finance

Reviewed by Charlene Rhinehart

Market Capitalization vs. Shares Outstanding: What’s the Difference?

Both market capitalization and shares outstanding refer to public companies, as they have publicly listed shares, whereas private companies do not. However, there are relevant differences between the two. Let’s take a look at what the difference is between market capitalization and shares outstanding.

Key Takeaways

• Two ways to measure the size of a company include market capitalization and shares outstanding.
• Shares outstanding refer to the number of shares of a company held by all of its shareholders.
• Shares outstanding is a component of market capitalization, which is the total number of shares outstanding multiplied by the current share price of a single share.
• Market capitalization values are categorized as small-cap, mid-cap, and large-cap.

What Is Market Capitalization?

Market capitalization, also known as market cap, is a monetary value that changes every day as the share price of a company changes every day. Because companies vary in size, market cap values are divided into categories to help simplify company valuation.

Companies with a market cap of less than $2 billion are considered small-cap. Companies with a market cap of $2 billion to $10 billion are mid-cap, and anything larger than $10 billion is considered large-cap. Large-cap companies are the big ones, such as General Electric (GE), Apple (AAPL), or Starbucks (SBUX). The stocks of these companies are sometimes called blue-chip stocks.

While it may seem that a larger, more established company presents a better investment opportunity, many in the finance industry warn against underrating small-cap stocks. Though newer, smaller companies are more likely to go under than their giant counterparts, they also have exponentially more room to grow. Getting in on the ground floor with a successful small-cap stock can be highly lucrative.

Conversely, the larger a company is, does not necessarily mean it is a better investment. Large companies may be saddled with debt, have limited growth prospects, and a multitude of other problems that come with operating on a larger scale.

Changes in Market Cap

Market capitalization is not a fixed number—it fluctuates constantly based on stock price movements. Since the market cap is calculated by multiplying a company’s share price by the number of shares outstanding, any change in stock price directly impacts the company’s market value.

In addition to stock price changes, corporate actions like share buybacks can significantly impact market capitalization. A stock buyback occurs when a company repurchases its own shares from the open market, reducing the total number of shares outstanding. This can result in a stable or even increased market cap.

Secondary offerings, where a company issues additional shares to raise capital, can dilute existing shareholders and affect market cap in different ways. If the newly raised capital is used effectively for growth initiatives, such as acquisitions or expanding operations, it can increase investor confidence and potentially drive the stock price higher, leading to a larger market cap. However, if investors perceive the dilution negatively—especially if the offering is done out of financial necessity—it may put downward pressure on the stock price, potentially reducing the market cap.

Note

Market cap tells you how large a company is. The higher the market capitalization, the larger it is.

What Are Shares Outstanding?

Shares outstanding refer to the number of shares of a company that are currently being held by its shareholders. When a private company needs to raise capital, it undergoes an initial public offering (IPO), selling ownership in itself by distributing shares on a public stock exchange. A company can distribute more shares at a later date if it needs to raise more capital or conversely buy back stock, reducing the shares outstanding. As such, shares outstanding is a number that changes often.

Changes in Shares Outstanding

Shares outstanding can change due to a variety of corporate actions. Companies may repurchase their own shares to reduce the number of shares outstanding. Meanwhile, stock splits increase the number of shares outstanding without affecting the company’s market capitalization.

One major distinction in shares outstanding is between basic and diluted shares. Basic shares outstanding refer to the total number of shares currently issued and held by investors, including those held by insiders but excluding potentially dilutive securities. Diluted shares outstanding account for all possible shares that could be created if stock options, warrants, or convertible securities were exercised.

Stock options and warrants are also two common instruments. Stock options allow the holder to purchase shares at a predetermined price. When employees exercise their options, new shares are issued. Warrants function like options but are issued directly by the company, often as incentives in financing deals.

Last, convertible securities also impact the diluted share count. These let investors convert their holdings into common shares under specific conditions. Their conversion could increase the number of shares outstanding.

Note

Two companies can have the same stock price but have wildly different market capitalizations. This means that one company is bigger than the other, even if both stocks trade for the same dollar amount.

Market Capitalization Vs. Shares Outstanding: What’s the Difference?

Market capitalization and shares outstanding are closely related but serve distinct purposes. Market cap is the total value of a company’s equity. Shares outstanding is the total number of shares issued and held by investors.

One key difference is that market cap fluctuates constantly with stock price movements, while shares outstanding change primarily due to corporate actions. Market cap can rise or fall based on investor sentiment, earnings reports, or broader economic conditions. The main way shares outstanding typically change is when companies issue new stock, conduct buybacks, or undergo stock splits. The function between the two is very different.

Another distinction lies in their role in investment analysis. Market cap is a primary indicator of company size and is used to compare firms across industries, helping investors assess risk and growth potential. Shares outstanding, however, are more relevant for financial metrics related to dilution effects. We’ll discuss this use in analysis in the next section.

Market Cap and Shares Outstanding Similarities

Market capitalization and shares outstanding are directly connected through the formula: Market Cap = Stock Price × Shares Outstanding. In short, you must know the shares outstanding in order to calculate market cap.

Both market cap and shares outstanding reflect a company’s size and investor perception but in different ways. Market capitalization provides a broad measure of a company’s worth in the stock market, while shares outstanding indicate how ownership is distributed. As both are an indicator of value, the interplay between these two factors determines how a company is valued relative to its peers.

Use in Financial Analysis

Market capitalization is a calculation where one of the inputs is shares outstanding. Because shares outstanding is an input number as opposed to a calculation, it can be used in a variety of calculations in addition to market capitalization.

Other metrics in which shares outstanding provides useful information include earnings per share (EPS) and cash flow per share (CFPS). In theory, any number can be paired with shares outstanding to come up with a per-share valuation.

What Is Market Capitalization?

Market capitalization is the total value of a company’s outstanding shares, calculated by multiplying the stock price by the number of shares outstanding. It represents the company’s overall worth in the stock market.

What Are Shares Outstanding?

Shares outstanding refer to the total number of shares a company has issued that are currently held by investors, including both public and restricted shares. This number changes due to corporate actions like stock buybacks or new share issuances.

How Are Market Capitalization and Shares Outstanding Related?

Market cap is directly calculated using shares outstanding; you find market cap by calculating the stock price with the shares outstanding. While stock price changes frequently, the number of shares outstanding typically changes less often due to corporate actions.

Can a Company Have a Low Stock Price but a High Market Cap?

Yes. If a company has a large number of shares outstanding, even a low stock price can result in a high market cap. 

Why Is Market Cap a Better Indicator of Company Size Than Stock Price?

Stock price alone does not reflect a company’s size, as it does not account for the number of shares outstanding. Consider an example of Firm A with 1,000,000 shares, each worth $100. That company would be worth magnitudes more than a company with 10,000 shares each worth $100.

The Bottom Line

Market capitalization and shares outstanding are closely related but serve different purposes in evaluating a company’s value. Market cap represents the total worth of a company in the stock market, calculated by multiplying the stock price by shares outstanding, while shares outstanding refer to the total number of issued shares held by investors.

Reviewed by Margaret James
Fact checked by Yarilet Perez

Ex Works (EXW) vs. Free on Board (FOB): An Overview

Ex Works (EXW) and Free on Board (FOB) are international shipping standards known as Incoterms that dictate the responsibilities of buyers and sellers. The Incoterms used determine which parties are required to cover the costs and arrangements related to the shipping of goods.

When Ex Works is used, a seller is not obligated to load its goods onto the buyer’s designated method of transport. Instead, the seller makes the products available at a selected location, and the buyer incurs transportation costs for them.

When using Free on Board, a seller is required to load the goods onto the buyer’s method of transport at the shipping point and may be responsible for them throughout the trip and to the final destination. The seller retains ownership and responsibility for the goods until they are loaded “on board” a shipping vessel. Once on the ship, all liability transfers to the buyer.

Key Takeaways

• Ex Works and Free on Board are both international shipping terms.
• Incoterms specify the rules and terms used in international and domestic trade contracts. 
• Ex Works requires that the seller make the product available at a designated location, and the buyer incurs transport costs.
• Free on Board makes the seller responsible for the goods until they are loaded on a shipping vessel, at which point, all liability transfers to the buyer.

Ex Works

Shipping using the designation Ex Works (EXW) indicates the seller has a responsibility to make sure the buyer can access and pick up the cargo at their place of business. EXW can be chosen for any mode of transportation.

Transportation costs and associated risks are no longer a burden for the seller under the EXW option, which favors the shipper.

For example, say a seller of electronic products is located in San Francisco and the buyer is located in New York. The buyer and seller agree on the products’ prices and sign an Ex Works trade agreement. It spells out that the seller must have the products transport-ready for the buyer to pick up in two weeks. After the pickup, the buyer is responsible for all of the further costs associated with transporting the goods to New York City. If the products get lost along the way, the seller is not liable.

Important

EXW often results in cheaper goods; however, the supplier’s risk is increased as they maintain responsibility for the product for longer.

Free on Board

Unlike EXW, when a buyer and a seller enter a Free on Board (FOB) trade agreement, the seller is obligated to deliver the goods to a destination for transfer to a carrier designated by the buyer. FOB can only be chosen when the goods are delivered by ship.

The designated location in a FOB trade agreement is the point at which ownership is transferred from the seller to the buyer. The responsibility often shifts at this arrival location. The seller is responsible for transporting goods up until this point, but the buyer may or may not be responsible for all transportation arrangements from this point to their location, depending on the terms of the agreement.

For example, suppose a buyer in Los Angeles purchases computers from a seller in Chicago and they sign a FOB trade agreement. The buyer determines that the computers are to be shipped by airplane, and the agreement obligates the seller to pay the transportation expenses associated with getting the computers to the Los Angeles airport. At this point, the responsibilities shift, and the buyer must cover all further costs related to transporting the computers to the final destination. The buyer is also liable for any damages that may occur during this phase of the shipping process.

Important

FOB transfers liability from seller to buyer when the shipment reaches the port of origin, not the destination.

Special Considerations

Contracts involving international transportation often contain abbreviated trade terms that describe conditions such as the time and place of delivery, payment, and when the risk of loss shifts from the seller to the buyer. Other items include who pays the costs of freight and insurance. The International Chamber of Commerce (ICC) publishes the standards for the most commonly used delivery contracts.

However, companies that ship goods in the United States must also follow the Uniform Commercial Code (UCC). Because there is more than one set of rules, the parties in a contract must specify which governing laws they use for a shipment.

What Do EXW and FOB Stand for?

EXW stands for Ex Works, an Incoterm whereby the buyer of a shipped product pays for the goods when they are delivered to a specified location. FOB, or Free on Board, instead shifts the responsibility to the buyer as soon as the goods are loaded onboard a ship.

Is Ex Works or Free on Board Better?

Goods shipped EXW will usually be cheaper since a Free on Board agreement means the supplier bears the costs of transportation, handling, and customs clearance. EXW terms, however, are often riskier for the seller since they are responsible for the goods until they reach their destination.

What are EXW or FOB Unit Prices?

In shipping, the unit price refers to the cost to ship a good based on a pre-agreed or standardized unit basis. Examples include coal per ton, oil per barrel, or grain per bushel.

The Bottom Line

The International Chamber of Commerce publishes international and domestic standards for the most commonly used delivery contracts. These rules are called Incoterms. ExWorks and Free on Board are two of the rules that define which party is responsible for a shipment and its costs at certain stages of delivery.

Divorce rates are rising for people over 50

Reviewed by Pamela Rodriguez

The “gray divorce” rate—divorce among people over age 50—has been rising, with the rate among people 65 and older nearly tripling between 1990 and 2022. If your marriage is dissolving, the last thing you want is to find yourself alone with legal fees, therapist bills, and disappearing retirement dreams. To make sure you’re on solid financial footing, you’ll need to avoid these 12 common money mistakes, including financially supporting your kids, holding onto the family home, and underestimating your expenses.

Key Takeaways

• Divorce rates for people aged 50 and over are rising.
• Household income after a divorce drops much more for women than for men.
• At a minimum, you need a divorce lawyer and a certified divorce financial analyst (CDFA) to help you navigate the process.
• Make sure to create an inventory of all your assets and your debts.
• Don’t forget to include retirement accounts, health insurance, and tax implications.

The Financial Fallout of Divorcing After 50

Divorce rates in the United States declined between 2011 and 2021, according to the Census Bureau. Except for people over 50, and especially those 65 and older, as noted above.

“If late-life divorce were a disease,” said Jay Lebow, a psychologist at the Family Institute at Northwestern University, “it would be an epidemic.” As married couples grow older, the glue that holds many marriages together dissolves, whether that’s children, shared interests, or financial dependence.

Divorce at this age can be financially devastating. The cost of living is considerably higher when you’re single than when there are two of you who share expenses. More worrisome, a mid-to-late-life split can shatter retirement plans. There’s less time to recoup losses, pay off debt, and weather stock market fluctuations. Also, you may be approaching the end of your peak earning years, so there’s less chance of making up financial shortfalls with a steady salary.

These concerns are magnified for women. After a divorce, household income for women can drop precipitously. In fact, according to the U.S. Census Bureau, 20% of women (vs. 11% of men) who had divorced in the previous 12 months had fallen into poverty. What’s more, because women’s life expectancy is about 81 years (versus 76 years for men), a divorced woman can find herself living for a lot longer with a lot less.

Below, we list some of the major mistakes that divorcees make, especially when they’re over age 50.

1. Failing to Create an Inventory of Assets

One partner often has a better understanding of a couple’s finances than the other. This person likely has a solid idea of how much money their investment accounts hold, the value of their assets, and how much cash is in their savings accounts, while the other partner isn’t as up to speed.

If you’re the latter person, you’ll want to take an inventory of all assets before attempting to split them up. In addition to knowing what’s in your bank accounts, you should also track your retirement accounts and life insurance policies.

If you are concerned about your finances, visit your local legal aid website, where you may be able to ask for pro bono legal assistance and/or representation in a civil case if your divorce heads to court.

2. Holding Onto the House

If you end up with the family home, think long and hard about keeping it. It may be your refuge, and not moving might seem less disruptive for any children still living at home. Still, it can also be a money pit, especially with only one person paying for the upkeep, property taxes, and emergency repairs.

Before deciding to stay, figure out if you can afford the mortgage and the costs associated with maintaining the property. Also, keep in mind that property values fluctuate, so don’t assume you can sell your house for the amount you need if money becomes an issue.

3. Not Knowing What You Owe

OK, you may know what you owe, but do you know what your spouse’s debt is? In the nine states with community property laws, you’ll be held responsible for half of what they owe even if the debt isn’t in your name.

Even in non–community-property states, you may be liable for jointly held credit cards or loans. Pre-divorce, be sure to get a full credit report for both you and your spouse, so there are no surprises about who owes what.

Important

The nine states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, all assets that accrue to a couple during their marriage through any means other than inheritance or as a gift are owned 50/50 by the husband and wife. Debts, too.

4. Ignoring Tax Consequences

Almost every financial decision you make during a divorce comes with a tax bill. Should you take monthly alimony or a lump-sum payment? Is it better to have a brokerage account or a retirement plan? Will you keep the house or sell it? And who should pay the mortgage until it sells?

For example, you might be excited to know that your soon-to-be-ex will be handing over an investment account with gains of $100,000, but that portfolio comes with a tax hit. This effectively lowers the amount you’ll receive. Even providing child support can have tax implications, so consult an accountant or tax advisor to determine what makes the most sense for your situation before divvying up assets.

If you need help with your taxes after a divorce, you may be eligible for tax relief from the government. In order to qualify for this federal benefits program, you must be separated or divorced and be a taxpayer. The program can help you find someone to help you with tax return preparation.

5. Forgetting About Health Insurance

If your spouse’s policy covers you, you may be in for a nasty—and expensive—surprise, especially if you divorce before Medicare kicks in at age 65. Basically, there are three options:

• Your employer can cover you
• You can sign up for your state’s healthcare exchange under the Affordable Care Act (ACA)
• You can continue to use your ex’s existing coverage through COBRA for up to 36 months, but the cost is likely to be substantially more than it was before the divorce

If new, separate health insurance policies threaten to break the bank, you may want to consider a legal separation. Under certain circumstances, you can keep your ex’s health insurance while separating your other assets.

6. Rolling Over Your Ex’s Retirement Account Into an IRA

If you experience financial difficulties after divorce, keep in mind that individual retirement account (IRA) laws can trump those financial problems. So if you fund your own new IRA with your share of your ex’s retirement account and tap it before age 59½, you’ll still pay the standard 10% early withdrawal penalty.

There is a solution: You may be able to protect the IRA assets in your divorce settlement through a qualified domestic relations order (QDRO), which allows you to make a one-time withdrawal from your ex’s 401(k) or 403(b) without paying the standard 10% tax, even if you’re under age 59½. 

7. Financially Supporting Other Adults

You may find it necessary to use your finances to help others around you. But it’s important to take a step back. No matter how much you’d like to help your adult children or other adult family members, your priority is to ensure you have a healthy retirement income.

Warning

Find out your state’s laws regarding divorce and paying for a child’s higher education. Some states stipulate that divorced parents share payments for university expenses while other states view college as a conditional expense and not part of a divorce settlement.

8. Hiding Assets From Your Spouse

In divorces in which a lot of money is at stake, you may be tempted to hide assets, so it looks like you have less money to contribute. Doing this could set you up for legal troubles plus legal fees and court time if the assets are found.

Some of the repercussions for hiding assets from your spouse include a settlement that will give your spouse additional assets, a contempt-of-court ruling, or fraud or perjury charges.

9. Underestimating Your Expenses

When the income that once covered one set of household expenses is suddenly divided by two, you may have to make some changes to your spending to afford your daily and monthly expenses. Take a realistic look at how much money you’ll need to live on, and make sure you can cover all of your expenses after the divorce without relying on your ex.

10. Thinking Your Divorce Advisors Are Your Friends

What you pay your divorce advisors comes out of the settlement you get. Keep track of how much they are spending on your behalf. Remember that while conversations with your attorney may seem friendly and personal, this is a paid professional who is charging you by the hour for every interaction.

11. Overlooking the Value of a Future Pension

Don’t forget to include any part of a pension that was earned during the marriage. According to the Institute for Divorce Financial Analysts (IDFA), there are three methods of doing this:

1. The nonemployee spouse can receive their share of a future benefit.
2. The pension can be present valued and offset.
3. Both (1) and (2) can be combined.

When choosing your solution, be sure to keep your specific needs top of mind. What good does it do you to look forward to a solid pension down the road if you need the cash to survive now?

12. Not Having a Team

Having a good divorce team is essential, so don’t skimp on your professional assistance. The IDFA considers the necessary minimum to be a divorce lawyer and a certified divorce financial analyst (CDFA), while noting that other possible members could be a mediator, an accountant, a business or pension valuator, and a child or individual therapist.

The IDFA advises that having the right assortment of pros to help you can actually reduce the cost of litigation while averting expensive mistakes you might make on your own. Of course, be certain to do your due diligence first before signing them up.

How Does Getting Divorced Affect Social Security Limits?

If you are age 62 or older and divorced from a spouse who is entitled to Social Security retirement benefits, you may be still able to receive benefits based on their records, if you meet certain requirements.

How Can You Protect Your Pension When Divorcing?

A pension earned by one spouse is looked at as a joint asset. This means your spouse may be entitled to half of it after divorce. You can protect your pension by reviewing your pension plan’s rules for how to divide the pension, propose financial alternatives to splitting your pension with your spouse, and, as always, talk to a certified financial advisor who specializes in divorce.

How Does Divorce Affect Your Life Insurance?

When you get divorced, it is likely you will want to remove your ex-spouse’s name as the primary beneficiary of a life insurance policy. If your policy is revocable, you can simply change the name. If your policy has a cash value, you may have to split the monetary value of the policy.

How Does a Prenup Affect a Divorce?

A prenuptial agreement usually outlines the distribution of assets so that in the event of a divorce, couples can avoid fighting over them. A prenup contract lists each spouse’s property and assets and states how everything will be treated in the event of a divorce. A prenup may also outline how you will agree to split up financial assets.

The Bottom Line

Divorce rates are dropping for people in most age groups. But for people over 50, the divorce rate is much higher than it is for married people who are younger. Although divorce can be devastating at any age, there are several mistakes you can avoid to save yourself from financial heartbreak in the future. A good place to start is by making sure you list your assets and your debts, disclosing all your assets to your spouse, and ensuring that you’re covered with health insurance.

Reviewed by JeFreda R. Brown

Vanguard Equity Income Fund Investor Shares (VEIPX) and Vanguard Dividend Growth Fund Investor Shares (VDIGX) are two Vanguard mutual funds that invest predominantly in domestic equities of companies that pay regular dividends.

While having somewhat similar investment objectives, these two funds differ on several fronts. Each has different exposure to sectors, numbers of holdings, management styles, and investment selection processes. Additionally, while VEIPX focuses more on large-cap value stocks, VDIGX holds a variety of large-cap stocks.

Key Takeaways

• Dividend funds are mutual funds that focus on buying stocks that pay higher-than-average or rising dividend yields.
• Vanguard Dividend Growth Fund Investor Shares and Vanguard Equity Income Fund Investor Shares are two dividend mutual funds offered by the investment management company Vanguard.
• While both funds focus on dividend-paying equities, they differ in many respects—the number of stocks held, asset allocations, and stock-picking methodologies.
• Like many Vanguard mutual funds, Vanguard Dividend Growth Investor Shares and Vanguard Equity Income Investor Shares have been reliable, low-cost vehicles for longer-term investors.

Investment Objectives

Peter Fisher—an industry veteran with 25 years of investment management experience, who took over the fund in 2024 from long-time manager Don Kilbride—manages Vanguard Dividend Growth Investor Shares and Vanguard International Dividend Growth Fund (VIDGX). Like his predecessor, Fisher prefers a concentrated portfolio of around 50 stocks of companies with strong competitive advantages. As of January 2025, the fund held 43 stocks.

Vanguard Dividend Growth Investor Shares holds companies with consistent dividend growth and does not necessarily own stocks that currently have above-average yields. In fact, the fund stays away from companies after dividend yields spike, which may signal upcoming dividend cuts. The result is a 30-day SEC yield of 1.56% as of January 2025. Additionally, the fund may, at times, look for stocks that have respectable payout ratios, which can sustain dividend growth going forward.

Vanguard Equity Income Investor Shares, on the other hand, tends to focus on stocks of high-yielding companies with low valuations, but promising growth prospects. This has led Morningstar to classify the fund under the large value category for its distinct emphasis on holding undervalued equities.

The fund typically holds a much larger number of stocks with lower price-to-earnings (P/E) ratios. The total number of stocks in the portfolio is 196 as of January 2025.

Michael Hand of Wellington Management advises Vanguard Equity Income Investor Shares, as well as Vanguard Quantitative Equity Group’s Sharon Hill. The fund focuses on higher-yielding dividend stocks, with a 30-day SEC yield of 2.42% as of January 2025.

$3,000

The minimum amount for initial investments into Vanguard Dividend Growth Investor Shares or Vanguard Equity Income Investor Shares mutual funds.

Sector Exposure

These funds also differ in their sector allocations based on their investment selection processes. The largest sector allocations in Vanguard Dividend Growth Investor shares are:

• Health care (19.7%)
• Industrials (16.4%)
• Information Technology (15.9%)

Vanguard Equity Income Investor Shares, on the other hand, favors:

• Financials (22.3%)
• Health Care (14.6% allocation)
• Industrials (12.0% allocation)

Investment Performance

When it comes to investment performance, VDIGX has slightly outperformed over longer periods of time compared to VEIPX. For the 10-year period ending Jan. 31, 2025, the fund generated an average annual return of 11.06%, while VEIPX posted a 10.75% return.

However, the same has not been true in the short term. Over the last three- and five-year periods, VDIGX generated annualized returns of 6.07% and 9.92%, respectively. VEIPX’s returns for the same periods were 8.88% and 11.18%, respectively.

VDIGX is a two-star rated fund by Morningstar, while VEIPX is rated four stars as of 2024. VDIGX’s expense ratio comes in at 0.29%, while VEIPX’s is 0.27%.

When Were VDIGX and VEIPX Established?

Both VDIGX and VEIPX are relatively old funds. VDIGX was established May 15, 1992, while VEIPX was established Mar. 21, 1988.

What Are the Three Largest Holdings in VDIGX and VEIPX?

VDIGX is weighted more heavily in tech companies, while VEIPX is more heavily weighted toward financial and healthcare companies. VDIGX’s three largest holdings are Apple Inc. (AAPL), Microsoft Corp. (MSFT), and Stryker Corp. (SYK). Meanwhile, VEIPX’s largest holdings are Broadcom Inc. (AVGO), JPMorgan Chase & Co. (JPM), and Johnson & Johnson (JNJ).

How Often Do VDIGX and VEIPX Pay Dividends?

VDIGX and VEIPX both pay dividends to shareholders. VDIGX typically pays a dividend semi-annually, typically at the end of March, June, and December. In contrast, VEIPX pays a quarterly dividend, in mid-March, June, September, and December.

The Bottom Line

Vanguard Equity Income Fund Investor Shares and Vanguard Dividend Growth Fund Investor Shares are both Vanguard mutual funds that provide exposure to large cap U.S. stocks that pay reliable dividends. While the funds both have a focus on dividend-paying companies, they have different approaches when it comes to investment objectives, sector exposure, number of holdings, and management style.

Reviewed by JeFreda R. Brown

The thought of “being your own boss” is sure exciting and if you plan to do it by setting up your business and are ready with a business plan, the next crucial step is deciding the right business structure. This decision has far-reaching repercussions for the business and thus requires careful selection. Factors like personal liability, regulations, tax treatment, etc are governed by the form of your business entity which could be a Sole Proprietorship, Corporation, Partnership, or a Limited Liability Company (LLC).

One easy, efficient, and fast way to start a company is to set up a Limited Liability Company (LLC). Let’s explore what exactly an LLC is, its suitability, advantages, and disadvantages, along with other fundamental factors that can help you decide if an LLC is right for you and your business.

Key Takeaways

• The most common forms of business structures are sole proprietorships, corporations, partnerships, and limited liability companies (LLCs).
• An LLC is a hybrid structure that combines some features and benefits of a corporation and others of a partnership or sole proprietorship.
• Like a corporation, LLCs provide their members with limited liability. And like a partnership or sole proprietorship, LLCs have pass-through taxation so profits are taxed as part of the members’ personal income.
• However, LLCs have some drawbacks too. For example, the members of an LLC have to pay self-employed taxes. Also, fees are higher than in sole proprietorships or general partnership

What Is an LLC?

The LLC is a relatively newer form of business entity in the U.S. It was Wyoming that enacted the first formal LLC statute in 1977. The act amalgamated the beneficial features of a partnership and corporations and was based on the German Code and the Panamanian LLC. Initially, the IRS ruled in 1980 that LLCs would be taxed as corporations, which prevented them from gaining popularity. However, in 1988 the IRS changed its rules to allow LLCs to be taxed like a partnership. Over the years since then, all states have passed legislation to permit LLCs.

An LLC is a hybrid form of business entity that has selected features of a corporation and a partnership. It has been structured in a way to benefit from the pass-through taxation feature of a partnership along with allowing flexibility in operation and management and yet have limited liability like in the case of a corporation.

In the U.S., LLC laws are governed by individual states but are recognized in all. The laws further vary across countries. The “owners” of the company, in the case of LLCs, are referred to as “members.” Usually, a single person can start an LLC and there is no upper ceiling on the number of members.

There are many established and well-known companies that are structured as LLCs. A few names are FCA US LLC (Chrysler automobiles), Westinghouse Electric Company LLC, and Blockbuster LLC. Some businesses like banks and insurance companies are ineligible to be LLCs.

Advantages

Registering your company as an LLC has many benefits. Let’s take a look at some of the biggest advantages below.

Limited Liability

This is one of the features of an LLC in which it resembles a corporation. LLC provides its owners a protective shield against business debt and liability.

Let’s take an example, there is a shoe store “boot & boot” owned by Jimmy that loses its customers to one of the more fancy stores around the corner. The business is not doing well and the company hasn’t paid rent for the last eight months and bills for three shipments of shoes. Thus, “boot & boot” owes approximately $75,000 to its creditors who have filed a lawsuit against the company.

In this case, the creditors have full right to claim the money owed from the company but have no right to Jimmy’s personal assets (bank deposits or gold or real estate). In an LLC, only the company’s assets can be liquidated to repay the debt and not the owners. This is a big advantage that is not provided by a sole proprietorship or partnership where owners and the business are legally considered the same adding vulnerability of personal assets.

Taxation

The company is not taxed directly by IRS as an LLC is not considered a separate tax entity. Instead, the tax liability is on the members who pay through their personal income tax. Let’s look at an example.

Say “boot & boot” has two members and has made net profits to the tune of $60,000 in a year. The net profits will be divided into two (number of members) and this amount will be taxed as their personal income depending upon their overall tax liability. Because of non recognition of LLC as a business entity for taxation purposes, the tax return has to be filed as a corporation, partnership or sole proprietorship.

Remember that certain LLCs are automatically classified by IRS as a corporation for tax purposes, so be sure to know if your business falls in this category. Those LLCs that not automatically classified as a corporation can pick the business entity of choice by filing the Form 8832. The same form is used in case the LLC wants to change the classification status.

Fewer Hassles

Among all forms of companies, starting an LLC is easier, with fewer complexities, paperwork, and costs. This form of company comes with a lot of operational ease with less record-keeping and compliance issues. LLCs also provide a lot of freedom in management as there is no requirement to have a board of directors, annual meetings, or maintain strict record books. These features reduce unnecessary hassles and help save a lot of time and effort.

The formation of an LLC broadly requires filing the “articles of organization” which is a document including basic information like business name, address, and members. The filing is done with the Secretary of State for most states and has an associated filing fee.

Next comes creating an Operating Agreement, which though not mandatory in most states is recommended especially for multi-member LLCs. On registration of the business, other licenses and permits have to be obtained.

Additionally, some states like Arizona and New York require publishing about the LLC formation in the local newspaper.

Flexibility in Allocation

LLC provides a lot of flexibility when it comes to investing as well as profit sharing.

In an LLC, members can opt to invest in a different proportion than their ownership percentage i.e. a person who owns 25% of the LLC, need not contribute money in the same proportion for the initial investment. This can be done by creating an operating agreement, which states percentages of company profits (and losses) for each member regardless of the amounts of their initial investments. So it’s possible to have an outside investor put money in the business without ownership.

The same applies to the distribution of profits where LLC members have the flexibility to decide the allocation of profits. The distribution of profits can be in a different proportion than ownership. A certain member may take a bigger chunk of profits by consensus for the extra hours or effort they have put into carrying out the business.

Disadvantages

While a limited liability company (LLC) offers an edge over some of the other forms of business entity, there are also some drawbacks that need to be looked at before selecting an LLC as the business structure.

Limited Life

The life of an LLC is limited by the tenure of its members. While there can be variations across states, in most of them the business is dissolved or ceases to exist when a member departs an LLC further requiring the other members to complete the remaining business or legal obligations needed to close the business. The rest of the members can choose to set up a new LLC or part ways. This weakness of an LLC can be overcome by including appropriate provisions in the operating agreement.

Self-Employment Taxes

The members of an LLC have to pay the self-employed tax contributions towards Medicare and Social Security as they are considered self-employed. Due to this, the net income of the business is subject to this tax. To avoid this, depending upon the business turnover and tax burden, the entity can choose to be taxed like a corporation if it works out more beneficial. Consult an accountant before making this choice.

Fees

The fee that is typically paid by an LLC as initial costs or ongoing charges is more than that for business entities like sole proprietorships or general partnerships, but less than what a C-corporation has to pay. The various types of fees include applicable state filing fees, ongoing fees, and annual report fees.

Precedent Is Less

LLCs are a relatively newer business structure and thus there have not been many law cases related to them. For this reason, there is not as much legal precedent or case law for LLCs as there is for the older forms. Having a certain legal precedence helps to act accordingly in the same given case scenario. There is more vulnerability as there are few established laws.

What’s the Difference Between a Corporation and an LLC?

The main difference between a corporation and an LLC is that a corporation is owned by its shareholders, and an LLC is owned by one or more individuals, referred to as “members.” Corporations must comply with certain formalities such as shareholder meetings, while LLCs provide more flexibility in terms of management.

What’s the Difference Between a Partnership and an LLC?

The main difference between a partnership and an LLC is that a partnership doesn’t have any separate legal entity from its partners, while an LLC does. This means that an LLC separates the business assets of the company from the personal assets of the members. This provides protection to the members and insulates them from the business’s debts and liabilities in the event it fails.

What Are Some Examples of Well-Known LLCs?

Alphabet, Google’s parent company is an LLC. Other well-known companies that are LLCs include Pepsi-Cola, Sony, Nike, and eBay.

The Bottom Line

LLCs are a good combination of protection with flexibility and tax benefits. It provides an array of taxation alternatives while shielding individual members from personal liability. LLCs are seen as apt for small businesses as there is less hassle and complexity in their functioning. However, consulting an accountant or lawyer for expert opinion is advisable before taking the final call.

Women still earn less than men for comparable work in 2025 America

Reviewed by Erika Rasure

The gender wage gap is the disparity in incomes between men and women for doing the same work. Also known as the gender pay gap, it has narrowed since the 1960s but remains significant. Closing the gap has become an important focus for governments, nonprofit organizations, and businesses. This article focuses on the gender wage gap in the U.S., its long history as a political issue, and where it stands today.

Key Takeaways

• The gender wage gap refers to pay disparities between men and women doing the same work. There is also a racial wage gap.
• Congress didn’t take major action to address the gender wage gap until the passage of the Equal Pay Act in 1963, although the “Equal Pay for Equal Work” movement dates back to the 1860s.
• The gender wage gap has generally narrowed over the years, but in 2023, women earned less than 83 cents for every dollar that men earned, a 1.5% drop from the 84 cents they earned vs. men in 2022.

Early History of the Wage Gap

Though the gender wage gap probably dates to the beginnings of civilization, it emerged as a political issue in the U.S. in the 1860s under the rallying cry of “Equal Pay for Equal Work.”

Among the movement’s most vigorous advocates were women’s rights activists Susan B. Anthony and Elizabeth Cady Stanton, who made a case for bridging the wage gap in their newspaper, The Revolution, and other works.

Women eventually won the right to vote in the U.S. with the ratification of the 19th Amendment to the Constitution in 1920. Nevertheless, the wage gap persisted.

The 1940s: A Failed Attempt to Bridge the Gap

Winifred Claire Stanley, a Republican member of Congress from New York, introduced a bill in 1944 titled “Prohibiting Discrimination in Pay on Account of Sex.” It would have amended the list of unfair labor practices in the National Labor Relations Act of 1935 to include discriminating “against any employee, in the rate of compensation paid, on account of sex.” Stanley’s bill never made it through Congress.

Note

Other wage gaps exist in the pay disparities between White workers and Black and Latino/Latina workers, along with the pay of workers in the U.S. and those in other countries.

The 1960s: Major Strides for Equal Pay and Civil Rights

The next major attempt to address the inequity on a national level came two decades later, with the passage of the Equal Pay Act in 1963. It prohibited employers from paying male and female workers different wages for “jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.” However, it also allowed for several exceptions, including pay structures based on seniority or merit.

In signing the bill into law, then-President John F. Kennedy said that paying men and women different wages for the same work was an “unconscionable practice” and cited a statistic that “the average woman worker earns only 60% of the average wage for men.”

A year later, in 1964, Title VII of the Civil Rights Act also addressed the wage gap, broadening the law to make compensation decisions based on race, color, religion, sex, or national origin unlawful. As with the Equal Pay Act, there were multiple exceptions, again including seniority- and merit-based wage programs.

The 1970s and 1980s: A Call for Comparable Worth

In the 1970s and 1980s, the concept of comparable worth (or pay equity) entered the national conversation. Its proponents called attention to wage gaps among workers in jobs that, while not identical, could be considered similar in terms of skills, responsibility, and value to the overall enterprise. Often, they argued, those gaps were a legacy of past discrimination.

“Many women and people of color are still segregated into a small number of jobs such as clerical, service workers, nurses, and teachers,” the advocacy group National Committee on Pay Equity explains. “These jobs have historically been undervalued and continue to be underpaid to a large extent because of the gender and race of the people who hold them.”

Eleanor Holmes Norton, chair of the Equal Employment Opportunity Commission (EEOC) during the Carter administration, singled out comparable worth as “the issue of the 1980s.” But the Reagan administration, which followed, disagreed. Then-President Ronald Reagan reportedly called it “Mickey Mouse, a cockamamie idea…[that] would destroy the basis of free enterprise.” Pay equity and comparable worth made little progress on the federal level but did become law in several states.

The 2000s: Win Some, Lose Some

There were no major changes in the laws around payment by gender in the 1990s. Although the gender wage gap continued to shrink, it did not close.

A 2007 U.S. Supreme Court case, Ledbetter v. Goodyear Tire and Rubber Co., led to the next major federal law. Lilly Ledbetter sued her employer under the Civil Rights Act, alleging that it underpaid her for 19 years. A jury awarded her more than $3.5 million, but the company appealed, arguing that she failed to file her suit within 180 days of when the discrimination first occurred, as prescribed by law. An appeals court reversed the original decision, and the Supreme Court also ruled against Ledbetter in a 5 to 4 vote.

Dissenting justice Ruth Bader Ginsburg suggested it was now a matter for Congress to take up, which the legislative branch soon did. The Lilly Ledbetter Fair Pay Act, which passed in 2009, expanded the period for filing a discrimination claim, making it easier for other women to sue employers they believed discriminated against them. It was the first piece of legislation signed into law by then-President Barack Obama just nine days after his inauguration.

The Paycheck Fairness Act was another major legislative proposal addressing the wage gap, first introduced in 2009. Among other things, it called for greater enforcement of antidiscrimination laws and increased penalties for violators. The Paycheck Fairness Act initially passed the U.S. House but failed in the U.S. Senate. It has been reintroduced several times since then, including in 2021 when it again passed the House.

Important

Financial inequality among the genders is reflected in numerous ways aside from the wage gap. For example, when a company sells products aimed at women for more than comparable products for men, it is informally called a pink tax. And the “tampon tax” is an actual sales tax that many states impose on feminine hygiene products.

The Mid- to Late 2000s and 2020s

Despite progress on the legislative front over the past 100 years, the wage gap has been slow to narrow. According to the U.S. Census Bureau, women working full-time in 1960 earned about 60 cents for every dollar earned by men—the number cited by President Kennedy in signing the Equal Pay Act.

Though the numbers gradually inched up over the next 30 years, they didn’t reach 70 cents until 1990. Women earned less than 83 cents for every dollar earned by men in 2023, the most recent year for which data are available. This represents a drop of a 1.5% from the 84 cents women earned vs. men in 2022. This is shown in the graphs below from the U.S. Census Bureau.

The top graph shows how the female-to-male earnings ratio is at 82.7%. The bottom graph illustrates the annual earnings of male and female full-time workers. Women earn about $11,500 less on average than their male counterparts.

Full-time earnings for women have increased at a faster rate since 2000. Full-time female workers earned a median income of $45,800 per year in 2000 compared to $55,240 in 2023. Meanwhile, full-time male workers earned a median income of $62,1200 in 2000, rising to $66,790 in 2023.

More Women Working Full-Time

Considerably more women now work full-time. The table below shows a 26.7% increase in full-time female workers since 2000, more than 10 percentage points higher than the increase for men.

Moving from part-time to full-time work also means that more women may now be eligible for employee benefits, such as health insurance coverage and retirement plans.

Equal Pay Day

Equal Pay Day was established in 1996 by the National Committee on Pay Equity. It was created to highlight the differences in pay between men and women and, more important, how “far into the year women must work to earn what men earned in the previous year.”

On Equal Pay Day 2023, which fell on March 14, 2023, the Biden Administration announced steps to close the gender wage gap and to provide women with access to better jobs. The announcement was made after the president signed an executive order to close the wage gap. The order included:

• Providing access to better-paying construction jobs
• Supporting efforts for equal pay in different states through pay transparency legislation
• Boosting pay equity among federal contractors

In signing the order, President Biden also encouraged private companies to follow suit.

Equal Pay Day 2024 occurred on March 12, 2024, and the National Committee on Pay Equity has set March 25 for Equal Pay Day 2025, denoting slippage in the gender gap.

The Gender Wage Gap by Race

The gender wage gap also varies significantly by race. According to 2023 data from the U.S. Department of Labor, Hispanic women earned just 57.8 cents for every dollar earned by White non-Hispanic men, while Black women earned 66.5 cents, White non-Hispanic women earned 79.6 cents, and Asian women earned 94.2 cents.

134

The number of years it will take, based on current data, for the global gender wage gap to close.

The Gender Wage Gap by Age

In recent years, young women between the ages of 25 and 34 who are in the early years of their working lives have managed to narrow the gap with men, according to the Pew Research Center. Since 2007 their earnings have been about 90 cents or even more to the dollar compared to men of the same age.

But the wage gap subsequently widens as those women age. For example, women who were age 25 to 34 in 2010 were making 92% of what a man the same age made. Yet, in 2022, when they were 37 to 46 years old, they were making only 84% of men the same age. And as women continue to age, the gap keeps widening—a pattern that the Pew Research Center notes “has not changed in at least four decades.”

Why Do Women Get Paid Less Than Men?

Although a multitude of reasons contribute to why women are often paid less than men, some of the main contributors include discrimination, differences in the fields that women often work in, education levels, and differences in years of experience.

Which Occupations Have the Highest Gender Wage Gap?

Jobs in which the gender wage gap is higher than others include finance managers, retail sales, education and childcare administrators, and administrative assistants.

Which Industries Have the Smallest Gender Wage Gap?

Industries in which women earn comparable salaries to their male counterparts include tutors, personal care and service workers, interior designers, and dietitians and nutritionists.

The Bottom Line

Income inequality on the basis of gender has lessened over time, but significant progress has stalled over the past two decades. Women are still often underpaid in comparison to men, and there are more levels of inequality within the wage gap when it comes to race and type of occupation. Closing it remains unfinished business in making the United States a more equitable nation.

Fact checked by Suzanne Kvilhaug
Reviewed by Chip Stapleton

About Bond Yields

Low bond yields and interest rates are often credited with supporting higher prices in the stock market.

That’s because lower bond yields can make the potentially higher yields offered by stocks more attractive to investors.

In addition, lower bond yields imply lower interest rates, which reduce the borrowing costs of companies.

Lower costs to borrow can contribute to better corporate profitability. In such instances, investors may move money into the stock market, pushing stock prices higher.

Correspondingly, lower bond yields can indicate a better economic environment and greater prospects for business growth. So investors often move their money into stocks because a need for relatively risk-free (lower yielding) Treasuries no longer exists.

Until the U.S. Federal Reserve starting raising interest rates to fight high inflation in 2022, bond yields had been consistently low since 2009. And they’d been dropping since the 1980s

Key Takeaways

• Until 2022 when the Fed started raising interest rates to fight inflation, bond yields had hovered in a consistently low range since 2009, which contributed to the stock market’s rise.
• Low bond yields cause investors to look to stocks for higher yields.
• During economic slowdowns, bond yields drop as investors buy bonds for safety reasons.
• During economic expansions, stock prices usually outperform bond prices.
• Investors naturally demand higher yields from organizations that are more likely to default on their bonds.

Low Bond Yields Mean Higher Stock Prices

Interest rates are the most significant factor in determining bond yields, and they play an influential role in the stock market.

Generally, when rates are low and growth can proceed unhindered, the stock market appears more attractive to investors and demand drives up prices.

When bond yields remain low, investors look to stocks for better returns, especially when they feel confident about the economy and corporate profits.

Low bond yields often take hold during an economic slowdown because of the flight to quality by investors. It’s at such times that investors seek to preserve principal and reduce the risk of loss in their portfolios by buying bonds.

Central banks are committed to low interest rates to stimulate the economy during recessions. This lasts until the economy begins to grow without the aid of monetary policy or capacity utilization reaches maximum levels where inflation becomes a threat.

Important

Economic growth also carries with it inflation risk, which erodes the value of bonds.

Inflation and Low Yields

Bond yields move according to expectations for inflation, economic growth, default probabilities, and duration.

A bond pays a fixed amount based on its coupon rate. That payment/amount never changes (unless the issuer defaults).

A decrease in the inflation rate raises the real yield of the bond. The real yield is the nominal yield, or coupon rate, less the rate of inflation.

For instance if a nominal yield is 7% and the inflation rate is 3%, the real yield is 4% (7% – 3%). As inflation drops the real yield increases. So lower inflation can make bonds more attractive to investors, and that could draw money from stock investments.

As the demand for bonds increases, bond prices rise and yields decrease. That results in lower nominal yields, which could then make stocks more attractive.

Inflation fell persistently (with some intermittent increases) between 1980 and 2020. Lower expectations for growth and inflation meant that bond yields remained constantly low (and prices high).

But an economic expansion beginning in 2021 started pushing inflation rates higher. The Fed intervened in 2022 to raise interest rates to reduce the rate of inflation. This raised bond yields.

Bear in mind that when interest rates/yields rise, bond prices drop. When they fall, prices rise.

Growth and the Stock Market

During periods of economic expansion, bond prices and the stock market can move in opposite directions because they are competing for capital.

On the one hand, selling stocks and buying bonds leads to higher bond prices and lower yields.

On the other, stock market rallies tend to raise yields as money moves from the relative safety of the bond market to riskier stocks with potentially higher returns.

When optimism about the economy increases, investors tend to transfer funds into the stock market because it may offer investors greater financial benefit from economic growth.

Note

During most of the first 20 years of the 21st century, bond and stock prices moved in opposite directions. Bonds provided investors a hedge should stock prices drop. But when the Fed began raising interest rates in 2022 to counter inflation, bond and stock prices moved in the same direction, eliminating that hedge.

Default Risk and Bond Yields

The probability of default also has an impact on bond yields. When a government or corporation cannot afford to make bond payments, it defaults on the bonds. Investors naturally demand higher yields from organizations that are more likely to default.

Federal government bonds are generally considered to be free of default risk in a fiat money system. When corporate bond default risk increases, many investors move out of corporate bonds and into the safety of government bonds. That means corporate bond prices fall, so corporate bond yields rise.

High-yield (junk) bonds have the highest default risk, and default expectations have more influence on their prices.

During the 2008 financial crisis, default expectations for many companies rose significantly. As a result, corporate bonds temporarily offered higher yields.

What Do High Bond Yields Mean for the Stock Market?

They make bonds more attractive to some investors, who may pull money from the stock market to invest in bonds. Or investors may put as yet uninvested funds into bonds. The consequence is lower demand for stocks and lower share prices.

How Does Rising Inflation Affect Bond Yields?

Rising inflation can reduce the purchasing power of the income that bonds provide. During periods of rising inflation, the real yield (coupon yield minus inflation rate) for investors decreases. In addition, if the central bank intervenes to raise rates to fight inflation, bond prices can fall as bond yields rise. This can reduce a bond investor’s total return (which is partially based on how much they sell their bond for compared to the purchase price).

Should I Invest in Both Stocks and Bonds?

Broadly speaking, yes. How much money you allocate to each may depend on your age, financial needs, and investment goals. But diversifying your portfolio with different types of investments is an important way to reduce your overall risk of loss.

The Bottom Line

For investors, low bond yields can make the stock market a better investment due to perceived higher returns.

Constantly low bond yields can cause investors to move money out of bonds and into stocks. This increased demand for stocks pushes share prices up.

Reviewed by Ebony Howard

Co-Ops vs. Condos: An Overview

Condos and co-ops share similarities but also have unique characteristics that offer a variety of options for residents. In many ways, the New York City real estate market is unlike any other in the United States. One of the biggest differences is that apartments for sale in NYC are either condos or co-ops.

When you buy a condominium, your apartment, as well as a percentage of the common areas, belongs to you. When you buy a co-op, you don’t actually buy your apartment; instead, you are buying shares in a corporation that is your building. The size of your share depends on the size of your apartment; buying the shares allows you to occupy a unit in the co-op building. At the closing for a condo, you’ll be given a deed; at the closing for a co-op, you’ll get a proprietary lease.

For the most part, both condos and co-ops have a doorman and a superintendent on staff; some will add a concierge who will do everything the other two don’t. The amenities can be low-key (maybe just a storage room in the basement) or all-encompassing, such as a landscaped terrace, a billiards room, a piano room, a screening room, a children’s playroom, and a gym.

Key Takeaways

• When you buy a condominium, your apartment, as well as a percentage of the common areas, belongs to you.
• When you buy a co-op, you don’t actually buy your apartment; instead, you are buying shares in a corporation that is your building.
• Condo prices are higher than co-ops, but co-ops require a larger down payment, higher monthly fees, and a lengthy approval process.
• Condos generally allow subletting of the apartment, while only some co-ops allow subletting, and the rules are complex.

Condos

The newer neighborhoods, once considered outliers but now considered hip, are where you’ll find the condos. According to Gary Malin, president of Citi Habitats, a New York real estate brokerage, “If living in a glass house in the sky is more your style, you will likely be looking at a lot of condos. Condo buildings didn’t become common in New York City until the 1970s, so they are often more modern than co-ops.”

“Since available land for new condo buildings is limited in Manhattan,” Malin says, “the newest condominiums are likely to be found in up-and-coming and fringe neighborhoods on the far East and West Sides. In Queens and Brooklyn, we have seen a lot of new-construction condos being built in former industrial areas along the waterfront in Long Island City and Williamsburg, as well as in Downtown Brooklyn.”

Down Payment and Price

The cost can often drive the decision process for purchasing real estate, and condos offer attractive down payments, whereby, usually, only 10% of the purchase price is required. However, condos tend to have higher prices than co-ops.

Closing Costs

Closing costs on a condo are higher than for a co-op. For details, we asked New York real estate attorney Adam Stone to compare the two. Here’s what he came up with. For a $1 million condo with an $800,000 mortgage, closing costs would be:

• Title insurance for the purchaser, $4,500
• Title insurance for the lender, $1,000
• Title searches, $700
• Recording fees, $700
• New York State mansion tax, $10,000
• New York State mortgage recording tax, $15,370
• Grand total: $32,270 (without lender’s fees, which vary by lender)

For anyone wondering what the mansion tax is, Stone explains: “New York State has a transfer tax of 0.4% of the sales price, which is charged to the seller of any residential property. It also has a 1% purchaser’s transfer tax, also referred to as the ‘mansion tax’ because it only applies to residential properties priced at $1 million or more.” 

Monthly Charges

Condo owners have a monthly bill called “common charges,” which are used for the upkeep of the building—common areas, landscaping, payment of the staff, and often some of the utilities. These are separate from mortgage payments.

Condo owners make two common-charge payments each month (one for building upkeep and one for property taxes), but often the condo owner’s combined total is lower than the co-op owner’s maintenance bill.

The Board

Condo boards tend to be less demanding than co-op boards. Co-ops have a more lengthy approval process, including an interview. The board of directors decides if a prospective buyer can purchase the co-op.

“With a condo, a building can request a package on the buyer,” said Warner M. Lewis of The Harkov Lewis Team at Brown Harris Stevens. “But there is no interview, and the building only has the right of first refusal (i.e., either they have to approve it, or the condo has to buy it themselves), which means when you have a signed contract—unless something happens to the buyer (or the financing)—the deal is as good as done.”

Rules

Condos tend to have fewer rules, including restrictions on the use of foreign funds for the purchase. Condos allow international investors to buy and rent out their spaces; usually with some caveats, but none that are onerous. Condos also allow the apartment to be sublet or leased out to another party relatively easily, compared to the subletting process for co-ops. However, some condo associations may impose more rules than others. As a result, it’s important that prospective buyers do their research to determine what is and what isn’t allowed.

The Buyer’s Preference

According to Gary Malin, president of Citi Habitats, “If you would rather march to the beat of your own drummer—and you value flexibility—then a condo may be the wise choice for you. However, understand that this freedom comes at a price. Condos are nearly always more expensive than equivalent co-ops. In addition, if seeing new faces in the elevator on a regular basis is an issue for you—look elsewhere. Renters can be common in condo buildings. Owners do often take advantage of a condo’s more liberal policies.”

Co-Ops

Generally speaking, the older, established residential areas have a preponderance of co-ops. As Gary Malin explains: “If you like historic properties, you are likely to end up in a co-op, as nearly all prewar buildings are organized in this way. Also, because co-op buildings tend to be older than condo developments, they are often located in more central locations. For example, nearly all the residential buildings that line Park Avenue on the Upper East Side (a prime location by any measure) are co-ops.”

Note

In many places, condos are the rule, but in Manhattan, co-ops outnumber condos by about a 2-to-1 margin, according to independent appraisal firm Miller Samuel Inc.

Down Payment and Price

As with a condo, the decision might come down to how much you can spend and have saved for a down payment. Although it’s possible to put down just 10% of the purchase price of a condo, a co-op may require a much higher down payment—in the neighborhood of 20% to 50% of the purchase price. The good news is that the purchase price of a co-op tends to be smaller than condos. Of course, prices vary depending on the neighborhood involved.

Closing Costs

According to New York real estate attorney Adam Stone, a co-op has lower closing costs. In the example cited above for a condo, which had over $32,000 in costs, a co-op just has the $10,000 mansion tax. The substantial difference is due to the fact that the condo is real property, while the co-op shares are personal property.

“It may just be semantics to some, but not when calculating closing costs,” Stone adds.

Monthly Charges

Once a month, co-op owners pay “maintenance” charges. Similar to a condo common charge, this monthly fee goes to the basic upkeep of the property and the salaries of the staff needed to keep the building running properly. Co-op fees tend to be higher than condo fees since the fee often includes at least part of the mortgage for the building. Monthly fees can vary depending on the size of the building.

However, it’s important to note that maintenance and common charges are not set in stone. Any major expense—a new roof, a new lobby, more staff members—may trigger an assessment, which is something that board members decide on, and something that can rarely be reversed.

The Board

As stated earlier, most co-op boards have a rigorous and often lengthy application process that can require the buyer to hand over financial information, submit to employment verification, and possibly undergo a personal background check.

Warner M. Lewis of The Harkov Lewis Team at Brown Harris Stevens sums it up: “In a co-op, not only do you have to have the money to buy the apartment (or financing to do so), you also have to be approved by the board after submitting an application, which is usually very detailed and time-consuming. Then, with little to no reason, a buyer can be rejected after their interview, or even before, just because of something in their package. I have had deals and seen deals where there is zero rhyme or reason for rejections.” 

Rules

Co-op boards tend to have more rules than condos and may mandate when you can practice your trombone, whether you can put holiday decorations on your door, and whether your pet can move in with you. Most rules are meant to promote harmony, calm, and the civility of cooperative living.

But the rules that discourage some domestic buyers, and just about all international buyers, are co-op restrictions on subletting. Policies vary by building, but generally, when co-ops allow shareholders to sublet their apartments, it is on a limited basis, such as for one or two years out of every five. Owners typically must have resided in the property for a certain period of time before subletting—in some cases as many as three years. Owners typically pay a fee to be allowed to sublet, and potentially subletters must fill out an application and may be subject to a background check. Board approval is a must.

Another rule of co-ops that makes purchases by international individuals impossible is that they are unlikely to accept anyone whose funds are outside the U.S.

The Buyer’s Preference

“Co-ops are all about establishing a stable, in-for-the-long-run group of residents. Condos don’t seem quite as concerned about that,” said Lewis

When it comes to choosing your preference, Gary Malin puts it the following way:

“Co-ops are a smart choice for those who value stability and want to plant roots in a building. Simply ask yourself, ‘Am I in it for the long haul?’ Co-ops are much less transient than condos, so they’re a great place to live if you want to get to know your neighbors. Just be prepared to be analyzed, poked, and prodded, but understand that this process is what keeps a co-op a stable and remarkably secure investment.”

What Are the Disadvantages of Buying a Co-op?

Some of the disadvantages of buying a co-op include the rigorous approval process, the higher down payment, the expensive monthly fees, and the strict rules about subletting.

What Are the Disadvantages of Buying a Condo?

Some of the disadvantages of buying a condo include the higher cost of purchase, the higher closing costs, the preponderance of new neighbors due to looser subletting rules, and the location (many condos are part of newer buildings located on the outskirts of desirable areas).

Which Is a Better Investment, a Co-op or a Condo?

It depends on what your investment goals are. A condo enables you to own an actual piece of real estate, while a co-op involves partial ownership of a corporation that is the building.

The Bottom Line

In New York City, the split between co-ops and condos is about 75/25. However, the number of condos on the market at any given time is higher than that of co-ops. Both often have a doorman and a superintendent on staff, although amenities can range from barebones to high-end.

When you buy a condo, you own your apartment and a percentage of the common area; when you buy a co-op, you buy shares in a corporation that is your building. Condos are often more expensive but have lower monthly costs. Co-ops may cost a bit less upfront but have higher monthly payments and a tougher approval process. Condos also have looser rules on subletting than co-ops. Both have their appeal; which is best depends on what the buyer needs.

Reviewed by Eric Estevez
Fact checked by Yarilet Perez

Wall Street often relies on analysts’ estimates based on corporate financial data to recommend stocks and determine target prices. The credibility of stock analysts sometimes comes into question, however. You might consider learning the ropes and acting on your own behalf if you’re the self-reliant type who enjoys doing a little research. It’s a matter of mastering the process.

Key Takeaways

• Investors can use fundamental analysis to identify potentially undervalued stocks and set price targets.
• Always do your research before making any investment even if you’re considering the advice of a professional analyst.
• Consider the industry of a stock you’re contemplating as well as the company’s business model, financial strength, and management quality.
• Stock analysis involves several steps and it can take some time but it can be worthwhile when it’s done correctly.

Getting Started in Stock Analysis

The first step in thinking like an analyst is to develop a probing mind regardless of whether you’re looking for growth or value. You must determine what to buy or sell and at what price. Analysts usually focus on one industry or sector. They focus on select companies within that sector. Analysts aim to probe the affairs of the companies on their list by analyzing their financial statements and all other available information.

Analysts also probe the affairs of a company’s suppliers, customers, and competitors to cross-check the facts. Some visit the company and interact with its management to gain a first-hand understanding of the workings of the company.

It’s always better to research several stocks in the same industry so you have a comparative analysis. Access to information isn’t usually an issue. You can take up just one or two firms at first to test how well you can analyze them. You can think of putting more stocks under your lens when you have more experience.

Review Analyst Reports

Begin your analysis by looking over analyst reports. You don’t have to blindly follow sell-or-buy recommendations that analysts make but you can read their research reports to get an overview of the company. Look at its strengths and weaknesses, main competitors, industry outlook, and future prospects.

Reviewing reports by different analysts can help you identify any common threads. The basic facts in all reports are common. Take a closer look at their earnings forecasts which ultimately determine their buy or sell recommendations. Different analysts may set different target prices for the same stock. Always look for the reasons.

What to Analyze

You have to understand the various steps involved in stock analysis to arrive at a reliable conclusion about a stock. Some analysts follow a top-down strategy, starting with an industry and then locating a winning company. Others follow a bottom-up approach, starting with a particular company and then learning about the outlook of the industry. You can create your own order but the entire process should flow smoothly.

Industry analysis

Sources of information are publicly available for almost any industry. The annual report of a company itself often gives a good overview of the industry and its future growth outlook. Annual reports also reveal the major and minor competitors in a particular industry. Simultaneously reading the annual reports of two or three companies should give a clearer picture.

Important

You can also subscribe to trade magazines and websites that cater to a particular industry to monitor the latest industry happenings.

Business model analysis

Focus on a company’s strengths and weaknesses. There may be a strong company in a weak industry and a weak company in a strong industry. Their strengths are often reflected in factors such as their unique brand identity, products, customers, and suppliers. You can learn about a company’s business model from its annual report, trade magazines, and websites.

Financial strength

Understanding the financial strength of a company is the most crucial step in analyzing a stock. You should be able to understand a company’s balance sheet, income statement, and cash flow statements. Numbers in the financial statements often speak louder than the glossy words of an annual report.

Management quality

Management quality is another critical factor. It’s often said that there are no good or bad companies, just good or bad managers. Key executives are responsible for the future of the company. You can assess company management and board quality by doing some research on the internet. There’s a plethora of information out there about every public company.

Growth analysis

Stock prices follow earnings. You have to know where future earnings are headed to know whether a stock’s price will be moving up or down. Unfortunately, no quick formula can tell you what to expect for future earnings. Analysts make their estimates based on past figures of sales growth and profit margins along with profitability trends in that particular industry.

Growth analysis involves connecting what’s happened in the past to what’s expected to happen in the future. Making accurate earnings forecasts is the ultimate test of your stock analysis capabilities because it’s a good indication of how well you understand those industries and companies.

Valuations

The next step is to determine the worth of a company. Analysts must figure out if the current market price of the stock is justified in comparison to the company’s value.

There is no “correct value” and analysts use different parameters. Value investors look at intrinsic worth. Growth investors look at earning potential. A company selling at a higher P/E ratio must grow at a higher price to justify its current price for growth investors.

Target price

The final step is to set a target price. You can calculate a high and low target price by multiplying estimated earnings per share (EPS) with the estimated high and low P/E Ratio.

The high and low target price is the price band within which the future stock price is likely to move in response to expected future earnings. You can use it to reach your destination when you know the target price.

What Do Stock Analysts Do?

Wall Street stock analysts look deeply at a company’s financial reports and announcements to conduct fundamental analysis. They come up with a presumed fair value or price target and then issue buy or hold recommendations to investors accordingly.

What Are Some Bottom-Up Tools for Stock Analysis?

Bottom-up analysis begins with a company’s financial statements such as the balance sheet and income statement. Various ratios can be computed from there to reveal a firm’s current and expected financial position. These ratios include the debt-to-equity (D/E) ratio, the quick ratio, inventory turnover, and various price multiples.

What Should I Do If a Stock Rises Above Its Target Price?

A security should be sold for a profit once it reaches or exceeds its price target if you’re confident in your original analysis. You may want to determine first if anything fundamental has changed that might raise the current price target.

The Bottom Line

The largest constraint in becoming your own stock analyst is time. Retail investors who have many other things to do may not be able to devote as much time as professional security analysts.

The ultimate goal of every investor is to make a profit but not every investor or analyst is good at it. Never blindly accept what stock analysts have to say and always do your research. Not everybody can be an investing expert but you can always improve your analytical skills.

Disclosure: This article is not intended to provide investment advice. Investing in securities entails varying degrees of risk and can result in partial or total loss of principal. The trading strategies discussed in this article are complex and should not be undertaken by novice investors. Readers who want to engage in such trading strategies should seek extensive education on the topic.

Fact checked by Suzanne Kvilhaug
Reviewed by Ebony Howard

Interest rates affect the housing market in several ways, including influencing mortgage rates, the amount consumers have to pay to borrow money to buy a property, supply and demand for properties, and the value of real estate.

Mortgage loans come in two primary forms—fixed rate and adjustable rate—with some hybrid combinations and multiple derivatives of each. A basic understanding of interest rates and the economic influences that determine the future course of interest rates can help you make financially sound mortgage decisions. Such decisions include choosing between a fixed-rate mortgage and an adjustable-rate mortgage (ARM) or deciding whether to refinance out of an ARM. 

Key Takeaways

• Understanding interest rates is key to making financially sound mortgage decisions.
• The interest rate is the amount a borrower is charged for the privilege of being loaned money.
• Interest rates on mortgages are determined by a number of factors, including the state of the general economy and your personal circumstances.
• Mortgage lenders often peg their interest rates to the 10-year Treasury bond yield.
• Looking at the shape of the yield curve can help when trying to forecast interest rate changes on ARMs.

How Are Interest Rates Determined?

The interest rate is the amount charged on top of the principal by a lender to a borrower for the use of assets. The interest rate charged by banks is determined by a number of factors, such as the state of the economy. A country’s central bank sets the interest rate, which each bank uses to determine the range of annual percentage rates (APRs) they offer.

Central banks tend to raise interest rates when inflation is high because higher interest rates increase the cost of debt, which discourages borrowing and slows consumer demand.

The Mortgage Production Line

The mortgage industry has three primary parts or businesses: the mortgage originator, the aggregator, and the investor. 

The Mortgage Originator

The mortgage originator is the lender. Lenders come in several forms, like credit unions and banks. Mortgage originators introduce, market, and sell loans to consumers and compete with each other based on the interest rates, fees, and service levels that they offer. The interest rates and fees they charge determine their profit margins.

Most mortgage originators do not “portfolio” loans (meaning that they do not retain the loan asset). Instead, they often sell the mortgage into the secondary mortgage market. The interest rates that they charge consumers are determined by their profit margins and the price at which they can sell the mortgage into the secondary mortgage market.

The Aggregator

The aggregator buys newly originated mortgages from other institutions. They are part of the secondary mortgage market and most of them are also mortgage originators. Aggregators pool many similar mortgages together to form mortgage-backed securities (MBS)—a process known as securitization.

An MBS is a bond backed by an underlying pool of mortgages. MBSs are sold to investors. The price at which they can be sold to investors determines the price that aggregators will pay for newly originated mortgages from other lenders and the interest rates that they offer to consumers for their own mortgage originations. 

The Investor

There are many investors in MBSs, including pension funds, mutual funds, banks, hedge funds, foreign governments, insurance companies, and government-sponsored enterprises, Freddie Mac and Fannie Mae.

As investors try to maximize returns, they frequently run relative value analyses between MBSs and other fixed-income investments such as corporate bonds. As with all financial securities, investor demand for MBSs determines the price they will pay for these securities.

Investors’ Impact on Mortgage Rates

To a large degree, MBSs investors determine mortgage rates offered to consumers. As explained above, the mortgage production line ends in the form of an MBS purchased by an investor.

The free market determines the market clearing prices investors will pay for MBSs. These prices wind their way back through the mortgage industry to determine the interest rates you’ll be offered when you buy your house.

Fixed Interest Rate Mortgages

The interest rate on a fixed-rate mortgage is fixed for the life of the mortgage; however, on average, 30-year fixed-rate mortgages have a shorter lifespan, due to customers moving or refinancing their mortgages.

The rule of thumb used to be that homeowners stayed in their homes an average of seven years; however, that figure has been rising. The median length of homeownership in 1985 was five years, in 2005 it was six years, in 2010 it inched up to eight years, in 2015 it was 11 years, and in 2021 it was 13 years.

MBS prices are highly correlated with the prices of U.S. Treasury bonds. Usually, the price of an MBS backed by 30-year mortgages will move with the price of the U.S. Treasury five-year note or the U.S. Treasury 10-year bond based on a financial principal known as duration.

In practice, a 30-year mortgage’s duration is closer to the five-year note, but the market tends to use the 10-year bond as a benchmark. This also means that the interest rate on 30-year fixed-rate mortgages offered to consumers should move up or down with the yield of the U.S. Treasury 10-year bond.

A bond’s yield is a function of its coupon rate and price. Economic expectations determine the price and yield of U.S. Treasury bonds. A bond’s worst enemy is inflation, which erodes the value of future bond payments—both coupon payments and the repayment of principal. Therefore, when inflation is high or expected to rise, bond prices fall, which means their yields rise—there is an inverse relationship between a bond’s price and its yield.

The Fed’s Role

The Federal Reserve (Fed) plays a large role in inflation expectations. This is because the bond market’s perception of how well the Fed is controlling inflation through the administration of short-term interest rates determines longer-term interest rates, such as the yield of the U.S. Treasury 10-year bond. In other words, the Fed sets current short-term interest rates, which the market interprets to determine long-term interest rates, such as the yield on the U.S. Treasury 10-year bond.

Remember, the interest rates on 30-year mortgages are highly correlated with the yield of the U.S. Treasury 10-year bond. If you’re trying to forecast what 30-year fixed-rate mortgage interest rates will do in the future, watch and understand the yield on the U.S. Treasury 10-year bond (or the five-year note) and follow what the market is saying about Fed monetary policy.

Adjustable-Rate Mortgages (ARMs)

The interest rate on an adjustable-rate mortgage (ARM) might change monthly, every six months, annually, or less often, depending on the terms of the mortgage. The interest rate consists of an index value plus a margin. This is known as the fully indexed interest rate. It is usually rounded to one-eighth of a percentage point.

The index value is variable, while the margin is fixed for the life of the mortgage. For example, if the current index value is 6.83% and the margin is 3%, rounding to the nearest eighth of a percentage point would make the fully indexed interest rate 9.83%. If the index dropped to 6.1%, the fully indexed interest rate would be 9.1%.

Warning

With an ARM, homebuyers need to be aware that the monthly cost of their mortgage payments can increase if interest rates increase, and that they should ensure that they can still afford the payments if this happens.

The interest rate on an ARM is tied to an index. There are several different mortgage indexes used for different ARMs, each of which is constructed using the interest rates on either a type of actively traded financial security, a type of bank loan, or a type of bank deposit. All of the different mortgage indexes are broadly correlated with each other. In other words, they move in the same direction, up or down, as economic conditions change.

Most mortgage indexes are considered short-term indexes. “Short-term” or “term” refers to the term of the securities, loans, or deposits used to construct the index. Typically, any security, loan, or deposit that has a term of one year or less is considered short-term. Most short-term interest rates, including those used to construct mortgage indexes, are closely correlated with an interest rate known as the federal funds rate.

Forecasting Changes

If you’re trying to forecast interest rate changes on ARMs, look at the shape of the yield curve. The yield curve represents the yields on U.S. Treasury bonds with maturities from three months to 30 years.

When the shape of the curve is flat or downward sloping, it means that the market expects the Fed to keep short-term interest rates steady or move them lower. Conversely, when the shape of the curve is upward sloping, the market expects the Fed to move short-term interest rates higher.

The steepness of the curve in either direction is an indication of how much the market expects the Fed to raise or lower short-term interest rates. The price of Fed funds futures is also an indication of market expectations for future short-term interest rates.

How Rates Impact the Housing Market

In general, when interest rates are higher or increasing, the housing market slows down. When interest rates are going up, the cost of owning a home becomes more expensive due to the higher interest rate, which reduces demand. This reduction in demand then results in a drop in home prices.

When the Fed increases rates to slow down the economy, particularly in times of inflation, the above goal is what it’s looking for; a reduction in consumer spending that results in a drop in prices.

Conversely, when interest rates drop, the cost of buying a house becomes cheaper, which increases the demand for housing. Lower interest rates go hand in hand with a bustling housing market. This increase in demand then slowly increases home prices.

Why Are Interest Rates Important to the Housing Market?

Interest rates are important to the housing market for several reasons. They determine how much consumers will have to pay to borrow money to buy a property, and they influence the value of real estate. Low-interest rates tend to increase demand for property, driving up prices, while high interest rates generally do the opposite.

Which Factors Influence How Interest Rates on Mortgages Are Set?

There are many factors that impact how much mortgages cost. Lenders will first consider the general cost of borrowing in the economy, which is based on the state of the economy and government monetary policy. Personal factors, such as credit history, income, and the type and size of the loan you are after, will then come into play to determine how much you’ll be charged to get a loan to buy a house.

Am I Better Off With a Fixed-Rate or Adjustable-Rate Mortgage (ARM)?

Generally speaking, an ARM makes more sense when interest rates are high and expected to fall. Conversely, if predictable payments are important to you and interest rates are relatively stable or climbing, a fixed-rate mortgage might be your best option.

Popular methods to potentially gauge the future direction of interest rates include studying the yield curve, keeping tabs on the 10-year Treasury bond yield, and paying close attention to Fed monetary policy.

The Bottom Line

An understanding of what influences current and future fixed and adjustable mortgage rates can help you make a smart decision on your mortgage. For example, it can inform your decision about choosing an ARM over a fixed-rate mortgage and help you decide when it makes sense to refinance out of an ARM.

Don’t believe everything you read. It’s not always “a good time to refinance out of your adjustable-rate mortgage before the interest rate rises further.” Interest rates might rise further moving forward—or they might drop. Find out what the yield curve is doing.