher quality allow users to expand their reach, see fewer ads, and customize their experience on the platform.

X Premium has two different costs: If you purchase it in your web browser, it costs $8/month or $84/year. If you sign up through the iOS or Android app, X Premium costs $11/month or $114.99/year.

Which Social Media Generates the Most Revenue?

Facebook and Instagram (both owned by Meta Platforms) generate the most revenue. Combined, they are responsible for around half of all revenue generated by social networking apps. As of Q3 2024, Facebook generated $22.44 billion, and Instagram $16.64 billion.

The Bottom Line

X generated $3.4 billion revenue in 2023, a 22% decline on 2022 figures. Revenue was expected to be worse in 2023 due to a loss of advertising revenue. Still, 75% of X’s revenue came from advertising in 2023. X Premium, a paid subscription service, was launched as a way to generate non-advertising-based revenue, but the question of how much subscriptions will bring remains uncertain.

More expensive repairs and an increase in risky driving behavior are some of the factors driving up car insurance rates.

Car insurance is a necessary expense for drivers, but premiums are getting pricey. Factors that contribute to the rising cost of car insurance policies include increasingly expensive repairs, risky driving trends, and litigation.

Key Takeaways

• Car insurance premiums are expected to rise 7.5% in 2025, a continuation of an upward trend seen over the past several years.
• Inflation, risky driving, and litigation are factors driving up the price of auto insurance premiums.
• You can potentially save on car insurance by shopping for better rates every year.

How Much Have Rates Increased?

The price of car insurance increased 12.7% over the last year, according to November 2024 Consumer Price Index (CPI) data. The average annual cost of car insurance in 2025 is expected to be $2,101.

What Is Behind the Rise?

• Expensive car repairs: The parts required to repair newer cars with all of their safety equipment, sensors, and cameras are more expensive, and the labor needed for car repair is going up in price as well. Inflation in parts and labor translate into higher premiums.
• An increase in risky driving: Risky driving behavior, like speeding, and accident rates have gone up. In 2022, 42,514 people died on US roads, a 10% increase compared to 2020. Riskier driving behavior means more auto insurance claims and higher premiums.
• More litigation: A rise in litigation related to auto accident claims is a potential contributing factor to increasing premium costs, according to the Insurance Information Institute. More lawsuits and payouts from insurers mean higher premium prices for consumers. Those ads on TV and billboards for personal injury attorneys promising to deliver huge payouts to those injured in car or truck accidents have taken a toll on insurance company profits, and we all have to pay more as a result.

What Can Consumers Do?

Drivers are increasingly shopping around for better rates. A report from J.D. Power found that 49% of car insurance customers shopped for a new policy within the past year. Consumers who switched insurers within the past five years snagged median annual savings of $461.

Drivers can also do some research on potential discounts. Insurance carriers may offer discounts when you bundle home and auto policies. You may also be able to find discounts based on your mileage, allowing insurance company apps to monitor your driving, or by signing up for a defensive driving course.

As a last resort, drivers could consider switching to public transit, eliminating the expense of car insurance entirely. But 45% of Americans do not have public transportation as an option and most individuals likely can’t address their transportation needs for work, school, or errands without relying on privately owned vehicles, regardless.

The Bottom Line

While it is possible prices could car insurance prices could stabilize in the future, premiums are expected to get more expensive in 2025. Factors like more expensive car repairs, accident rates, and litigation are still at play.

For consumers who need to drive, insurance continues to be a necessary expense. You can consider switching insurance carriers and asking about potential discounts to find better rates.

Jerome Powell is the Federal Reserve Board (FRB) chair

Fact checked by Vikki Velasquez
Reviewed by Somer Anderson

Jerome H. Powell has been a member of the Board of Governors of the Federal Reserve System (FRB) since May 25, 2012, appointed by then-President Barack Obama to fill an unexpired term. He was reappointed by Obama and sworn in on June 16, 2014, for a term that expires on Jan. 31, 2028.

Powell took office as Fed chair on Feb. 5, 2018, after being nominated for that post by then-President Donald Trump and confirmed by the U.S. Senate. His four-year term as Fed chair expired on Feb. 5, 2022, but he was renominated by President Joe Biden in November 2021 and was sworn in again in May 2022 for his second term.

Key Takeaways

• Jerome Powell has served on the Federal Reserve Board (FRB) since May 25, 2012.
• He has been Fed chair since Feb. 5, 2018, and was approved for a second term in May 2022 under President Biden.
• Powell’s term as a member of the FRB runs until Jan. 31, 2028.
• Powell has an extensive background in economics and financing, working at different organizations and companies in that field, such as The Carlyle Group.

Early Life and Education

Jerome Hayden Powell, nicknamed “Jay,” was born on Feb. 4, 1953, in Washington, D.C. His father was an attorney, and his mother was a mathematician.

Powell received an A.B. in politics from Princeton University in 1975 and earned a law degree (J.D.) from Georgetown University in 1979. While at Georgetown, he was editor-in-chief of the Georgetown Law Journal.

Notable Accomplishments

The U.S. Senate confirmed Powell to his present post as Fed chair on the basis of strong bipartisan votes. On Dec. 5, 2017, the Senate Banking Committee voted 22-1 in his favor, the only dissenting vote coming from Sen. Elizabeth Warren (D-Mass.). On Jan. 23, 2018, the full Senate approved his nomination by a vote of 84-13.

Prior to joining the FRB, from 2010 to 2012, Powell was a visiting scholar at the Bipartisan Policy Center in Washington, where he focused on federal and state fiscal issues.

From 1997 through 2005, he was a partner at The Carlyle Group, a leading private equity and asset management firm.

Important

The primary tools for managing monetary policy used by the Fed are reserve requirements, open market operations, the discount rate, and quantitative easing.

From 1990 to 1993, Powell served as an assistant secretary and as undersecretary of the U.S. Department of the Treasury under then-President George H.W. Bush, with responsibility for policy on financial institutions, the Treasury debt market, and related areas.

From 1984 to 1990, Powell worked as a lawyer and investment banker in New York City at the firm of Dillon, Read & Co.

In addition to service on corporate boards, Powell has served on the boards of charitable and educational institutions, including the Bendheim Center for Finance at Princeton University and the Nature Conservancy of Washington, D.C., and Maryland.

Personal Life

Powell has been married since 1985 and is the father of three children. He is an avid cyclist who sometimes rides his bike to work at the Fed. He is the first Fed chair in more than 40 years who did not hold a Ph.D. in economics. The last was G. William Miller, who was Fed chair under then-President Jimmy Carter from 1978 to 1979, and who held degrees in marine engineering and law.

How Long Is the Fed Chairman Term?

The term for chairman of the Fed is four years. When a term is over, the chair can be renominated by the sitting President and confirmed by the Senate; there is no limit to how many terms an individual can serve as chair of the Fed.

How Much Does the Chairman of the Federal Reserve Make?

The salary of the chairman of the Federal Reserve is $203,500. This is the current salary of the sitting chair of the Fed, Jerome H. Powell.

Who Owns the Federal Reserve?

The Federal Reserve is not owned by anyone or any organization. The Federal Reserve is the central bank of the United States, created in 1913 to manage the country’s monetary policy. The Fed is accountable to Congress but operates independently.

The Bottom Line

Jerome Powell was approved for a second four-year term as Fed chair in May 2022, at a time when the U.S. and much of the world are facing financial hardship due to rising inflation. Under his watch, the Fed has increased interest rates to combat rising inflation.

His second term will focus on managing monetary issues that are impacting the U.S., such as the war in Ukraine, economic issues related to coronavirus, global supply chain problems, and rising inflation.

In August 2022, he gave a speech at “Reassessing Constraints on the Economy and Policy,” an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming. In the speech, he discussed inflation, public opinion, and central banks’ necessary role in limiting inflation.

Reviewed by JeFreda R. Brown

The overall performance of your portfolio is the ultimate measure of how well your portfolio manager does their job. The five performance ratios presented below provide investors with various measurement options.

Measuring total return isn’t the best way to determine whether or not your investments are being managed effectively. For a clearer picture, you must measure your portfolio’s risk-adjusted return.

Accounting for risk fine-tunes the concept of return. For example, a 2% annual total return may initially seem small. However, if the market only increased by 1% during the same time interval, then the portfolio performed well compared to the universe of available securities.

On the other hand, if this portfolio was exclusively focused on extremely risky micro-cap stocks, the 1% additional return over the market does not properly compensate the investor for risk exposure.

With that information, an investor could have a meaningful discussion of performance quality with their portfolio manager.

Key Takeaways

• Understanding the performance of your portfolio can help you size up the performance of your portfolio manager.
• For an effective measurement of your portfolio’s investment performance, determine your portfolio’s risk-adjusted return.
• The total return doesn’t provide the full picture of performance because risk isn’t accounted for.
• When comparing the performance of different investments, be sure to use the same ratio for each so that you compare apples to apples.

1. Sharpe Ratio

$frac{(text{Expected Return} – text{Risk Free Rate})}{text{Portfolio Standard Deviation}}$Portfolio Standard Deviation(Expected Return − Risk Free Rate)​

The Sharpe ratio, also known as the reward-to-variability ratio, is perhaps the most common portfolio management metric.

The excess return of the portfolio over the risk-free rate is standardized by the standard deviation of the excess of the portfolio return.

How It Works

Hypothetically, investors should always be able to invest in government bonds and obtain the risk-free rate of return. The Sharpe ratio determines the expected realized return over that minimum.

Within the risk-reward framework of portfolio theory, higher-risk investments should produce high returns. As a result, a high Sharpe ratio indicates superior risk-adjusted-performance.

Some of the ratios that follow are similar to the Sharpe in that a measure of return over a benchmark is standardized for the inherent risk of the portfolio. But each has a slightly different approach that investors may find useful, depending on their situation.

2. Roy’s Safety-First Ratio

$frac{(text{Expected Return} – text{Target Return})}{text{Portfolio Standard Deviation}}$Portfolio Standard Deviation(Expected Return − Target Return)​

Roy’s safety-first ratio is similar to the Sharpe but introduces one subtle modification. Rather than comparing portfolio returns to the risk-free rate, the portfolio’s performance is compared to a target return.

How It Works

Roy’s safety-first ratio is based on the safety-first rule, which states that a minimum portfolio return is required and that the portfolio manager must do everything they can in order to ensure this requirement is met.

An investor will often specify that their target return should be based on a certain benchmark, such as a particular financial amount that allows them to maintain a certain standard of living.

In such a case, an investor may need $50,000 per year for spending purposes; the target return on a $1 million portfolio would then be 5%.

If the benchmark is a specific index, the target return might be tied to the S&P 500. Or the investor might use the annual performance of gold as a target. The investor would have to identify their target in the investment policy statement.

3. Sortino Ratio

$frac{(text{Expected Return} – text{Target Return})}{text{Downside Standard Deviation}}$Downside Standard Deviation(Expected Return − Target Return)​

The Sortino ratio looks similar to the Roy’s safety-first ratio. The difference is that, rather than standardizing the excess return over the standard deviation, only the downside volatility is used for the calculation.

The previous two ratios penalize upward and downward variation. For example, a portfolio that produced annual returns of +15%, +80%, and +10%, would be perceived as fairly risky, so the Sharpe and Roy’s safety-first ratio would be adjusted downward.

How It Works

The Sortino ratio, on the other hand, only includes the downside deviation. This means that only the volatility that produces fluctuating returns below a specified benchmark is taken into consideration.

Basically, only the left side of a normal distribution curve is considered as a risk indicator, so the volatility of excess positive returns is not penalized. That is, the portfolio manager’s score isn’t hurt by returning more than was expected.

Note

A risk-adjusted return for a portfolio is a higher quality metric than total return because it incorporates the risks inherent in an investment. It provides a clearer view of your reward relative to the investment’s risks.

4. Treynor Ratio

$frac{(text{Expected Return} – text{Risk Free Rate})}{text{Portfolio Beta}}$Portfolio Beta(Expected Return − Risk Free Rate)​

The Treynor ratio also calculates the additional portfolio return over the risk-free rate.

How It Works

In this case, beta is used as the risk measure to standardize performance instead of standard deviation. Thus, the Treynor ratio produces a result that reflects the number of excess returns attained by a strategy per unit of systematic risk.

Since the Treynor ratio bases portfolio returns on market risk, rather than on portfolio-specific risk, it is usually combined with other ratios to give a more complete measure of performance.

After Jack L. Treynor introduced this portfolio metric, it quickly lost some of its luster to the now more popular Sharpe ratio.

However, Treynor will definitely not be forgotten. He studied under Italian economist Franco Modigliani and was one of the original researchers whose work paved the way for the capital asset pricing model.

5. Information Ratio

$frac{(text{Portfolio Return} – text{Benchmark Return})}{text{Tracking Error}}$Tracking Error(Portfolio Return − Benchmark Return)​

The information ratio is slightly more complicated than the aforementioned metrics. Yet it provides a greater understanding of the portfolio manager’s stock-picking abilities.

In contrast to passive investment management, active management requires regular trading to outperform a benchmark. While the manager may only invest in S&P 500 companies, he may attempt to take advantage of temporary security mispricing opportunities.

The return above the benchmark is referred to as the active return, which serves as the numerator in the above formula.

How It Works

In contrast to the Sharpe, Sortino and Roy’s safety-first ratios, the information ratio uses the standard deviation of active returns as a measure of risk instead of the standard deviation of the portfolio.

As the portfolio manager attempts to outperform the benchmark, they will sometimes exceed that performance and at other times fall short.

The portfolio deviation from the benchmark is the risk metric used to standardize the active return.

Potential Pitfall

Problems arise when the formulas are adjusted to account for different kinds of risk and return. Beta, for example, is significantly different from tracking-error risk. So you must use the same ratio when comparing returns.

In other words, the results of the Sortino ratio relating to one portfolio manager must only be compared to the Sortino ratio for another.

What Is Risk-Adjusted Return?

It’s the return of an investment relative to its risk. It helps investors determine whether investing in a security is worth the risk involved.

What Is Total Return?

Total return is the income produced by your investment plus the growth in its value. It’s expressed as a percentage of the amount that you have invested.

What Is the Jensen Ratio?

The Jensen ratio, or Jensen’s Alpha, is another way to measure risk-adjusted return. In particular, it measures the excess return over expected return and adjusts for market risk.

The Bottom Line

The five ratios presented above can help investors to calculate excess return per unit of risk and size up portfolio performance. They all can be interpreted in the same manner: The higher the ratio, the greater the risk-adjusted-performance.

Standardized risk-adjusted returns allow investors to understand that portfolio managers who follow a risky strategy are not more talented in any fundamental sense than low-risk strategy managers. They are just following a different strategy.

Fact checked by Vikki Velasquez
Reviewed by Ebony Howard

Are you a frequent flyer? Do you find even first-class service on commercial airlines more frustrating than fulfilling? While you can charter a jet, the ultimate freedom comes when you own one. Before you buy, though, you should consider whether the investment is truly justified.

Depending on size, range, model, and features, a private jet can set you back anywhere from $2 million to over $110 million. Like used cars, private jets are subject to significant depreciation. If you’re looking for a bargain, second-hand jets can be much less expensive. 

Key Takeaways

• A private jet can cost anywhere from $2 million to over $110 million.
• Ongoing expenses include crew salaries, routine maintenance, unexpected repairs, hangar rental, and insurance.
• Alternatives to ownership include private jet charter services, fractional jet ownership, and private jet club memberships.
• Chartered flight rates range from a few thousand to over $10,000 per flight hour.

Things to Consider Before Purchasing a Private Jet

Hourly Rate

The first question to ask is: How much do you fly? Aircraft vendors will often tell you that flying 200 hours per year justifies the outright purchase of a jet. Remember, they’re also trying to sell you one.

Aircraft brokers who offer fractional ownership in a plane will say it’s more like 400 to 600 hours. They, of course, are also trying to sell you something. Fractional ownership is similar to a timeshare in real estate.

A common rule of thumb is that you’ll need to fly at least 200 to 400 hours per year to justify the operating costs of owning a private jet.

Your Travel Routine

The type of travel you do can be even more important than the number of flight hours. For example, if you often need to book one-way flights, you’ll incur additional costs for sending the plane and crew back home.

Alternatively, if you plan to stay in one location for a week or more, you’ll need to arrange accommodations for the crew or pay for them to return. In either case, the additional costs may outweigh the benefits of purchasing a jet.

Ongoing Costs

Regardless of how often you fly, jet owners face substantial ongoing expenses, starting with routine maintenance and downtime when the jet is on the ground.

Then there are unforeseen repairs. A blown tire can cost $2,000 to $3,000 to replace. Other ongoing expenses include hangar fees, crew salaries, and aircraft insurance. As the owner, you’ll be responsible for all of these costs.

As a rough estimate, operating costs for a private jet typically range from $500,000 to $1 million per year. Online aircraft cost calculators can help break down expenses for specific jet brands and models.

If you do decide to buy, consultants and aircraft management companies can assist with both the purchase and ongoing management of the jet.

Note

Used private jets can be a more affordable option. Prices for pre-owned jets range from as low as $250,000 to as much as $17 million, depending on age, model, and condition.

Other Options

If the costs of ownership don’t align with your budget, there are several more affordable ways to access the private jet experience. These alternatives include chartering a flight, purchasing fractional ownership in a jet, or joining a private flight club.

Book a Charter

Chartering a flight is a great option for travelers who don’t want to fly commercially but also don’t want the commitment of ownership. When booking a chartered flight, you’ll need to consider factors such as the aircraft type (based on passenger numbers and destination), costs, and the company you’re booking through.

You can charter a flight directly with a jet company representative or through an independent broker who can help you select the best aircraft for your needs.

Charter costs typically range from $1,200 to more than $10,000 per flight hour. For frequent fliers, joining a private jet club or considering fractional ownership may be more cost-effective.

Private Flight Club Membership

A private flight club membership allows you to book domestic or international flights on a variety of jets at set hourly rates, often with short notice. To join, you purchase a membership from a charter company, which gives you access to its fleet. Memberships are usually sold in annual increments, with a minimum one-year commitment.

These options provide a custom travel experience without the complexities and costs of full jet ownership. It’s worth shopping around, as many competitors offer charter flights, fractional ownership, and private flight memberships.

What Is the Cheapest Private Jet for Sale?

The least expensive, new private jet for sale is the Cirrus Vision Jet, with a sticker price of $2 million. However, used private jets can sell for as low as $250,000.

Is a Private Jet a Good Investment?

Owning a private jet can be a good investment if the annual cost of chartering flights or flying commercially exceeds the cost of ownership or if you spend an average of 200 to 400 hours in the air each year.

What Are the Ongoing Costs Associated With Owning a Private Jet?

The ongoing costs of jet ownership include maintenance, repairs, fuel, storage, and crew salaries. Depending on the jet’s size and usage, these expenses can range from $500,000 to $1 million annually.

The Bottom Line

Owning a private jet is a significant financial commitment, with costs ranging from $2 million for a new, entry-level jet to over $110 million for a luxury model. Ongoing expenses, including maintenance, insurance, and crew salaries, can add another $500,000 to $1 million annually.

For frequent fliers, owning a jet may make sense, particularly if you log between 200 to 400 or more flight hours a year. However, if the high costs don’t align with your travel needs, alternatives like chartering flights, fractional ownership, or joining a private flight club offer more affordable options for those seeking a premium flying experience without the hefty price tag of ownership.