Buying a car involves certain financial and legal steps

Fact checked by Vikki Velasquez

Buying a car is a big decision, and you may have to live with your choice for years to come. Whether it’s a brand new luxury model or a beat-up junker, understanding the ins and outs of buying a car will help you get the best deal possible, look out for common pitfalls, and avoid buying a lemon.

Key Takeaways

• Figure out your budget before buying, including insurance and maintenance, and decide whether to pay in cash or with a loan.
• Choose a car that fits your needs (not your dreams), and always test-drive it before committing to buy.
• Private sellers can be cheaper, but dealerships and online platforms offer more convenience and protection.
• Don’t skip negotiating; knowing the car’s fair value and staying calm can save you a lot of money.
• Always double-check the paperwork to understand the costs, your financial responsibilities, and your legal rights.

There are a lot of factors to understand before buying a car—mileage, model, price, terms, and financing—that can be overwhelming if you aren’t familiar with them. Planning ahead and having a clear picture of what you want and what you can afford will help the process go smoother and leave you with a car that you and your finances are happy with.

Determine Your Budget and How You’ll Pay

The first step in buying a car is to set your budget. You need to know how much you can afford before starting the process. Overpaying can drain your savings, hurt your monthly expenses, or impair your financial profile.

Look at your monthly income and expenses and see what cost makes sense. Remember, the cost of a car isn’t just the price of the car itself; it’s also the insurance, gas, and maintenance costs. Experts recommend allocating 10% to 15% of your take-home pay for car expenditures. If you’re buying a used car, you may even want to include an additional buffer for increased maintenance costs.

After you decide how much you can spend on a car, figure out how you’ll pay. If you have enough savings to pay in cash, that’ll help avoid taking on debt and making monthly payments. It will also cost less money in the long run than an interest-bearing auto loan. Just make sure your car savings don’t take away from other priorities, such as college or an emergency fund.

Note

Using a credit card to pay for your car isn’t the best idea as any monthly balances carried over will incur the high fees that credit cards come with.

If you need to take out a car loan, you’ll want to look around for the best rates. Many car dealers offer in-house financing, but you can often find better rates from a bank or credit union. You might save a lot of money if you can get a pre-approval before you start car shopping.

Here’s where your credit score also comes into play. The better your score, the better your rate, and the less you’ll pay for your car. If you know you’ll need to borrow money, work on getting your credit score up before taking out a loan.

And if you are taking out a loan, having some cash to put forward as a down payment will help lower your monthly payments. As a rule of thumb, putting down 10% for used cars and 20% for new cars is a good idea.

Determine What Type of Car You Want

The car you want should ideally be the car you need. For example, if you live in a part of the world where it snows often, a four-wheel drive might be more prudent than a sports car. Looking for a car that serves your needs is the best starting point for your car search.

Will you primarily be commuting, or will you be transporting a group of kids to soccer practice? Will you have a large parking space in a lot or a tight squeeze in a small city? These are the types of questions to ask as you make your decision.

There are plenty of resources available to you that will help you pick the right car. Look at car websites, reviews, and YouTube videos to get a deeper familiarity with brands and models. Try to understand the pros and cons of each, the different features, and how all of that fits into your life.

Once you’ve settled on a few choices, take them for a test drive so you know how it feels in the specific car. Feeling how the car performs on the road can significantly impact your decision.

Important

Choosing between a new and used car is an important decision. While having a new car is great, it’s not always the best financial decision as new cars lose value as soon as they’re driven off the lot.

Decide Where You’ll Buy the Car

Where you buy your car can affect a lot of factors, such as price and quality. Here, we’ll break down what each means:

Private Seller: Buying from a private seller can get you a good price. They often need to sell and don’t have the same overhead costs to cover as dealerships do, so the price could be lower. However, a used car from a private seller comes with no warranty, and you’ll want to get the car inspected to ensure it’s in good repair. Additionally, make sure the paperwork is in good order.

Dealer: While buying from a dealer generally costs more, it’s usually the easiest and safest option. You’ll have a wide range of cars to choose from (some even with warranties), they’ll be able to offer financing, and they can handle all the paperwork. The higher cost may justify the peace of mind and simplicity of buying from a dealer. Note that dealers are required to include a Buyer’s Guide on each used car, which will provide additional information on the specific vehicle.

Online: Buying online can reduce the stress of having to buy in person, and there are plenty of options available to consumers now. Online marketplaces like CarMax (KMX) and Carvana (CVNA) allow users to select from a large assortment of cars at different prices and different types of financing. Even traditional car dealerships offer delivery options. It’s also in your right to receive a Buyer’s Guide when you buy online.

Out of State: Buying out of state can be a good option, especially if you’re looking for a rare car. It generally opens up a lot of selection but does come with points you need to consider, such as transportation (will you pick up the car and drive it back, or will you have it delivered?), abiding by state laws, different state taxes, and adhering to your state’s specific emission laws.

Negotiate the Price

Asking for a better price can be uncomfortable. Negotiating doesn’t come naturally to many people, but it’s definitely worth attempting, as it can save you hundreds or thousands of dollars.

When buying a car, know its fair market value. You can use many resources to determine this, such as online websites such as Kelley Blue Book or Edmunds. Ask the seller how they arrived at the price they’re offering.

You can negotiate from there. Be friendly and calm, but don’t give in to pressure, especially if you’re equipped with all the facts. You can walk away any time; plenty of cars are out there, and sometimes walking away might convince the seller to drop the price. This process also applies when trading your old car for a new one.

Finalize the Deal and Transfer Ownership

When buying a car, there’s plenty of paperwork to complete before you can drive home and take your friends and family for a spin. The paperwork covers all of your financial responsibilities and legal rights. Make sure you understand what you’re signing.

If you’re financing the car, understand the loan (fixed versus adjustable), the term, the rate, the monthly payments, and if there are any ramifications for paying off the car early. Go over all aspects of the contract, especially the breakdown of costs. Make sure there are no add-ons that you didn’t agree to that might increase the cost.

When buying from a private seller, you’ll need a bill of sale, the title signed over to you, and an odometer disclosure. When buying from a dealer, they’ll usually handle this.

Additional Tips

Get a Vehicle History Report

If you’re buying a used car, you must get a vehicle history report for yourself. You’ll want to know if the car has been in any accidents, if there’s been any type of damage, odometer rollbacks, or title issues. Knowing the car’s history will help prevent buying a car with problems or one that’ll cost you dearly down the road. Sites like Carfax or Autocheck can help you with this information. You can also check on the National Motor Vehicle Title Information System.

Get a Pre-Purchase Inspection

Also, when buying a used car, get an inspection from an independent mechanic. This will reveal any car issues that could cause problems for you later. This is usually not as much of a concern when buying from a dealership, but is essential when buying from a private seller or online.

The Bottom Line

It can be exciting to buy a new car, but it doesn’t have to be stressful if you prepare beforehand. Determining your budget, figuring out the type of car that fits your lifestyle, and knowing where and how to shop will make the process smoother and easier on your wallet.

Take your time, do the right research, ask the right questions, get the car inspected, and don’t be afraid to walk away if something is off. With some initial legwork, you’ll be able to find the car that suits you and your finances.

Reviewed by Thomas Brock
Fact checked by Vikki Velasquez

Specialization and economies of scale are two related economic concepts. Specialization involves focusing on a particular area of expertise to increase efficiency and productivity, which helps businesses achieve economies of scale. This relationship was explored by Adam Smith, who is considered to be the father of modern economics. Let’s take a look at these concepts and how they fit into Smith’s theory.

Key Takeaways

• Economies of scale and specialization are related concepts.
• Specialization involves focusing on one area of expertise, which increases efficiency and productivity.
• An increase in productivity can lead to economies of scale.
• Economies of scale can be achieved by training employees to focus on specific tasks.

Adam Smith’s Theory

Adam Smith laid out many economic theories, one of which was that the division of labor through specialization leads to growth. This idea was part of his book, “An Inquiry into the Nature and Causes of the Wealth of Nations.”

Smith believed that a company can hire more workers as it grows and divide them into certain roles. This means they end up with fewer responsibilities so they can improve and specialize in one core skill. Once a worker becomes more efficient, they become more productive and take up less time and fewer costs.

Defining Economies of Scale and Specialization

Economies of scale describes the cost advantage a company achieves with efficient production. Increasing production and lowering costs result in economies of scale because the costs are spread out over a larger number of goods. Producing additional goods doesn’t require a significant increase in costs. Reducing the cost of units per production is the main benefit of economies of scale.

In an economic context, specialization means focusing on one task rather than multiple tasks. It is a basic concept of learning. This allows workers to perfect that one task. When a person attempts a specific task for the first time, they may not be proficient at it. The more time they spend practicing or learning a skill, the better an individual gets at it. They also become efficient once they’ve mastered that task.

Note

Larger companies are more likely to achieve economies of scale than smaller companies because they can produce more goods and therefore can spread out costs over a larger number of goods.

Achieving Economies of Scale Through Specialization

As labor is divided amongst workers, workers can focus on a few or even one task. The more they focus on one task, the more efficient they become, which means that less time and less money is involved in producing a good. This means that the same time and money allow for the production of more goods.

When specialization occurs and results in economies of scale, a company can reduce the prices of its goods or services because it costs less to produce them. This provides a competitive advantage in the marketplace.

Example of Specialized Labor and Economies of Scale

An assembly line for a manufacturing company provides a useful example of specialization leading to economies of scale. Suppose a bicycle manufacturer has 10 workers each assembling 10 bicycles simultaneously. The time for one individual to assemble a bike could be considerable. In addition, the know-how of having to put multiple pieces together requires the need for more skills.

If the bicycle maker switches to an assembly line in its factory, the 10 workers can each focus on a specialized aspect of the assembly process. For example, one worker would add the brakes, the next worker would add the pedals, and so forth. Each worker would become proficient in their specific task and allow the bike to be assembled faster as it moves down the assembly line. This increases efficiency and allows for additional bicycles to be produced.

Because production increases, the fixed costs of production such as the building and tools used to assemble the bicycles are spread over an increasing number of products, thus achieving economies of scale.

Is Specialization the Only Way to Achieve Economies of Scale?

Economies of scale can be achieved through a variety of means other than specialization. Some other ways to achieve them include using technology to improve efficiency and the power of buying bulk, which leads to better costs. Larger companies can also consider seeking better terms on financing and better transportation networks to achieve economies of scale.

Why Are Economies of Scale Important?

Economies of scale are important because they give companies a competitive edge in the marketplace. Companies accomplish this by lowering their production costs when their output increase—all of which lead to higher profitability. This helps companies boost their bargaining power, keep competitors at bay, and increase their market share.

What Are Some of the Benefits of Specialization?

When companies specialize, they focus on producing one or a few related goods or services rather than producing multiple types. This benefits companies because they can increase their productivity, lower their costs, produce higher quality goods and services, and focus on growing their businesses.

The Bottom Line

Economic theory and the actual implementation of those theories have proven that as a company’s workforce specializes in specific skills, it leads to efficiency, which leads to more goods produced. As more goods are produced, the cost of producing them is spread out, leading to economies of scale, which is an important competitive advantage for any company.

Fact checked by Katharine Beer
Reviewed by Ebony Howard

The job market is competitive. You must communicate your skill set effectively to gain the best competitive advantage for landing the job. During the interview process, highlight as many strengths as possible. Here are seven things you should say in an interview.

Key Takeaways

• Highlight your strengths in a job interview.
• Research the company and know its products and services.
• Flexibility, energy, and optimism are all highly desirable qualities.
• Communicate your interest, experience, and goals effectively.

1. I Am Very Familiar With What Your Company Does

Letting a prospective employer know you are familiar with what a company does shows that you have a legitimate interest in the business and are not wasting their time. Do your homework before arriving for an interview. Check out the company website for information about products and services. Search for the latest transactions and pertinent business news.

2. I Am Flexible

Work environments are always changing. Prospective employers look for candidates who are open to change, adaptable, and who can multitask. Flexibility means you will do what is necessary to finish a task, including working additional hours or taking on additional job duties.

3. I Am Energetic and Have a Positive Attitude

Employers look for candidates with optimism and a “can-do” attitude. Attitudes are contagious and directly affect company morale. Let the optimist in you shine during the interview process. Be sure to always speak positively about past employers. Negative comments and sarcastic statements about past employers and co-workers are unnecessary.

4. I Have a Great Deal of Experience

Highlight any previous job duties that relate directly to your new job. If it is a management position, state every time you were responsible for supervising, training, and developing other employees. Discuss your motivational techniques and share specific examples of how you increased productivity. Feel free to list any training classes or seminars that you have attended.

5. I Am a Team Player

Companies are looking for team players, employees who are cooperative and get along well with other employees. Let your prospective employer know that you can flourish in group situations. Employers expect workers to be productive with limited supervision.

6. I Am Seeking to Become an Expert in My Field

Employers appreciate applicants increasing their knowledge base to make themselves the best employees possible. Stating that you aim to become an expert makes employers view you as an asset. You are a resource that other employees can learn from and you are invested in the long run.

7. I Am Highly Motivated

A motivated employee is a productive employee. Talk about how your level of motivation has led you to accomplish many things. If you are a meticulous worker, discuss your organizational skills and attention to detail. Companies are always looking for dependable employees whom they can count on.

Interview Question Examples

According to the Harvard Business Review, the following questions are common ones you should be prepared to answer at a job interview:

• Could you tell me about yourself and briefly describe your background?
• How did you hear about the job?
• What kind of work environment do you prefer?
• How do you deal with stress or pressured situations?
• Which do you prefer—working on your own or in a team?
• How do you stay organized when you’re juggling several projects?
• What are your salary expectations?
• Are you applying for other jobs?

What Is Illegal to Ask in a Job Interview?

It is illegal for a job interviewer to ask questions about a job applicant’s race, color, sex, age, national origin, or religion. These personal characteristics are all protected by law.

How Long Do Employers Take To Make an Offer After an Interview?

According to LinkedIn, interviewed candidates may wait 1-2 weeks or longer for an offer.

How Are Interviews Commonly Conducted?

Candidates may be invited to interview virtually, in person, one-on-one with one manager, or with a panel of company representatives who all have input and questions. Large companies may have candidates move through a multiple-interview process.

The Bottom Line

Remember that a job interview is an opportunity to sell yourself to a prospective employer. Use the right phrases to give you the best chance of securing your dream job.

Fact checked by Vikki Velasquez

You’ve got an extra room and could use the extra cash. Should you take on a roommate in retirement? With the median rental price of a two-bedroom unit in the U.S. costing $1,887 in February 2025, it might be tempting to consider.

If you do choose to open your home to a roommate, you won’t be alone in making that choice. People over 65 are the fastest-growing age group taking in roommates in their homes, according to SpareRoom, an online platform for people to find roommates.

Here are a few points to consider before taking the step of living with someone.

Key Takeaways

• If you would enjoy sharing your home and you have a spare room, renting a room may be a good way to make some extra money.
• You’ll want to vet a potential roommate carefully with a background check and references.
• Ask people that you know if they know of someone looking for a room to rent. Online ads are another way to find potential roommates.

Advantages of Having a Roommate

Having a roommate (or multiple roommates) can be an easy way to reduce your cost of living—for many people, housing is one of their largest monthly expenses.

“Even a few hundred dollars a month can have a big impact and that might allow you to retire a bit earlier or spend more on things you enjoy,” advises Justin Pritchard, a certified financial planner at Approach Financial.

But you will need to pay taxes on that money.

“The biggest thing to remember is that you have to report the rent as income. You can take deductions to reduce some or all of the income from being taxed, but no matter what, it adds a layer of complication to your tax return,” says Tara Unverzagt, president and senior financial planner at South Bay Financial Partners. “If you file yourself, you may need a professional to do it correctly.”

In addition to the money, having a roommate may be a good way to increase social interaction because many seniors report struggling with loneliness.

A 2023 University of Michigan survey found that more than one-third of adults ages 50 to 80 reported feeling isolated over the past year. Additionally, one-third said they had infrequent contact, which was defined as once a week or less, with people from outside their home in 2023.

Having a roommate could help some seniors stave of feelings of isolation and loneliness due to living alone.

Disadvantages of Having a Roommate

You won’t have as much privacy when you invite a roommate to live with you.

“Is privacy very important to you? If so, you probably want to avoid going the roommate route,” advises Eric Maldonado, a certified financial planner and owner of Aquila Wealth Advisors.

There may be disagreements with a roommate, something you don’t have to worry about if you live alone.

“In any shared living space, there may be conflicts regarding cleanliness and the way the space is utilized. And one of the biggest downsides is that if it doesn’t work out and you want to get the tenant out of the home, it may be very uncomfortable during the process, which could drag on for quite some time,” says Sebastian Frey, a broker associate at Compass Real Estate.

Finding a Roommate

Start by reaching out to people that you know and let them know you are looking for a roommate.

“If you have family or friends local you could try letting them know you are looking for a roommate. If you are a member at a church or social club you could let people know you are looking for a roommate and may even ask to post an announcement,” Maldonado says.

You may wish to place an online ad detailing the room you have for rent.  

“You can post your room on Craigslist or other local accommodations search websites. If you are looking for someone of a certain age or stage of life, there are probably civic clubs or forums you can post in online that cater to those age groups,” Maldonado advises.

Note

If it’s an option, consider relocating to a more affordable area; you might be able to live solo without needing a roommate.

Vetting a Roommate

You’ll want to check out the background of a potential roommate to make sure they are a good match for you.

“You would want to have a very good vetting process. Patience and taking your time [are] key here. Do a background check, follow up with references, and have a couple conversations first,” Maldonado says.

Discuss with a potential roommate your schedule and what you expect from someone living in your home.

“Make sure you clearly outline your living arrangements, your schedule, and your expectations before committing to renting out a room. Take the time to choose a roommate who you think you’ll get along well with,” Hutchinson says.

Preparing for a Roommate

You’ll need to get the room you are renting out ready for a roommate and write up a rental agreement.

“There’s some administrative setup you’ll need to do, including creating a written agreement, preparing your room, and making sure you’ve read up on the state and local laws and tax rules. But the financial reward is well worth your time,” Hutchinson says.

Not sure how much to charge? SpareRoom provides a list of average rents in metro areas around the United States.

“Take a look at other room listings in your area or average rents to see how much you could charge for your room,” Hutchinson advises.

The Bottom Line

If you like company and have a spare room in your home, you may be able to supplement your retirement income by renting a room. Do a background check on all potential renters and ask for references.

Search for renters online, inquire with friends and family, and ask around at social clubs. You’re looking for someone who will be a good fit for your home. Don’t rush the process. Make sure to clean and prep the room and prepare a rental agreement. Once you find the right person, the room is theirs and the monthly rent check is yours.

A surprising mix of big-city amenities, outdoor adventure, and local community awaits

Fact checked by Vikki Velasquez

Located along the western edge of Lake Erie in Ohio, Toledo is a vibrant city where retirees can enjoy a balance of urban benefits and affordable living. The largest city in Lucas County—home to nearly 430,000 people—is also big enough to offer modern conveniences but small enough to maintain a down-to-earth atmosphere.

Known as the Glass City for its glass manufacturing roots, Toledo offers much more than you might expect. From its nationally recognized art museum and historic neighborhoods to a thriving Metroparks system and seasonal festivals, the city also delivers a unique blend of culture, nature, and community. Let’s explore what makes it a top-ranked place to retire.

Key Takeaways

• Toledo is a hidden gem for retirees looking to stretch their money, offering a blend of affordability, amenities, and outdoor adventure.
• Toledo’s cost of living is well below the American national average, helping you stretch your retirement funds further.
• With nearly 900 healthcare establishments in the county, including 81 hospitals, Toledo provides retirees excellent access to medical care.
• Toledo is well-connected and easy to navigate thanks to its major highways, affordable local transportation, and proximity to an international airport.
• A rich arts scene, scenic outdoor spaces, and frequent community events offer a fulfilling lifestyle for Toledo retirees.

Cost of Living in Toledo, Ohio

With many retirees looking to stretch a fixed income, affordability is typically one of the highest priorities when choosing a retirement destination. Toledo has a relatively low cost of living, making it an attractive choice. Retired residents can often maintain an enjoyable lifestyle without financial strain.

According to the most recent data, the median household income in Lucas County is $60,095, more than 25% lower than the national median of $80,610. Monthly costs are proportionately lower, too, including two of the most significant expenses for the average retired household: housing and food.

The median home value is just $155,200, a full $264,000 cheaper than the national median of $419,200. Through a recurring expenses lens, that translates to median monthly housing costs of $953 in Lucas County versus $1,338 for the typical American.

Similarly, a local two-person household’s average monthly food bill is just $600. That’s $232 below the national average of $832, which works out to a discount of roughly 28%. Despite the low costs, Toledo has a vibrant culinary scene, offering everything from local farm-to-table spots to international restaurants that reflect the city’s cultural diversity.

Note

Housing and food expenses constitute roughly 36% and 13% of the average retiree’s annual spending, so saving money in these areas can free up significant room in your budget.

Health Care and Accessibility

Since retirees often need more regular medical services than younger individuals, easy access to health care is another marker of an attractive retirement destination. That’s another area where Toledo stands out, providing a rare combination of plentiful medical establishments, affordable transportation, and proximity to a major airport.

There are a whopping 887 health care facilities in Lucas County, including 81 different hospitals. Since the county only has 339.7 square miles of land area, that works out to roughly 2.6 healthcare establishments per square mile, ensuring that retirees never need to travel too far for medical assistance.

Getting around the area is also relatively inexpensive. Despite being a major metropolitan area, typical monthly transportation costs in Lucas County are $1,132, within $50 of the national average of $1,098. There are plenty of transit options, including the Toledo Area Regional Transit Authority (TARTA), a curb-to-curb Call-a-Ride service, and a healthy Uber and Lyft presence.

Tip

If you ever need to travel long-distance, the Detroit Metropolitan Airport is only 48 miles from the center of Lucas County. That means residents are less than an hour’s drive down Interstate 75 from a major airport with domestic and international connections.

Lifestyle and Recreational Activities

Practical concerns like affordability and access to health care are critical when choosing a retirement destination, but they shouldn’t be the only factors you consider. It’s just as important to pick somewhere you can enjoy your day-to-day life. Whatever you like to do for fun, Toledo has a lot to offer, including a healthy mix of indoor and outdoor opportunities for entertainment and social connection.

For those with creative sensibilities, the city is home to 170 art establishments, including the Toledo Museum of Art, which offers a collection of world-class exhibitions and free general admission. History buffs can also explore the neighboring Glass Studio to explore the city’s rich legacy of glassmaking or walk through the historic Old West End.

Note

The National Register of Historic Places named Old West End a historic district in 1973 for being the largest collection of late Victorian and Edwardian architecture in the United States.

If you prefer outdoor adventures, the Maumee River flows through the city from Lake Erie, which borders Toledo’s northeastern edge. Combined with the Metroparks Toledo system—boasting 19 different parks—there are ample opportunities for activities like hiking, camping, boating, and birding.

Whatever you’re interested in, Toledo also offers plenty of chances to connect with the community through its many public events. The beloved Toledo Farmers’ Market runs every Saturday year-round, featuring local cultivators and craftspeople. Yearly festivals, like the award-winning Black Swamp Arts Festival—Ohio’s largest free live music festival—bring even more people together and showcase the area’s spirit.

The Bottom Line

Toledo, Ohio, is an attractive retirement destination for those who want to retain the benefits of an urban lifestyle without sacrificing affordability. Its proximity to Lake Erie means there’s no shortage of natural beauty or outdoor adventure, while frequent local events foster socialization and a strong sense of community. All these factors combined make Toledo a compelling, well-rounded place to enjoy your golden years.

Reviewed by Charlene Rhinehart
Fact checked by Vikki Velasquez

Exchange-traded funds (ETFs) have become a staple in many investors’ portfolios thanks to their low costs, tax efficiency, and broad diversification. But are they a smart addition to a retirement account like a 401(k)? The answer depends on how the plan is structured, your goals, and the flexibility of employer-sponsored plans.

It’s also important to keep in mind that although ETFs have gained traction in individual retirement accounts (IRAs) and brokerage accounts, their integration into 401(k)s has been slower and more complex. Here’s what to know before relying on ETFs in a retirement savings strategy.

Key Takeaways

• ETFs can be a low-cost, diversified option for retirement investors, but their advantages vary based on 401(k) plan structure.
• While ETFs are typically more tax-efficient than mutual funds, this benefit is less relevant in tax-deferred accounts like 401(k)s.
• Some 401(k) plans lack the infrastructure to integrate ETFs efficiently, thereby limiting their accessibility.
• The adoption of ETFs in 401(k)s is growing, particularly through self-directed brokerage windows and ETF-based target-date funds.

Understanding ETFs

Exchange-traded funds (ETFs) are pooled investment vehicles or baskets of stocks that trade on exchanges just like individual stocks. They often aim to track the performance of an index, sector, or asset class and can include a wide range of securities—from domestic and international equities to commodities, currencies, and bonds.

Types of ETFs

There are over 12,000 ETFs on the market, and they vary by type. Here are some of the most common:

• Equity ETFs: Track stock indexes like the S&P 500 and Dow Jones Industrial Average (these are also referred to as index ETFs) or sectors such as technology or healthcare
• Bond ETFs: Give investors exposure to government, corporate, or municipal bonds
• Commodity ETFs: Invest in physical assets like precious metals, gold, oil, or agricultural products
• Currency ETFs: Track foreign exchange movements
• Cryptocurrency ETFs: Invest in digital assets like Bitcoin and Ethereum

This variety allows investors to build highly diversified portfolios tailored to their risk tolerance and investment horizon.

Management Styles

ETFs are often passively managed and meant to track a benchmark index. However, some are actively managed and attempt to outperform the market.

“When evaluating ETFs for a 401(k), it’s important to consider cost, liquidity, and administrative ease,” says Christopher Stroup, founder of California-based Silicon Beach Financial. “ETFs often have lower expense ratios than mutual funds, but they trade like stocks, which can complicate implementation in a retirement plan.”

Advantages of Including ETFs in 401(k) Plans

Cost Efficiency

One of the key selling points of ETFs is their low cost. According to data from the Investment Company Institute, the average expense ratio for actively managed equity ETFs is significantly lower than that of comparable mutual funds. “ETFs typically have lower expense ratios than mutual funds, which helps reduce long-term costs,” says Stroup.

These lower fees can be particularly important for retirement planning as they can have a compounding effect over time, especially in a tax-deferred environment where savings remain invested for decades.

Diverse Investment Options

ETFs give 401(k) investors access to a broad range of asset classes and strategies, from U.S. large caps to emerging markets and niche sectors—all of which can help ensure strong portfolio diversification. In some cases, ETFs are also used as building blocks to create custom portfolios or in ETF-based target-date funds, which automatically adjust asset allocations as retirement approaches.

Disadvantages of Including ETFs in 401(k) Plans

Intraday Trading Concerns

Unlike mutual funds, which are priced at the end of the trading day, ETFs can be bought and sold throughout the day at market prices. While this affords investors some flexibility, it can be a double-edged sword for retirement savers, says Stroup. “While ETFs can be bought and sold throughout the day, long-term investors don’t need this flexibility. It may also encourage unnecessary trading,” he says.

In the same vein, it’s important to remember that 401(k) plans are designed for long-term, automated investing—and frequent trading is generally discouraged. By design, the intraday nature of ETFs may conflict with the generally hands-off philosophy of retirement planning.

Tax Efficiency in Tax-Deferred Accounts

ETFs are often lauded for their tax efficiency—particularly their ability to avoid capital gains distributions through in-kind redemptions. But this advantage matters less in a 401(k), where investments grow tax deferred.

“ETFs use an in-kind redemption process, minimizing capital gains distributions,” Stroup says. “401(k) participants should know that this matters more in taxable accounts.”

In other words, the tax benefits of ETFs are largely neutralized inside a 401(k), where taxes aren’t due until distributions are made in retirement.

Plan Integration

One of the biggest hurdles to wider ETF use in 401(k)s is operational. Many 401(k) providers still lack the infrastructure to support ETFs as seamlessly as mutual funds, limiting their availability in standard plan menus.

“Some 401(k) providers don’t support ETFs efficiently, which makes them less accessible than traditional mutual funds,” says Stroup. Mutual funds, by contrast, are deeply embedded in the 401(k) ecosystem. They allow for easy automation of contributions, dollar-cost averaging, and rebalancing—features that aren’t always available with ETFs.

Pros

• Lower expense ratios than mutual funds

• Can help ensure strong portfolio diversification

Cons

• May encourage unnecessary trading and conflict with the hands-off philosophy of retirement planning

• Tax benefits of ETFs are largely neutralized inside a 401(k)

• Providers lack the infrastructure to support ETFs as seamlessly as mutual funds

Current Trends and Adoption

ETF Adoption in 401(k) Plans

Although mutual funds still dominate the 401(k) landscape, ETFs are beginning to gain ground—particularly in plans that offer greater investment flexibility. “More 401(k) plans are starting to offer ETFs, especially in self-directed brokerage accounts where participants can select ETFs alongside traditional funds,” says Stroup.

These brokerage windows, offered by major providers like Fidelity and Schwab, allow retirement savers to build more customized portfolios that include ETFs targeting specific sectors, regions, or strategies. Additionally, some plan sponsors are exploring ways to reduce fees by incorporating ETFs into their core investment menus, Stroup says.

Innovative 401(k) Plans Using ETFs

Some forward-looking employers are taking a more progressive approach by integrating ETFs directly into their 401(k) offerings. One notable trend is the development of ETF-based target-date funds—portfolios that automatically shift asset allocations as participants near retirement, using low-cost ETFs instead of mutual funds, Stroup says.

These ETF-based solutions aim to deliver the same hands-off investing experience as traditional target-date funds but at a potentially lower cost. They’re also being used by robo-advisors and managed account platforms embedded within 401(k) plans.

The Bottom Line

ETFs offer compelling benefits for retirement planning (and investing)—low costs, diversification, and transparency—but they aren’t always a perfect fit for 401(k) plans. Their intraday tradability and tax efficiency matter less in a retirement account, and plan integration remains a key barrier.

Still, with the rise of adoption—including through self-directed brokerage windows and ETF-based target-date funds—more retirement savers will likely gain access to ETFs over time. As always, the best option depends on your specific plan and your long-term goals.

Here are five reasons to leave your 401(k) with your previous employer

Reviewed by Anthony Battle
Fact checked by Jiwon Ma

You’ve left your job. What should you do with the 401(k) plan you’ve faithfully contributed to for years? Conventional wisdom says to roll it over into an individual retirement account (IRA). In many cases, that is the best course of action. But there are times when a rollover is not your best option.

Let’s take a look at five of those situations and the rationale for keeping your 401(k)—or, if you’re a public or nonprofit employee, your 403(b) or 457 plan—in place at your now-former employer’s plan.

Key Takeaways

• Leaving your 401(k) account with your employer can save you fees because the company can buy funds at institutional pricing rates.
• If you own appreciated company stock in your 401(k), transferring the stock to a brokerage account instead of an IRA can save on taxes.
• Not rolling over your 401(k) can help with legal protection in bankruptcy and provide access to your money at an earlier age.
• Company 401(k) plans have access to stable value funds.

1. Greater Buying Power

Company 401(k)s can purchase funds at institutional pricing rates, which is not usually true for IRAs. Think of it as a corporate discount. Because they’re investing for many workers, “most 401(k), 403(b), and 457 plans have significant buying power—much more than the individual [retirement account],” says Wayne Bogosian, ex-president of the PFE Group and co-author of The Complete Idiot’s Guide to 401(k) Plans. That can save you significant money on fees, leaving more to appreciate in your account.

2. Tax Savings

If your 401(k) plan includes company stock that has greatly appreciated, you could save a lot on taxes if you transfer that stock to a regular brokerage account. You will have to pay taxes on the shares taken out of your 401(k) at your current income tax bracket‘s rate. However, the tax is based on your original purchase price. You won’t pay for any gain on that stock until you actually sell it—and then you’ll pay at the capital gains tax rate, which is lower than the income tax rate. This is known as net unrealized appreciation (NUA).

“NUA is a tremendous opportunity for individuals with appreciated company stock in their 401(k),” says Jonathan Swanburg, CFP®, President of TSA Wealth Management in Houston, Texas.

“If, on the other hand, a plan participant holds depreciated company stock that she plans to hold until the price goes higher, she should consider selling her shares and repurchasing them shortly thereafter,” he adds. “Inside a 401(k), the wash-sale rule doesn’t apply, and this resets the cost basis, increasing the potential for taking advantage of the NUA down the road.”

Let’s suppose, for example, the company stock was bought for $10,000 and is currently worth $50,000 on the market. Your tax bill for transferring the stock to the brokerage firm will be based on the $10,000 purchase price. You won’t be taxed on any of the gains until you sell it. Because the stock is being sold in a brokerage account, when you do sell it, it will be taxed at the more favorable capital gains tax rate, versus the ordinary income tax rate.

In contrast, if you rolled over that stock into an IRA, it would eventually be taxed at your income tax rate when you need to sell the stock to start taking your required minimum distributions (RMDs) from the IRA. RMDs begin at age 73 “if you reach age 72 after Dec. 31, 2022,” according to the Internal Revenue Service (IRS).

There are, however, reasons to be cautious. Below are two:

• Make sure the holdings in your 401(k) are actual stock shares.
• Make sure the transfer of these holdings doesn’t put such a sizable bump in your income that you get pushed into a higher tax bracket, which would mean you’d end up owing the IRS much more than you otherwise would come next April.

Important

Check with your company before deciding what to do with your 401(k), since you may not have the same access, fund-allocation privileges, or fees once you leave your job.

3. Legal Protection

Money held in a 401(k) is protected by federal law from nearly all types of creditor judgments, other than IRS tax liens and some spousal or child support orders. IRAs are less protected.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 does protect up to $1 million in traditional or Roth IRA assets against bankruptcy. But protection against other types of judgments varies by state.

If you are concerned about potential judgments, creditors, or collections, keeping your 401(k) funds in place might afford the most safety.

4. Early Retirement Benefits

“One of the most important reasons not to roll over your 401(k) to an IRA is to have access to your funds before age 59½,” says Marguerita Cheng, CFP®, CEO of Blue Ocean Global Wealth in Louisville, Kentucky. “They can be accessed as early as age 55, versus having to pay a 10% early withdrawal penalty in an IRA.”

In fact, after you leave, you may be able to withdraw money from your 401(k) multiple times each year. (The employer sets the rules about how many times people can withdraw funds.) You lose this privilege once you roll the 401(k) into an IRA, and you’ll have to wait until age 59½ to access your money without penalty.

However, there’s an important exception to the early distribution penalty as part of IRS rule 72(t), which allows you to make withdrawals under the substantially equal periodic payment (SEPP) program.

If you’re still working for your employer, SEPP withdrawals are not permitted from the qualified retirement plan. However, if you’re separated from the company, you can qualify for this exception. The funds can also come from an IRA under SEPP at any time. The distributions are formulated as a series of substantially equal periodic payments over your life expectancy using IRS tables.

However, once you start SEPP payments, you must continue for a minimum of five years or until you reach the age of 59½, whichever comes later. If you fail to meet this requirement, the 10% penalty will be levied, and you may owe penalties from prior tax years if you had taken distributions.

5. Stable Value Funds

Company 401(k) plans have access to a special type of fund called a stable value fund. Not available in the individual market, these funds are similar to money market funds, but they typically offer better interest rates. If you’d like to take advantage of these risk-averse vehicles, and your 401(k) offers them as an option, then seriously consider sticking to your current plan.

Can You Roll a 401(k) into an IRA Without Penalty?

Yes, you can roll a traditional 401(k) into a traditional IRA without a penalty and without any tax consequences. If you roll over a traditional 401(k) into a Roth IRA, there will be tax consequences. This is because a traditional 401(k) is funded with pre-tax dollars while a Roth IRA is funded with after-tax dollars.

What Are the Disadvantages of Rolling Over a 401(k) into an IRA?

Some of the disadvantages of rolling over a 401(k) into an IRA include no loan options, a decrease in creditor protection, possibly higher fees, and the loss of a possible earlier withdrawal without penalty.

How Much Does It Cost to Roll Over a 401(k) into an IRA?

There is typically no fee or charge associated with rolling over a 401(k) to an IRA. It is possible that account fees in the IRA may be higher than the fees in the 401(k) account.

The Bottom Line

When you part ways with your company, deciding what to do with your retirement savings can be daunting. Rolling over a 401(k) might work for most people, but there are reasons why leaving the money in the company fund could work better.

Do check your company’s rules, though: Most employers require you to maintain a minimum sum in your 401(k) if you want to leave the account in place after your employment ends, and there may also be differences in your access, fund-allocation privileges, and fees.

There’s one other option to investigate if you want to keep your money in a 401(k) after you leave your old job for a new one: rolling over the money in your previous job’s plan into the 401(k) at your new company, if that’s permitted. This is an excellent option for older employees who want to protect that money from being subject to required minimum distributions (RMDs), because you don’t have to take RMDs from your 401(k) at the company where you currently work. Just make sure that the new plan’s fees aren’t worse and that the investment options are comparable.

A home may be your largest investment—make sure you adequately protect it

Homeowners insurance can protect you from financial disaster if your home or its contents are damaged or destroyed or if you’re sued because someone is hurt on your property. If you own a home with a mortgage, your lender probably requires you to have a homeowners policy. Even if you aren’t required to have one, it’s a very good idea.

But exactly how much insurance is enough? This article explains how to figure that out.

Key Takeaways

• Homeowners insurance can protect you from financial losses if your home or possessions are seriously damaged or destroyed.
• It also provides some coverage against liability claims.
• While a homeowners policy covers many risks, exceptions can include floods and earthquakes, for which you may need other coverage.
• In deciding how much insurance to buy you’ll want to consider what it would cost to rebuild your home.

What Is Homeowners Insurance?

A standard homeowners insurance policy typically consists of several different types of coverage, each with its own dollar limits.

For example, a policy will generally cover:

1. The dwelling: This is the home itself and often unattached structures, such as a garage or tool shed.
2. Your personal belongings: Policies often cover your furniture and other possessions, both in your home and off-premises, such as items you take with you when traveling.
3. Liability: This coverage can provide financial protection if another person, or their property, are harmed by you or your pets.
4. Additional living coverage: This part of the policy can reimburse you for housing and related costs if your home becomes temporarily uninhabitable and you have to find another place to live for the time being.

These four types of coverage can differ from one policy to another, and you can choose how much of each you wish to purchase. We’ll discuss them in greater detail below.

What Homeowners Insurance Covers

A homeowners policy doesn’t protect you from every conceivable calamity. (In some cases, you may need to buy other kinds of insurance for that purpose.) But typically, it will cover financial losses related to certain specified “perils.”

According to the Insurance Information Institute, an industry trade group, the most common type of homeowners policy, known as HO-3, covers 16 specific perils. They are, to quote verbatim from the organization’s website:

• Fire or lightning
• Windstorm or hail
• Explosion
• Riot or civil commotion
• Damage caused by aircraft
• Damage caused by vehicles
• Smoke
• Vandalism or malicious mischief
• Theft
• Volcanic eruption
• Falling object
• Weight of ice, snow, or sleet
• Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance
• Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system
• Freezing of a plumbing, heating, air conditioning, or automatic, fire-protective sprinkler system, or of a household appliance
• Sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor or similar electronic component)

While that’s a long list, the organization notes that policies typically “will not pay for damage caused by a flood, earthquake, or routine wear and tear.”

To protect against those risks, flood insurance from the National Flood Insurance Program (NFIP) is available through private insurers. In fact, mortgage lenders often require it for homes in flood-prone areas. Earthquake coverage is also available from many insurers, either as a separate policy or as an endorsement (or add-on) to a regular homeowners policy.

How Much Homeowners Insurance Do I Need?

Your lender, if you have a mortgage on your home, may specify a minimum amount of homeowners coverage that it expects you to carry. Otherwise it is your decision how much you want to have in homeowners insurance. You’ll want to weigh the financial risks you believe you face against the cost of insuring against them.

Here is a more detailed look at the four coverage types and how much coverage you might want to purchase.

Dwelling Coverage

Recommended coverage: Equal to your home’s replacement cost

Suppose your home burned to the ground in a fire or was flattened by a tornado. What would it cost to rebuild it, plus any other structures on your property, from scratch? That is your home’s replacement cost.

Bear in mind that replacement cost is not the same as your home’s market value, which is likely to be higher. For one thing, it doesn’t include the land beneath your home, which presumably survives intact.

Replacement costs can vary from one part of the country to another. An insurance agent or appraiser can help you estimate your replacement cost based on the home’s square footage and materials. There are also a number of calculators available online that will give you an estimate based on your ZIP code, although Investopedia hasn’t tested them and can’t vouch for their accuracy.

Some insurers offer guaranteed replacement cost coverage, which will pay to rebuild your home even if the cost exceeds the amount of coverage you purchased, such as due to an unexpected increase in construction or material costs. Others may offer extended replacement cost coverage, which covers the additional costs up to a certain percentage, such as 20% or 25%, of the policy limits.

However, in most cases, even guaranteed replacement cost coverage won’t reimburse you for any added expenses that are the result of changes to local building codes since your home was built. For that you may need to purchase an endorsement for your policy.

Important

In addition to coverage amounts, you’ll want to consider your policy’s deductibles—how much you’d have to pay out-of-pocket before your insurance kicks in. Higher deductibles mean lower costs but greater financial risk for policyholders.

Personal Property Coverage

Recommended coverage: Enough to replace all your belongings

Homeowners policies generally provide coverage for your personal possessions, calculated as a percentage (such as 50% to 70%) of your dwelling coverage.

That may or may not be adequate, depending on what you own. If you have some particularly valuable items, such as a jewelry or artwork, you might want to insure them with an additional endorsement or floater.

Whatever you decide, it’s a good idea to make a written inventory of your possessions periodically, complete with photographs, to refresh your memory in case you ever need to file a claim. In the aftermath of a fire or other disaster, it is easy to forget everything you’ve lost.

Liability Coverage

Recommended coverage: As much as you can afford

Many homeowners policies come with at least $100,000 in liability coverage. That could come in handy if, for example, a visitor trips on your property and hurts themselves, your dog bites someone, or your old oak tree damages a neighbor’s car.

Depending on what happened—and how inclined the injured party is to sue you—$100,000 may not be enough. For added protection and peace of mind you can increase your liability limits or purchase an umbrella policy. It can supplement the liability coverage on both your homeowners and auto insurance coverage and help safeguard your other assets from a costly legal judgment.

Additional Living Expenses (ALE) Coverage

Recommended coverage: 10% to 30% of your dwelling coverage

If your home becomes unlivable, you will have to stay somewhere while it is being restored to normal. That might mean you may need a hotel or a short-term rental, for weeks, months, or even years.

Additional living expenses (ALE) coverage will defray part of those bills, including the cost of some restaurant meals, for a certain period of time. Bear in mind that it won’t pick up the entire tab, only the portion that exceeds your normal, pre-calamity living expenses.

ALE coverage is usually calculated as a percentage of your dwelling coverage, and it’s often 20%. If you don’t think that’s enough and want to increase it, you may have the option of buying more.

What Is the Difference Between Home Warranty and Home Insurance?

A home warranty is a contract that promises to reimburse part or all of your costs if, for example, your dishwasher or central air conditioner go kaput. In other words, it covers some of the everyday repair expenses that homeowners policies don’t. A home warranty is entirely optional and may or may not be worth buying. Home insurance, on the other hand, covers serious damage to your home or other property and is often mandatory if you have a mortgage.

What Is the Difference Between Homeowners Insurance and Mortgage Insurance?

Homeowners insurance is intended to protect you, as well as your lender, from financial loss if your home or possessions are seriously damaged or destroyed. Mortgage insurance, on the other hand, exists to protect your lender’s financial interests if you’re unable to make your monthly payments. One commonality is that you are expected to pay for both of them.

Is Homeowners Insurance Mandatory?

Not always. Unless you have a mortgage, in which case the lender will likely require it, homeowners insurance is not required by law. However, you’re taking a big risk if you go without it.

The Bottom Line

Homeowners insurance can protect you from serious financial losses if your home is damaged or destroyed or if you’re sued for allegedly causing harm to another person or their property. Whether or not you’re required to buy a policy, having one and checking the coverage limits periodically to make sure they’re adequate, is a wise move from a financial perspective.

Hint: It’s Not Older Adults

For years, the narrative surrounding financial fraud has often centered on older adults as the primary targets. However, recent data paints a different picture, as younger adults have become an outsized proportion of those affected. This is driven, in part, by the online habits of younger generations, where their familiarity with digital platforms makes them better targets of scams.

“Younger adults often believe tech savviness equals scam immunity,” Adewale Adeife, a senior cybersecurity consultant at EY, told Investopedia. “That overconfidence lowers their guard and makes them ideal targets for fast-money schemes,”

In this article, we highlight the types of scams that target different age groups and the psychological factors that make younger adults particularly susceptible.

Key Takeaways

• U.S. Federal Trade Commission data shows that young adults lose money to scams at nearly twice the rate of older adults, upending conventional fraud stereotypes.
• Younger adults primarily encounter online scams like fake shopping sites, cryptocurrency fraud, and job offer schemes via social media.

Age-Based Vulnerabilities: Myth vs. Data

For years, conventional wisdom suggested older adults were the primary victims of financial fraud. However, recent research emphasizes a recurring finding in recent years: younger adults are losing money to fraud at rates that outpace those who are older, even as the “success” rate for scam artists (those where money is gained) is rising for all age groups.

Still, scammers are working to take advantage of online habits, social behaviors, finances, and psychology, all of which are affected by age. FTC data shows that in 2024, 44% of people ages 20 to 29 who reported fraud had financial losses, compared with 24% among those aged 70 to 79. Similarly, a 2024 PYMTS Intelligence and Featurespace study found that 83% of young adults were deceived at least once by a suspicious link in a message, with 39% of millennials and 36% of Gen Z reporting household losses to scams compared with only 19% of Baby Boomers and older adults.

Fraudsters are taking money from people of all demographics, and no one is too “savvy” to avoid being among those who are next. In one year alone, from 2023 to 2024, according to FTC data, the percentage of frauds where money was turned over rose 40%.

Digital Natives, Digital Prey

While young people are often called “digital natives,” this familiarity with technology doesn’t translate to some sort of scam immunity. A March 2025 study looking at Instagram users between 16 and 29 found that frequent social media use often leads to “quick, instinctive decisions instead of systematically evaluating risks,” Jennifer Klütsch, one of its authors, told the Wall Street Journal.

The study also found that younger people are both more likely to trust a sender they recognize without scrutinizing suspicious links and to make impulsive decisions driven by fear of missing out on social experiences. This vulnerability aligns all too well with scammers’ tactics. Klütsch and her colleagues’ work, building on previous research, found that messages from followers (versus non-followers) and messages offering social opportunities (compared with faux job or relationship prospects) substantially increased young people’s susceptibility to phishing, where scammers impersonate legitimate senders in emails and texts.

“Social media is valued as a trusted and habitually-used environment, [and] its design makes it also inherently conducive to the effectiveness of [social engineering] attacks,” Klütsch and her colleagues concluded.

Types of Scams Targeting the Young

Young adults face particular scams tailored to their digital habits and life stage:

• Employment scams: “We’re seeing a rise in job offer scams, where fake recruiters ask for training fees,” Adeife said. Other common tactics include fake check schemes where victims deposit fraudulent checks and transfer money for “training” or “equipment.”
• Online purchase scams: Young bank customers are more than twice as likely to use credit cards to pay scammers as those over 40. The top products used include event tickets, salon services, jewelry, clothing, and eyewear.
• Cryptocurrency scams: Cryptocurrency fraud is among the most remunerative for scam artists, with a “success” rate of 60% when targeting the young.
• Social media scams: Social media platforms have become primary arenas for fraud targeting younger adults. “[Scammers] pose as influencers or friends, adding urgency with fake threats like ‘Your account will be closed,’” Adeife said. Since 69% of Gen Z claim to be “always connected” to the internet (compared with 32% of Baby Boomers), scammers have far more access to them than with other generations. In addition, on platforms like Instagram, messages from supposed followers can exploit users’ trust in the platform itself.

The Bottom Line

“Young adults are a susceptible user group, prone to be targeted by phishers who exploit their needs and expectations,” Klütsch and her colleagues wrote in the March 2025 study. This accessibility for scamsters operating worldwide means that younger adults are being defrauded at rates far higher than other generations. “Many people think scams mostly affect older adults,” the FTC has noted. “But reports to the FTC…tell a different story: anyone can be scammed.”

Reviewed by Thomas Brock
Fact checked by Suzanne Kvilhaug

Gold often plays a defensive role in long-term portfolios as a hedge against inflation, currency risk, and market turmoil. This is because of its low correlation with other assets—it doesn’t simply rise and fall with the stock market, real estate, etc.

However, with short-term trades, gold mining exchange-traded funds (ETFs) offer a more dynamic opportunity. They’re more volatile, but also highly liquid, while tending to amplify gold’s price moves, which means more trading setups. These ETFs respond well to technical analysis indicators like the relative strength index (RSI) and moving average convergence divergence (MACD), and relative strength ratios, making them suitable for trend-based strategies.

Key Takeaways

• Some gold mining exchange-traded funds (ETFs) offer indirect leveraged exposure to gold prices and are great for short-term trading because of their volatility and liquidity.
• Technical analysis is very useful for navigating gold mining ETFs, helping to identify trends, confirm momentum, and manage risk.
• Other useful tools for confirming trend strength and gauging market sentiment are the GDX/GLD and GDXK/GDX ratios.
• Higher swing highs and lows in both gold and mining stocks signal trend sustainability and institutional conviction.

Understanding Gold Mining ETFs

Gold mining ETFs give traders and investors exposure to the performance of gold mining companies versus gold ETFs, which provide exposure to the physical metal. This makes gold mining ETFs more dynamic, but riskier, than a pure gold play.

These funds are driven not only by gold prices but also company-related and geographic factors like management and production costs. Generally, they’re more volatile but can outperform in bull markets thanks to operating leverage, and some even pay dividends. Gold itself is more stable and often used as a hedge against inflation or as a safe haven in a crisis.

Using Technical Analysis for Gold Mining ETFs

Technical analysis indicators and tools like moving averages, RSI, MACD, and volume indicators help traders identify trends, confirm momentum, and manage risk.

Support and resistance levels, swing highs and lows, are for timing entries and exits, while volume spikes often signal institutional moves. Moreover, studies show that trend-following strategies based on these signals can boost returns, making technical analysis especially useful in navigating trends in this sub-asset class.

Identifying Uptrends in Gold Mining ETFs

Finding a strong uptrend in gold and gold mining ETFs means keeping an eye on rising prices with higher highs and higher lows. This should be confirmed by strong volume and momentum indicators like RSI, MACD, and the average directional index (ADX).

A rising GDX/GLD ratio is a big plus. It shows that miners are leading the charge, which often signals bullish sentiment. Breakouts above resistance levels and intermarket cues, such as a declining U.S. dollar or declining real yields, can further validate the move.

With their leverage to gold, miners can deliver two to three times the returns in bull runs. Thus, utilizing a mix of technical signals can help confirm the trend and boost your confidence in specific trades.

Price Momentum and Confirmation

Gold and gold mining stocks are highly correlated—they tend to move together—and when both show higher highs and higher lows, it confirms the uptrend and that it is supported by institutional confidence.

Mining stocks often react strongly to changes in the price of gold, so if gold is rising and the gold mining ETFs follow suit, particularly with increasing volume and momentum, that would confirm the trend. A rising GDX/GLD ratio adds further conviction, while synchronized strength helps traders avoid false signals. Indeed, watching the price action is also suitable for setting stops or scaling into positions, especially when breakouts align across both markets.

Using Ratios for Confirmation

The GDX/GLD ratio helps to confirm trends. This ratio shows whether gold mining stocks are outperforming physical gold, a sign of growing risk appetite and bullish sentiment. If the ratio is increasing alongside gold, that’s a strong confirmation. Conversely, if it’s falling while gold climbs, that’s a red flag for weak momentum.

Traders often use this ratio with technical indicators like moving averages, RSI, or support and resistance levels to refine entries and exits. Nonetheless, the GDX/GLD ratio is not a stand-alone signal; it’s good for trend validation and spotting divergences that can hint at the next big move.

In addition, when junior gold miners outperform seniors, which can be observed with the GDXJ/GDX ratio, this often signals growing investor confidence and risk-on appetite.

Identifying Downtrends in Gold Mining ETFs

Downtrends can be identified on charts when price makes lower lows and lower highs, which is the inverse of an uptrend. Also, look for the price to move below popular moving averages like the 50- and 200-day. Volume on down days will often be up.

A falling GDX/GLD ratio, weak momentum, and limited buying interest on rallies will confirm these moves. Combined, this is a classic setup for a downtrend. Indeed, these moves often reflect broader risk-off sentiment, rising real yields, or a stronger dollar, all of which significantly impact the price of gold.

The Role of Junior Miners in Trend Analysis

Junior gold miners are high beta plays that react more sharply to gold price moves and shifts in sentiment, making them great indicators of the strength or weakness of the trend.

But if they lag during a gold rally, it could point to underlying skepticism. Traders watch this relationship closely, using it to confirm breakouts, spot early momentum, or catch signs of trend exhaustion. In bull market runs, juniors tend to surge after seniors, while in downturns, they often lead the way down, making them a valuable gauge of sentiment.

A Practical Example Using Technical Analysis

Here’s a typical setup for a swing trader focused on gold mining ETFs. The trader will usually monitor the GDX/GLD and GDXJ/GDX ratios on a longer-term time frame, either daily or weekly, to get a read on broader relative strength. If both ratios are trending higher, that’s a strong sign that miners are outperforming, and a green light to start looking for trades in GDX and GDXJ.

Once there is an understanding of the overall relative strength, the trader will then zoom in on the shorter-term time frames for the gold miner ETFs, using a moving average to gauge trend direction and indicators like the MACD and RSI to time entries. Volume spikes add further confirmation.

In this case, the GDX/GLD and GDXJ/GDX ratios are rising, and there is some bullish RSI divergence, positive moving average crossovers, and positive MACD crossovers, so the swing trader would most likely try to enter long positions in GDX and GDXJ.

Warning signs like bearish divergences, MACD crossovers to the downside, or a breakdown in relative strength ratios typically trigger exits. If the broader trend in those ratios remains bullish, the trader keeps running the playbook, waiting for the next signal to jump back in.

The Bottom Line

Gold mining ETFs give investors leveraged exposure to gold, reflecting not only the metal’s price but also equity factors, making them more volatile than the direct gold play. This is where technical analysis can help.

Tools like moving averages, RSI, MACD, and volume indicators help traders spot trends, confirm momentum, and manage risk in this relatively volatile space. Barometers include synchronized price action between gold and miners, GDX/GLD or GDXJ/GDX ratios, and classic uptrends or downtrends.