There are big differences in how wealth is distributed across the U.S.

Reviewed by Robert C. Kelly
Fact checked by Vikki Velasquez

The United States is arguably one of the most economically well-off places on the planet. The U.S. accounts for 30.8% of global wealth, or $139.9 trillion, according to UBS’s Global Wealth Report 2023 (the most recent report for which such data is available). The second-largest country by global wealth, China, is responsible for 18.6%, or $84.5 trillion. This makes the U.S. the richest country on Earth, in terms of total wealth.

The U.S. also has the most millionaires in the world—38% of the world’s supply, or nearly 22 million adults, according to the UBS Global Wealth Report 2024. Not surprisingly, the country with the second-highest number is mainland China, with 6 million individuals, or 10% of the world’s millionaires. Considering this seemingly limitless potential for economic prosperity, it’s not surprising that more than a million people immigrate to the U.S. each year.

However, that wealth is not distributed equally across all parts of the United States. Income inequality in the U.S. is considerable. Despite nearly $140 trillion in total wealth, 11.1% of the U.S. population lived in poverty in 2023, according to the U.S. Census Bureau.

Another inequality stamp: The median wealth per adult in the United States for 2023 was $112,157. In the highest-ranking country—Luxembourg—it was $372,258.

Key Takeaways

• The United States is the wealthiest country in the world in terms of total global wealth percentage. It also has the world’s most millionaires.
• Though the U.S. is the wealthiest country, that wealth is not distributed evenly; many states have a low median household income and high rates of poverty.
• The states with the highest median household income are Maryland, Massachusetts, and New Jersey.
• The states with the lowest median household income are Mississippi, West Virginia, and Arkansas.

Measuring Wealth: What Median Income Tells Us

Median income is a particularly good way to look at how people are doing, both nation to nation and among states in the U.S. Here’s why.

There are several ways to assess wealth in a given area. A state’s gross domestic product (GDP) offers a glimpse into its overall economic health, but not necessarily how individuals and households are doing.

Mean income (the total of all values divided by the number of values in a dataset—otherwise known as the average) is the primary mathematical value for making comparisons. However, having a large number of high-earning one-percenters or low-income people in a region can skew the end result in revealing how much money individuals earn.

The median gives you a better picture. It is determined by lining up all values in a dataset in numerical order, and then finding the “middle” value. A state’s median income is exactly halfway between what people earn on both sides of the wealth spectrum. That makes median income a much more accurate assessment of what the average American makes annually than the actual average income.

How Race and Gender Affect Income

Structural racism and sexism severely and negatively impact many Americans and their families. Here, we look at individual income to focus on how individual workers are faring.

A significant contributing factor to American income inequality is a disparity in earnings by race. The differences are stark. Controlling for other factors, a 2024 study by Payscale points to a gender pay gap for Black women of $0.80 for every $1 earned by White men. Black men earned 84.6% as much as White men (median weekly earnings) in the fourth quarter of 2024, according to the U.S. Bureau of Labor Statistics.

Additionally, Black and Hispanic families own less wealth than White families. In 2022 (the most recent data available), a typical (median) White family had a wealth of $285,000, while a typical Black family had a wealth of $44,900, and a typical Hispanic family had a wealth of $61,600.

A prominent income gap exists between men and women in the United States. Women make approximately 83 cents for every dollar of men’s wages in an uncontrolled gender pay gap, while women make 99 cents for every dollar in a controlled gender pay gap. Controlled gender pay gaps take into consideration job title, education, experience, industry, job level, and hours worked.

Contributing to these discrepancies: Men constitute 36.4% of minimum-wage workers as of 2023, while women account for just 10.4% of Fortune 500 CEOs as of 2024.

For the fourth quarter of 2024, Asian and White women earn a median of $1,367 and $1,094 per week, respectively; Black women and Hispanic or Latinas earn a median of $978 and $844 per week, respectively. Although all women were more likely to live in poverty than White men in 2019, women of color experienced a higher poverty rate than White women.

Median Household Income

One of the measures of income provided by the U.S. Census Bureau—and the one we chose to use for our state-to-state comparison—is median household (HH) income. This is the total gross income of all persons 15 years or older within a housing unit.

When the Census Bureau measures and compares how different parts of the nation are doing, “median HH Income is perhaps the single most widely used measure of income in the census,” as the Missouri Census Data Center explains. Median household income can include households with only one resident as well as those with multiple residents who are not related (i.e., roommates).

Median household income is different from two other measures that the census uses:

• Median per capita income, which looks at each individual person’s income, rather than treating a household as a singular entity
• Median family income, which only considers households with two or more people related by birth, marriage, or adoption

As of 2023, the most recent available figures, the median U.S. annual household income was $80,610.

Richest States by Median Income

The map above shows the pattern of median income across the U.S. Let’s start with a look at the richest states.

Special Consideration: District of Columbia

• Median household income: $106,287 (2023)
• Population: 702,250 (July 1, 2024)
• Unemployment rate: 5.5% (December 2024)
• Poverty rate: 14.0% (2023)

The District of Columbia is not a state, of course, but the U.S. Census Bureau includes it among the 50 states when listing median income. Its inclusion makes sense, given the fact that the District’s median income is higher than any state. As is likely unsurprising, the federal government is the largest employer in the nation’s capital.

D.C. has the highest population density in the U.S. along with the second-highest median value of owner-occupied housing units. Despite its high income and small population, D.C. also has the highest poverty rate of any of the richest states.

1. Maryland

• Median household income: $101,652 (2023)
• Population: 6.26 million (July 1, 2024)
• Unemployment rate: 3.1% (December 2024)
• Poverty rate: 9.5% (2023)

Maryland’s private-sector industries were responsible for $382.4 billion in economic output. The Free State also had the largest number of federal jobs per capita in 2020, which makes sense, given its adjacency to Washington, D.C. Both the Social Security Administration and the Food and Drug Administration are headquartered in Maryland.

2. Massachusetts

• Median household income: $101,341 (2023)
• Population: 7.13 million (July 1, 2024)
• Unemployment rate: 4.1% (December 2024)
• Poverty rate: 10.4% (2023)

Massachusetts’ economy was originally heavily dependent on agriculture and maritime trade, though manufacturing would become more prominent in the 19th century. Today, education and professional and business services employ the largest portion of the Bay State’s workforce. Its leisure and hospitality industry is also a major economic powerhouse.

3. New Jersey

• Median household income: $101,050 (2023)
• Population: 9.5 million (July 1, 2024)
• Unemployment rate: 4.6% (December 2024)
• Poverty rate: 9.7% (2023)

Not only does New Jersey have the largest population of the three richest (and the three poorest) states, but it also has the largest population density of any state in the U.S. Healthcare is the Garden State’s largest industry, adding $37 billion to the state economy and employing approximately 488,000 people. New Jersey is also the birthplace of major industries, such as organized baseball, professional basketball, movies, and passenger flights.

Poorest States by Median Income

Now, the opposite end of the spectrum. These states have the lowest median incomes.

1. Mississippi

• Median household income: $54,915 (2023)
• Population: 2.94 million (July 1, 2024)
• Unemployment rate: 3.3% (December 2024)
• Poverty rate: 18% (2023)

Despite 35% of Mississippi land being dedicated to farmland, the federal government is the fourth-biggest employer in the Magnolia State, after trade, transportation, and utilities. In addition to having the highest poverty rate of any state in the country, Mississippi is also known as the “hungriest state” in the U.S., with 20% of its population being food insecure.

2. West Virginia

• Median household income: $57,917 (2023)
• Population: 1.76 million (July 1, 2024)
• Unemployment rate: 4.2% (December 2024)
• Poverty rate: 16.7% (2023)

The Equality State is another case where the federal government is the largest employer, but this time, it hasn’t pushed enough people out of poverty. Before the COVID-19 outbreak, West Virginia’s 1938 unemployment rate was the highest in U.S. history.

3. Arkansas

• Median household income: $58,773 (2023)
• Population: 3.08 million (July 1, 2024)
• Unemployment rate: 3.4% (December 2024)
• Poverty rate: 15.7% (2023)

Agriculture makes up the Natural State’s largest industry, adding $16 billion to the state’s economy each year. Forests comprise 56% of land, 25% of which belongs to the forestry industry. Despite the low income and high poverty rate, several major companies are headquartered in Arkansas, including Tyson Foods and Walmart.

Which State Has the Highest Median Income?

The state that has the highest median income is Maryland, with a median income of $101,652 in 2023. The District of Columbia, which is not a state, has the highest median income overall, with a median income of $106,287 in 2023.

What Is Middle-Class Income?

What is considered middle-class income will depend on a person’s location. A middle-class person in Arkansas may not be a middle-class person in New York City, for example, where the cost of living is much higher. Generally, a three-person household should have an income between $51,967 and $155,902 to be considered middle class.

What Percentage of Americans Make Over $100k?

As of 2024, 37.8% of American households made over $100,000. This is slightly lower than in 2019 but higher than any point before 2019. In fact, before the financial crisis in 2008, it was 30.8%.

The Bottom Line

Though the United States is by far the wealthiest country in the world, income and wealth inequality exist throughout the nation, which can be evidenced in the difference in median income and poverty throughout the states as well as by gender and race across the board.

Correction—Sept. 27, 2024: This article has been corrected to state that Black women earned approximately $0.80 for every $1 earned by White men, according to a 2023 study by Payscale.

Reviewed by JeFreda R. Brown

Direxion Daily Energy Bull 2X ETF (ERX): An Overview

Direxion launched the bull and bear lines of the Daily Energy Shares 2X ETF in November 2008. The $253 million AUM Direxion Daily Energy Bull 2X (ERX) is a leveraged ETF that aims to reproduce 200% of the daily returns of the S&P Energy Select Sector Index (IXE). In other words, for every 1% gain in the underlying index, ERX attempts to produce a corresponding 2% gain.

Prior to March 31, 2020, ERX attempted to produce a corresponding 3x gain.

Key Takeaways

• For traders looking for exposure to the energy sector, the Direxion Daily Energy Bull 2x ETF (ERX) can provide 200% returns.
• Because it uses leverage, it is not intended for long-term holding, but rather a tool for short-term positioning.
• Prior to 2020, the ERX sought a 3x return. Today it is a 2x return ETF.

Direxion ETF Characteristics

ERX is an open-ended fund offered through the Direxion Funds family and advised by Rafferty Asset Management, LLC. Like most double-leveraged ETFs, ERX is actively managed and can come with high costs. Its expense ratio of 0.90% is higher than a typical standard ETF’s but relatively in line with the industry average for a leveraged and indexed ETF. Fund expense ratios do not include brokerage fees or other trading expenses.

To achieve its correct leverage, ERX also invests in financial instruments not found in the IXE portfolio. These instruments can include derivatives like futures contracts, forward contracts, options on securities, equity caps, floors and collars, swaps, short selling, reverse repurchases, and other ETFs.

Direxion is a renowned provider of leveraged and inversely leveraged ETFs, particularly in the double-leveraged space. Its expense limitation arrangement with Rafferty Asset Management extends to all of its fund offerings, which is particularly suitable for investors who prefer actively managed and high-turnover instruments.

ERX Fund Holdings

ERX is an energy ETF that is almost entirely invested in domestic companies in the energy sector. Approximately 91% of the fund is weighted toward Oil, Gas, and Consumable Fuels companies, while the remaining 9% is allocated toward Energy Equipment and Services. The fund’s top holdings include:

• Exxon (23.15%)
• Chevron Texaco (15.37%)
• Conocophillips (8.14%)
• Williams (4.60%)
• Eog Resources (4.53%)

Suitability and Recommendations

ERX allows investors to magnify potential short-term gains through its use of 2x leverage. As it seeks to reproduce daily performance, ERX is structured as a short-term fund and is not designed to track its underlying index for periods longer than one day.

All investments come with risk, but leveraged ETFs can be particularly risky. Any shareholder of ERX or its inverse, the Direxion Daily Energy Bear 2X Shares ETF (ERY), has exposure to a degree of market risk and volatility that greatly exceeds that of most equities. As such, these ETFs should only be considered by investors who understand leverage risk and know how to manage this risk in their portfolio.

Due to its heavy weighting in the energy sector, ERX’s performance is highly dependent on oil and gas prices. Investors should closely monitor the price of energy commodities and energy commodities futures.

What is a Leveraged ETF?

A leveraged ETF uses debt and financial derivates to achieve financial returns greater than an underlying index, fund, or currency. Most leveraged ETFs aim to achieve 2x or 3x daily returns compared to their underlying assets.

What is an Inverse ETF?

An inverse ETF is a fund that is designed to perform opposite to its underlying index. For example, if a particular index falls 10%, an inverse ETF that tracks the index should increase approximately 10%.

Who Should Invest in ERX?

As a leveraged energy ETF, ERX is not suitable for all investors. In general, only investors who understand leveraged funds and have a high appetite for risk should actively trade ERX and other leveraged ETFs. It’s not designed as a buy-and-hold fund, which means investors will have to actively monitor their position to know when to submit buy or sell orders.

The Bottom Line

In general, a 2X ETF is only meant for investors who have experience with leveraged instruments and are comfortable consistently monitoring their own portfolios. ERX is not a buy-and-hold play and is not suitable for fixed-income investors. It has a large bid/ask spread and does not have a consistent yield.

ERX has a track record of large upswings and downswings and is risky due to its leverage. Its beta is around 4.5, meaning that it is nearly 5x more volatile than the S&P 500 index. This could serve as a nice satellite holding for competent investors, but it should never make up the core of a balanced portfolio.

How we create unbiased, comprehensive reviews and ratings of auto lenders

Investopedia is dedicated to helping you find the right auto lender for your personal financial situation. Our full-time research and editorial teams conducted comprehensive research into the auto loan industry, focusing on 16 lenders. Each lender was evaluated on 63 criteria in five categories: cost of loans, loan terms, borrowing requirements, customer experience, and additional features.

Our editors and researchers independently evaluate all recommended products and services. If you click on the links we provide, we may receive compensation. Our advertising partnerships are not a factor in how we evaluate products, though they may affect the order of products you see listed in our articles.

How We Research Auto Lenders

We chose a selection of 16 banks and credit unions to review, based on the results of our research into the auto loan industry. That included an analysis of consumer interest and a competitive analysis. Lenders were evaluated based on whether they provide new, used, or refinance loans, and loan aggregators were omitted from the research process. The research and data collection process occurred from November 2024 into February 2025. 

Data Collection and Scoring

We developed a quantitative model to objectively score auto lenders in five key categories; 62 criteria were collected for each lender, and one criterion was calculated. 35 of those criteria were given weights to score and rank those lenders. Information was collected by Investopedia from company websites, media representatives, and customer support. Some of the research criteria were aggregated into combined factors (customer review rating, for example). The unweighted criteria were collected for background to help inform our reviews and recommendations.

Each company was scored using our “Investopedia’s Rating” scale of 0.00 to 5.00.

• All data points were scored on a 0.00 to 1.00 scale.
• Binary criteria were scored on a scale of 0 or 1.
• Continuous criteria were scored so that the minimum data value was re-scaled to 0.00 and the maximum value was re-scaled to 1.00.
• Aggregated criteria scores were calculated based on scores of individual criteria, and the results were re-scored on a continuous scale.
• Any data point that was not disclosed by a company was given a score of 0.

Auto Lender Evaluation Categories

Our evaluation categories were weighted as follows. These categories consist of 63 criteria for each of the 16 companies, resulting in 1,008 data points that make up our rubric.

Category	Weight	Number of Criteria
Cost of Loans	34.00%	12
Loan Terms	28.00%	13
Borrowing Requirements	22.00%	14
Customer Experience	10.00%	11
Additional Features	6.00%	13
Total	100.00%	63

The weights and resulting lender scores were used to determine our picks for the best auto loans.

Cost of Loans

We researched the costs of new, used, and refinance loans. This category consisted of the following criteria with the accompanying weights.

Criterion	Weight
Autopay Discount	2.00%
New Minimum Fixed APR	1.50%
New Maximum Fixed APR	6.50%
Used Minimum Fixed APR	2.00%
Used Maximum Fixed APR	8.00%
Refinance Minimum Fixed APR	2.00%
Refinance Maximum Fixed APR	8.00%
Maximum Origination Fee	2.00%
Maximum Late Payment Fee	2.00%
Total	34.00%

Autopay Discount

Autopay discounts usually provide a small percentage off the APR of a car loan, like 0.25% or 0.50%. We scored this on a continuous scale from 0 to 1, awarding more points to lenders with larger autopay discounts. This criterion was weighted at 2.00% of the overall score.

New Minimum Fixed APR

Rate shopping is an important part of buying or refinancing a car. We scored minimum fixed APRs on a continuous scale from 0 to 1, with lower minimum APRs getting the higher score. This criterion was weighted at 1.50% of the total score; minimum APRs were given lower weights than maximum APRs because fewer people would qualify for the best rates.

New Maximum Fixed APR

We scored maximum fixed APRs for new car loans on a continuous scale from 0 to 1, with higher APRs earning higher scores. Higher APRs earned higher scores because lenders with higher maximum APRs may be more willing to lend to people with less-than-great credit. This criterion was weighted at 6.50% of the total score.

Used Minimum Fixed APR

We treated used car loan APRs as more important than new car loan APRs because the used car market is generally larger and the majority of auto loans are used car loans. Minimum fixed APRs for used car loans were scored on a continuous scale, with lower APRs earning better scores. This factor was weighted at 2.00% of the overall score, because relatively few people with qualify for the best possible rate.

Used Maximum Fixed APR

Maximum fixed APRs for used car loans were scored on a continuous scale, with higher APRs earning better scores. This factor was weighted at 8.00% of the overall score, as it’s related to the ability of many people to obtain a loan.

Refinance Minimum Fixed APR

Minimum fixed APRs for refinance loans were scored on a continuous scale, with lower APRs earning higher scores. This criterion was weighted at 2.00% of the total score, because most people won’t qualify for the lowest rate.

Refinance Maximum Fixed APR

Maximum fixed APRs for refinance loans were scored on a continuous scale, with higher APRs earning better scores to reflect the increased accessibility of lenders with higher maximum APRs. This criterion was given a weight of 8.00% of the total score.

Maximum Origination Fee

Most lenders included in our research don’t charge an origination fee, but a few do. This criterion was scored on a binary scale; lenders that don’t charge an origination fee scored 1, and lenders that do charge such a fee scored 0. This criterion was weighted at 2.00% of the overall score.

Maximum Late Payment Fee

Most (but not all) auto lenders included in our research charge late fees, while some don’t disclose if they do or not. This criterion was scored on a binary scale, based on whether or not the lender discloses its late payment fee terms; lenders that do disclose their terms scored 1, and lenders that do not scored 0. This criterion accounted for 2.00% of the total score.

Loan Terms

Loan terms refers to how fast you get the loan, the loan amounts, the repayment terms (how long you have to repay the loan), and how much you can borrow. The following criteria were included in this category.

Criterion	Weight
Minimum Days to Receive Loan	2.00%
New Minimum Loan Amount	1.50%
New Maximum Loan Amount	2.50%
New Minimum Repayment Terms	0.50%
New Maximum Repayment Terms	1.50%
Used Minimum Loan Amount	2.50%
Used Maximum Loan Amount	3.50%
Used Minimum Repayment Terms	1.50%
Used Maximum Repayment Terms	2.50%
Refinance Minimum Loan Amount	2.50%
Refinance Maximum Loan Amount	3.50%
Refinance Minimum Repayment Terms	1.50%
Refinance Maximum Repayment Terms	2.50%
Total	28.00%

Minimum Days to Receive Loan

Car shopping can take some time, but sometimes you may need to get a loan quickly to close on a car deal. Some lenders can deliver the funds as soon as the same day. We scored this factor on a continuous criterion, giving higher scores to lenders with faster loan disbursal. This criterion was given a weight of 2.00% in the total score.

New Minimum Loan Amount

The amount you can borrow plays a role in the vehicle you can buy. Look for a lender that can accommodate your vehicle of choice so you can get the exact loan amount you need, whether you want to buy an expensive car or a cheap car. We scored minimum loan amounts for new car loans on a continuous scale, with lower loan amounts scoring higher because this indicates a wider range of possible loan amounts. This criterion amounted to 1.50% of the total score.

New Maximum Loan Amount

Maximum loan amounts for new car loans were scored on a continuous scale from 0 to 1, with higher loan amounts scoring higher because this indicates a wider range of possible loan amounts. This criterion was weighted at 2.50% of the total score.

New Minimum Repayment Terms

The time you have to repay a loan affects your monthly payment amount and the total amount you end up paying—longer terms mean a smaller monthly payment but a higher overall cost. It’s helpful when a lender offers a wide range of terms to suit your needs. We scored minimum repayment terms for new car loans on a continuous scale from 0 to 1, with lower minimum terms earning better scores. This criterion was given a weight of 0.50% in the overall score.

New Maximum Repayment Terms

We scored maximum repayment terms for new car loans on a continuous scale, giving better scores to lenders with higher maximum terms. This criterion was weighted at 1.50% of the total score.

Used Minimum Loan Amount

We scored minimum loan amounts for used car loans on a continuous scale from 0 to 1, with lower minimum amounts earning better scores. Used loan terms were weighted higher than new loan terms; this criterion was weighted at 2.50% of the overall score.

Used Maximum Loan Amount

Maximum loan amounts for used car loans were scored on a continuous scale, with higher maximum amounts earning better scores. This factor was given a weight of 3.50% in the overall score.

Used Minimum Repayment Terms

We scored minimum repayment terms for used car loans on a continuous scale, from 0 to 1. Lower minimum repayment terms were given higher scores, as they reflect a wider range of options. This criterion was given a weight of 1.50%.

Used Maximum Repayment Terms

Maximum repayment terms for used car loans were scored on a continuous scale, from 0 to 1. Longer repayment terms were given better scores. This criterion was given a weight of 2.50%.

Refinance Minimum Loan Amount

If you’ve been paying off a loan and federal rates drop, or your credit score improves, it might make sense to refinance. Getting a lower APR can save you hundreds of dollars over the course of a loan, but you need to find a lender that can match your remaining loan balance. If you have a low remaining balance, that may be hard to do. We scored this criterion on a continuous scale, from 0 to 1. Lenders with lower minimum amounts for refinance loans scored higher. This criterion was given a weight of 2.50%.

Refinance Maximum Loan Amount

It’s also important to find a lender that can match a high loan balance, if necessary. Maximum loan amounts for refinance loans were scored on a continuous scale, from 0 to 1; higher maximum loan amounts were given better scores. This criterion was given a weight of 3.50% in the total score.

Refinance Minimum Repayment Terms

Minimum repayment terms for refinance loans were scored on a continuous basis, from 0 to 1. Lower minimum term options were given higher scores. This criterion was weighted at 1.50% of the total score.

Refinance Maximum Repayment Terms

We scored maximum repayment terms on a continuous scale, with higher maximum terms getting higher scores to reflect the value of flexibility in repayment options. This criterion was weighted at 2.50% of the overall score.

Borrowing Requirements

Lenders set different borrowing requirements for their loans, although they don’t always disclose much of this information. When it comes to auto loans, you may need to meet certain credit and income requirements as the borrower, and the vehicle may need to meet certain requirements itself, like age and mileage. The following criteria were scored and weighted in our review of auto lenders.

Criterion	Weight
List of States Available	2.00%
Membership Requirement	8.00%
Joint Application/ Co-Borrowers/ Co-Signer	2.00%
Minimum Recommended Credit Score to Qualify	2.00%
Minimum Income Requirement	2.00%
Loan-to-Value Ratio	2.00%
Maximum Accepted Mileage	2.00%
Maximum Accepted Age	2.00%
Total	22.00%

List of States Available

Lenders that serve more people in more states end up with more experience, which may translate into a better service. Most lenders in our research are available nationwide. We scored state availability on a continuous scale, with more state availability earning a higher score. This factor accounted for 2.00% of the total score.

Membership Requirement

Banks don’t usually have special requirements to open an account, but credit unions typically do have membership requirements, like living in certain areas, working in certain jobs, or being a part of certain organizations. You can often join these organizations and gain membership eligibility at credit unions for $15 or less. You may have to open a savings account with a small amount of money if you want to take out a loan from a credit union, as well. This criterion was scored on a binary scale; lenders with no membership requirement were given a score of 1, and lenders with a requirement were given a score of 0. This criterion accounted for 8.00% of the total score.

Joint Application/ Co-Borrowers/ Co-Signer

It can be tough to find a loan if you don’t have the best credit. Applying with a co-borrower or co-signer who does have good credit can increase your odds of approval. There are some differences between co-borrowers and co-signers, but in each case they share liability for the debt. We scored this factor on a binary scale; lenders that allow you to apply with another person in any way earned 1 point, and lenders that do not earned 0 points. This criterion accounted for 2.00% of the total score.

Minimum Recommended Credit Score to Qualify

It can be helpful to know a lender’s borrower requirements when shopping for a loan, but most lenders don’t disclose these details publicly. Still, some do. We scored this criterion on a binary scale, based on whether or not lenders are transparent about this requirement: Lenders that reveal their minimum recommended credit requirement were given a score of 1, and lenders that do not received a 0. This criterion was given a weight of 2.00% in the overall score.

Minimum Income Requirement

Lenders occasionally reveal their minimum income requirements, although most do not. We scored this criterion based on whether or not lenders reveal this information. Lenders that are transparent with this requirement were given a score of 1, and lenders that are not were given a score of 0. This criterion was given a weight of 2.00% in the overall score.

Loan-to-Value Ratio

Loan-to-value (LTV) ratio refers to the amount of the loan compared to the value of the vehicle. A maximum LTV ratio of 120% means you can borrow up to 120% of the value of the vehicle. You may want to borrow more than the vehicle’s worth to help pay for the extra fees that can come with buying a car, but this can put you at risk of being upside-down on your loan. We scored this criterion on a binary scale; lenders that are transparent about their maximum LTV ratio scored 1, and lenders that aren’t scored 0. This criterion was given a weight of 2.00% of the overall score.

Maximum Accepted Mileage

If you want to buy a used car, you’ll have to find a lender that accommodates the vehicle’s age. Different lenders have different maximum accepted mileages; some are as low as 100,000, others are 150,000, and some lenders have no limit. This criterion was scored on a continuous scale; lenders with higher maximum mileage scored better. This criterion was given a weight of 2.00% in the total score.

Maximum Accepted Age

When shopping for a used car loan, the age limit is as important as the mileage limit. Some lenders have maximum age limits as low as 6 years, while others allow 10 or 20 years or have no limit. We scored maximum accepted age on a continuous scale, giving better scores to lenders with higher maximum ages. This criterion accounted for 2.00% of the full score.

Customer Experience

Investopedia researched the following criteria to understand the experience of the average borrower. Certain criteria, noted below, were combined into an overall customer satisfaction rating that took into account customer ratings and the number of ratings.

Criterion	Weight
Customer Service Availability	2.00%
App Store Rating	Included in Overall Customer Satisfaction Score
App Store Review Ct.	Included in Overall Customer Satisfaction Score
Google Play Rating	Included in Overall Customer Satisfaction Score
Google Play Review Ct.	Included in Overall Customer Satisfaction Score
Trustpilot Rating	Included in Overall Customer Satisfaction Score
Trustpilot Review Ct.	Included in Overall Customer Satisfaction Score
Overall Customer Satisfaction Score	8.00%
Total	10.00%

Customer Service Availability

You may not need to talk to someone when applying for an auto loan online, but in some cases you may have a question—and if something goes wrong, it’s important to speak to someone as soon as possible to ensure a smooth car buying process. We researched the number of hours per week that lenders are available for phone customer support. This criterion was scored on a continuous scale, from 0 to 1, with more phone availability earning higher scores. This criterion was given a weight of 2.00% in the overall score.

Overall Customer Satisfaction Score

Investopedia’s overall customer satisfaction score comes from combining data points from a number of sources. It looks at customer satisfaction ratings and the number of raters in each case, making accommodations for scores with different numbers of raters. The following criteria were aggregated into this overall customer satisfaction score:

• App Store Rating
• App Store Review Count
• Google Play Rating
• Google Play Review Count
• Trustpilot Rating
• Trustpilot Review Count

This overall satisfaction criterion was scored on a continuous scale, giving higher scores to lenders with higher customer satisfaction. This factor was given a weight of 8.00% in the overall score.

Additional Features

Auto lenders may provide a number of features with their loans, along with a car-buying service, specialty loan types, warranties, and more. The following additional features were weighted to score auto lenders.

Criterion	Weight
Car-Buying Service	2.00%
Cash-Out Refinancing	2.00%
Private-Party Vehicle Purchases	2.00%
Total	6.00%

Car-Buying Service

Some auto lenders offer car-buying services to help you find a vehicle, making the process simpler by wrapping up the shopping, buying, and financing in one package. We scored this criterion on a binary scale; lenders that offer a car-buying service got a score of 1, and lenders that don’t got a score of 0. This criterion was given a weight of 2.00%.

Cash-Out Refinancing

Cash-out refinancing allows you to borrow more money than your vehicle is worth, receiving the extra amount as cash. Most lenders in our research did not offer this option, but a handful did. We scored this criterion on a binary scale; lenders that offer cash-out refinancing scored 1, and lenders that don’t scored 0. This factor was given a weight of 2.00% in the overall score.

Private-Party Vehicle Purchases

When you get a new or used car loan, some lenders require you to buy a car from a dealership. But others don’t have that limitation—they allow you to buy cars from independent sellers as well, who are known as private parties. Around half of the lenders in our research allow you to buy vehicles from private parties. This was scored on a binary scale; lenders that allow private-party vehicle purchases were given a score of 1, and lenders that don’t were given a score of 0. This criterion was given a weight of 2.00% of the overall score.

Criteria Collected But Not Weighted

The following criteria were collected but not weighted. Some were collected for background or editorial purposes, to inform our company reviews. In other cases, criteria were not weighted because all of their data points across companies were identical.

Costs of Loan

• Minimum Origination Fee
• Minimum Late Payment Fee
• Prepayment Fee

Borrowing Requirements

• Loan Purpose (New, Used, Refinance)
• Type of Institution
• Online-Only Institution
• Minimum Credit History
• Maximum Debt-to-Income Ratio
• Bankruptcy Restrictions

Customer Experience

• Customer Service Methods

Additional Features

• Pre-Qualification Available
• Restrictions on Loan Use
• Better Rates With Partners
• Pays Your Creditor
• Discounts Available
• Auto Purchase/Refinance Rebate/Promotion
• Partner Dealerships
• Warranty Availability
• Lease Buyout Loan
• First-Time Car Buyer Program

Meet the Team

Fact checked by Ariel Courage
Reviewed by Margaret James

Tesla, Inc. (TSLA), formerly known as Tesla Motors, has grown since its IPO in 2010 into one of the world’s biggest producers of electric vehicles under the leadership of CEO Elon Musk. The company sells cars, SUVs, and trucks. In addition to electric vehicles, Tesla has expanded into energy generation and storage systems.

Tesla stock joined the S&P 500 and S&P 100 on December 21, 2020, and the company reached a $1 trillion market capitalization the following year. As of February 28, 2025, Tesla has a trailing twelve-month revenue of $97.69 billion and gross profits of $17.45 billion. The market capitalization is $906.90 billion. Below, we’ll take a look at the top shareholders of Tesla based on the number of shares owned as of February 28, 2025.

Key Takeaways

• Tesla is the world’s most valuable auto manufacturer, with a market capitalization of $906.90 billion as of February 28, 2025.
• CEO Elon Musk is the largest shareholder, with 12.8% of the company’s equity as of February 28, 2025.
• Besides Musk, the largest shareholders are asset management companies like Vanguard, BlackRock, and State Street.

Elon Musk

Tesla CEO Elon Musk is the largest shareholder in Tesla. With over 410 million shares, Musk holds 12.8% of all Tesla shares. In addition to serving as co-founder and CEO of Tesla beginning in 2003, Elon Musk also is CEO of SpaceX, Neuralink, and The Boring Company. He was also co-founder of PayPal Holdings, Inc. (PYPL). According to Forbes, as of February 28, 2025, Musk is the richest person in the world, with a net worth of about $355.8 billion.

Vanguard Group

Vanguard Group holds over 243 million shares of Tesla stock as of December 31, 2024, with a value of $69 billion. This accounts for about 7.56% of all outstanding shares. As one of the world’s largest asset managers, most of these shares are held on behalf of clients, who invest in Vanguard’s various mutual funds and exchange-traded funds.

The largest share of these are held in the Vanguard Total Stock Market Index Fund, which represents a cross-section of the market as a whole. Vanguard has more than $9.1 trillion in assets under management.

BlackRock Inc.

BlackRock, the world’s largest asset manager, holds about 202 million shares of Tesla stock as of December 31, 2024. BlackRock’s portfolio accounts for 6.29% of all Tesla shares. Like Vanguard, Blackrock does not directly own these shares—they are held on behalf of thousands of customers who invest in BlackRock’s ETFs and mutual funds. As of the first quarter of 2024, BlackRock’s portfolios hold a combined $10.5 trillion in assets under management.

State Street Corporation

State Street holds the third-largest institutional share of Tesla stock. As of December 31, 2024, State Street held about 112 million shares of Tesla, accounting for 3.49% of the total. As of the fourth quarter of 2024, State Street holds $4.7 trillion in assets under management.

How Much Is Elon Musk Worth?

Elon Musk has a net worth of $354.3 billion as of February 28, 2025, making him the richest person in the world.

How Much Is Tesla Worth?

Tesla closed at $281.95 per share on February 27, 2025, giving the stock a market capitalization (intraday) of $929.478 billion.

How Much of Tesla Is Held by Institutional Investors?

Institutional investors hold a substantial portion of Tesla shares, totaling about 66.20% of total shares outstanding.

How Much Tesla Stock Does Kimbal Musk Own?

Kimbal Musk, the younger brother of Elon Musk, owns a total of 1.46 million Tesla shares, accounting for less than 1% of the total. Musk holds a seat on Tesla’s Board of Directors. He also served on the board of SpaceX, the aerospace manufacturer and space exploration company whose CEO and founder is Elon Musk.

How Much Is SpaceX Worth?

Because SpaceX is not traded on public markets, it is difficult to assign a value to the company. A private sale in December 2023 valued the company at $175 billion, making it the most valuable pre-IPO company in history.

The Bottom Line

Tesla is a leading auto manufacturer and one of the most valuable companies in the world. As of 2024, the largest shareholder is CEO Elon Musk, who holds 12.8% of Tesla equity. Besides Musk, the largest shareholders are asset managers, like BlackRock and Vanguard.

Reviewed by Colleen Ramos

Investment bankers are educated and experienced professionals who facilitate significant and complex financial transactions for businesses and governments. This profession offers high salaries and great perks, making careers in the field very attractive to recent college graduates and experienced finance professionals. Not surprisingly, the investment banking job market is among the most competitive.

Here are the qualities many investment banks look for in job candidates.

Key Takeaways

• New opportunities come from all directions, so investment bankers need to be creative and nimble thinkers.
• Selling is a big part of the job and applicants must be skilled at creating and presenting proposals and closing deals.
• Leadership potential is key, as even junior employees will own their own projects.

Intellectual Abilities

“How many jellybeans can fit in the Empire State Building?” is an odd job interview question, but the answer can convey something about the candidate’s thinking. The interviewer is trying to assess the candidate’s intellectual ability by asking a question out of left field, and there’s a reason for that.

Imagine being an investment banker and meeting a business tycoon. The tycoon starts musing about the potential for selling tractors in India, a country he knows little about. A good investment banker should be prepared to quickly assess the industry, the market, and the business idea, beginning with an estimate of the number of farmers and the amount of farmland in India and an educated guess at the potential market for tractors there.

New business ideas, deals, products, and opportunities come from all directions in investment banking. Candidates should be adept at identifying and exploring them. That takes a nimble intellect.

Analytical Skills

Investment bankers are often required to present detailed analyses of business ventures and investment plans to highly demanding clients. Analytical expertise, in addition to good number crunching and quantitative abilities, are required to present the business plans and the risk-return tradeoffs, and to back it up with facts and figures when challenged.

Important

Financial modeling, corporate finance principles, accounting and reporting, economic forecasting and market analysis, and risk management are must-have skills for investment bankers.

Communication Skills

The primary job skill of investment banking is persuading and convincing. Selling an idea takes excellent all-around communication and presentation skills. These include making advanced spreadsheets, documents, and slideshows.

Management and Leadership Abilities

Investment bankers often start as junior analysts, and candidates are assessed on their long-term potential. In the short- to mid-term, they are assigned complete ownership of a business opportunity, eventually followed by the assignment of an entire region or business segment. Down the line, they may become vice presidents and above, leading business divisions.

Even in an entry-level position, candidates are required to take responsibility, build teams, seek assistance from across multiple internal divisions, and build partnerships with external vendors and partners.

Management and leadership potential is an integral part of the investment banking job.

Entrepreneurial Skills

Investment banking is a key player in merger and acquisition deals, corporate restructuring plans, initial public offerings, and new business capitalization.

The ability to identify business opportunities in new and unusual areas is a requirement of the job. It may involve funding a team of enthusiasts to help build a business from scratch, or spotting growth potential in an existing business.

Networking Skills

Investment bankers need the ability to make connections with people from many industries and various cultures. Candidates should demonstrate the ability to deal with unfamiliar situations and maintain healthy client relationships.

Other Requirements

Investment banks say they look for loyalty, authority, diplomacy, creativity, and high ethical standards. Common interview questions include, “Give me an example of an occasion when you demonstrated loyalty [or authority, diplomacy, or creativity]?” Another common opener is: “Give me an example of when you faced an ethical dilemma, and how did you solve it?”

Fluency in another language is a bonus, and almost any other modern language could come in handy.

What Skills Are Most Important in Investment Banking?

Investment bankers need a thorough understanding of financial markets, corporate finance, communication, and analytical skills.

Do Investment Bankers Need People Skills?

People skills are essential for investment bankers because they interact with people daily and manage and lead others.

What Skills Do You Need for JP Morgan?

JP Morgan looks for highly motivated “leaders with highly developed critical thinking, problem solving, and analytical skills,” as well as communication skills and solid financial analysis acumen.

The Bottom Line

Investment banking can be a lucrative career, but it requires a wide range of skill sets, thought diversity, analytical skills, financial knowledge, and experience to be successful.

How does the Tax Cuts and Jobs Act’s impact home equity loans?

Reviewed by Lea D. Uradu

Deducting home equity loan interest can save you money on your tax bill, but you have to understand the rules under the Tax Cuts and Jobs Act (TCJA) of 2017. A loophole allows homeowners to deduct interest for qualified home improvements.

Key Takeaways

• The TCJA of 2017 significantly altered the rules for deducting home equity loan interest.
• Homeowners can still deduct interest if the loan is used for qualifying home improvements.
• Proper documentation and adherence to IRS guidelines are crucial for claiming deductions.
• There are limitations on deductible interest, including caps on mortgage debt.
• Loans taken before December 15, 2017, may have different deduction rules.

Overview of the Tax Cuts and Jobs Act (TCJA) of 2017

The TCJA was an overhaul of federal tax rules that impacted individuals and businesses. The law lowered income tax rates from many individuals. It increased the standard deduction, but it also introduced limitations on several itemized deductions.

Prior to the introduction of the TCJA, homeowners could deduct the interest they paid on home equity loans. Now, there are limitations on deducting that interest based on how the home equity loan is used. For example, you cannot deduct interest paid on a home equity loan if that loan is used for personal living expenses.

Understanding the Loophole

While the TCJA does limit homeowners’ ability to deduct interest on a home equity loans or a home equity line of credit (HELOC), a loophole allows you to claim a deduction in certain cases.

You can claim the interest paid on a home equity loan as a deduction if that debt is used to build, purchase or improve your home.

Eligible Home Improvement Expenses

You can deduct the interest on a home equity loan secured by your primary home or second home when you use the loan to buy a property or build a home.

You can also claim the deduction when you use a home equity loan to improve your home. Eligible improvement expenses include:

• Remodeling: Remodels are often big projects. You may decide to finance your kitchen remodel, for example, with a home equity loan. The interest you pay on that loan would be deductible.
• Home addition or conversion: Building an addition to your home or converting your basement into a livable space adds value to your home, which means these projects would be eligible expenses.
• New roof: Replacing your home’s roof is a big improvement project. You can likely deduct the interest you pay on a home equity loan that finances the new roof.
• Solar panel installation. Solar panels could boost the value of your home and potentially result in tax deductible interest.

If a project adds to the value of your home, it is typically considered an eligible expense that will allow you to deduct the interest you pay on a home equity loan or HELOC.

Best Practices for Claiming the Deduction

If you plan to claim this type of deduction, it is important that you follow the IRS requirements.

• Check the IRS requirements: Before you move forward with the deduction, make sure that the loan in question is secured by your primary residence or a second home, like a vacation home. Confirm that the proceeds of the loan were used to improve your home or to buy or build a home.
• Gather your documentation: You will need Form 1098, which is your mortgage interest form. It will include the interest you paid on your home equity loan. You may not receive this form if you paid less than $600 in interest.

You will also need receipts to show that you used the funds for eligible home improvement.

• Consider all of your deductions. Interest paid on a home equity loan is one possible deduction. Consider all of your itemized deductions. For example, you may have mortgage points, which you can pay to your lender to lower your interest rate.

Adding up all of your itemized deductions can help you decide between taking those or a the standard deduction. The standard deduction is $14,600 if you file for tax year 2024 as an individual or married filing separately. Married couples who file jointly have a standard deduction of $29,200. If you file as head of household, your standard deduction is $21,900.

Note

If the standard deduction is higher than your total of itemized deductions, the former will save you more on your taxes.

Limitations and Considerations

While can you claim interest paid on a home equity loan or HELOC as a deduction when you use the debt for eligible projects, there are still some other limitations to consider.

The TCJA changed the total mortgage loan amount from which taxpayers can deduct interest. Previously, the total amount was $1 million. Under the TCJA, it is $750,000 for individuals filing as single and married couples filing jointly. If you are married filing separately, the cap is $375,000.

The year you took out the home equity loan can impact your deduction. For loans taken out before Dec. 15, 2017, the maximum remains $1 million.

Keep in mind that you can still qualify for the deduction with loans greater than the cap, but the maximum amount set by the IRS will be used to calculate the interest you pay and can deduct.

The Bottom Line

You have the option to deduct interest that you have paid on a home equity loan, even under the TCJA. But it is important to understand the limitations on taking that deduction, including the way the loan is used and the loan amount.

If this deduction and your other itemized deductions add up to more than the standard deduction, you will save more on your taxes by claiming the itemized deductions.

Fact checked by Vikki Velasquez
Reviewed by Katie Miller

Navigating the complex world of investing has become more accessible and less intimidating thanks to the rise of online brokers and robo-advisors. Both offer unique benefits, providing streamlined, efficient platforms for investing in the stock market by leveraging technology. Online brokers are ideal for those who prefer a hands-on approach, making their own decisions and doing their own research. Robo-advisors are best suited for those who value simplicity and hands-off automation.

It’s essential to understand what they offer and how they align with your financial goals so you can make an informed decision between these two options.

Key Takeaways

• Online brokers are platforms that offer direct access to a broad range of investment opportunities and allow you to make your own trading decisions.
• Robo-advisors are automated investment platforms that use algorithms to create and manage your investment portfolio for you based on your risk tolerance and financial objectives.
• Online brokers offer more control and flexibility and this can appeal to experienced investors.
• Robo-advisors provide simplicity and low-cost investment management, making them ideal for novice investors or those with a hands-off approach.
• Your choice between an online broker and a robo-advisor will depend largely on your investment knowledge, time commitment, and financial goals.

What Is an Online Broker?

The concept of online brokers emerged along with the internet in the late 20th century and it revolutionized the way people trade. An investor had to go through a traditional broker to buy or sell securities before this and it could be a cumbersome and costly process. The barrier was lifted with the advent of these digital platforms. They serve as intermediaries for buying and selling financial instruments that can range from stocks to bonds, mutual funds, ETFs, and even cryptocurrencies.

What differentiates online brokers from traditional brokers is the level of autonomy they provide to investors. Individuals can use these platforms to place trades themselves, using the various tools and resources provided to make informed decisions, instead of relying on a human broker to recommend and execute trades.

Note

Online brokers function as gateways into the financial markets. They enable you to buy and sell a variety of assets like stocks, bonds, exchange-traded funds (ETFs), and mutual funds.

The principle here is self-direction. You have the autonomy to conduct research, analyze market trends, and make individual trading decisions. This gives you full control over your portfolio but it demands time, financial literacy, and a certain comfort level with managing risk. Most online brokers offer their customers a suite of tools, however, to help them conduct research, grab headlines, simulate trading, and access a range of asset classes.

These resources often provide comprehensive research, real-time market data, charting tools, and even educational resources to equip investors with the knowledge to navigate the financial markets. Some brokers go further, offering advanced features like simulated trading, expert market commentary, and customizable alerts for specific market conditions.

What Is a Robo-Advisor?

Robo-advisors are automated platforms that are designed to shoulder the burden of portfolio management. They leverage their algorithms to construct and manage your portfolio when you input your risk tolerance, time horizon, and investment goals.

A robo-advisor uses software to manage your investments. It creates and automatically adjusts your portfolio, offering a more hands-off investment experience. These platforms drastically simplify the investment process and make it more accessible to a wider audience. This allows robo-advisors to offer their services for a fraction of the cost of a traditional human advisor and with far lower opening balances.

The strength of robo-advisors lies in their hands-off approach. This is especially beneficial for beginners or those who prefer not to sift through the intricacies of the financial markets themselves. You can’t choose what goes into your portfolio, however, and you can’t make changes to it.

One of the notable features of robo-advisors is their automated portfolio rebalancing. Market fluctuations can cause your portfolio to drift from its original asset allocation over time. Robo-advisors automatically correct this by buying or selling assets to maintain your chosen level of risk and return.

They can also engage in tax-loss harvesting, a strategy that offsets capital gains with tax losses from similar securities. This automated maintenance and optimization can be a major advantage for those who lack the time or expertise to monitor their portfolio consistently.

Important

Many online brokers incorporate robo-advisory elements into their platforms, providing pre-built portfolios and automating certain investing features. Some robo-advisors allow for a degree of customization, letting users tweak their portfolios based on personal preferences.

How to Choose an Online Broker

Choosing an online broker is about finding the platform that aligns with your trading style, investment goals, and preferred level of autonomy. Don’t neglect to compare commissions and fees.

The landscape of online brokers is diverse and competitive. It ranges from brokers that cater to experienced traders with sophisticated platforms and a vast range of assets to those designed for beginners with easy-to-navigate interfaces and educational resources. These platforms have democratized investing, making it accessible to anyone with an internet connection. They continue to evolve, shaped by technological advancements and changing investor needs.

How to Begin Working With a Robo-Advisor

The process starts with providing essential information about your financial situation and goals. You’ll typically answer a series of questions designed to determine your risk tolerance, your investment time frame, and your financial objectives. These parameters will guide the robo-advisor as it crafts an investment strategy tailored to your needs.

It’s a quick, straightforward process that allows even those who are new to investing to establish a well-diversified portfolio. Those that are created typically utilize low-cost index ETFs and follow the diversification principles underlying Modern Portfolio Theory (MPT).

Wealthfront and Betterment are two early robo-advisors known to have pioneered many standard features.

Online Broker: Advantages and Disadvantages

Online brokers offer a wide array of investment possibilities, serving as a portal to global financial markets. They grant investors the freedom to shape their portfolios according to their own insights, strategies, and risk appetites. This is particularly appealing to seasoned investors who possess the knowledge and confidence to navigate the financial markets independently.

The variety of tools and research resources available on these platforms can significantly enhance the investing experience, providing valuable market insights and aiding in informed decision-making. Many online brokers offer zero-commission trading in many stocks and ETFs.

The autonomy and freedom offered by online brokers come with their own challenges, however. The responsibility of monitoring the markets, staying informed about global economic trends, and adjusting the portfolio as necessary falls squarely on the shoulders of the investor. The wealth of information available can be advantageous but it can also feel overwhelming to novice investors or those who lack the time to engage deeply with these resources.

Pros

• Lots of autonomy and flexibility

• A wide range of securities and asset classes to choose from

• Low-cost or commission-free trading

• Research, screeners, and other tools available to users

Cons

• Requires self-discipline and self-management of the portfolio

• May not be appropriate for novices

• Can encourage overtrading or trades based on emotion

Robo-Advisor: Advantages and Disadvantages

Robo-advisors offer many advantages, particularly for beginners. Their automation of portfolio management makes investing accessible for those who lack extensive knowledge or time for portfolio management. This hands-off approach eliminates the need for constant portfolio monitoring and adjustment, freeing up time for investors.

Robo-advisors are often praised for their cost-effectiveness. Traditional human advisors typically charge a percentage or more of assets managed and this can become quite expensive. The best robo-advisors leverage algorithms to deliver similar services at a fraction of the cost, allowing for much smaller account minimums. This makes them a more affordable choice for those with smaller budgets.

The greatest limitation is the lack of personalized service. Robo-advisors can’t provide the depth of personal interaction that some investors seek. Complex financial planning needs or significant life events often require a human touch for effective management. The customization options provided by robo-advisors are often limited compared to what a human advisor or online broker could offer.

Pros

• Automation of well-diversified portfolios

• Much lower cost than traditional advisors

• Low account minimums

• Continuous monitoring and rebalancing

Cons

• Less flexibility and customization

• Limited investment options and strategies

• Lack of a human touch

What Investor Is an Online Broker Best Suited For?

Online brokers tend to be most beneficial for investors who have a reasonable understanding of the financial markets and prefer a hands-on approach to investing. They appreciate the control and flexibility that online brokers provide such as the ability to actively trade and respond to market changes. They typically don’t mind investing the time necessary for research and are comfortable making investment decisions independently.

Who Is a Robo-Advisor Best Suited For?

Robo-advisors are a good fit for those who prefer a more hands-off approach to investing or who may be new to the world of finance. Robo-advisors are also a great choice for those who seek a low-cost investing option because they typically charge lower fees than traditional advisors.

How Risky Are Robo-Advisors?

The level of risk associated with robo-advisors is primarily linked to the type of investments they make on your behalf and the market conditions at large. Robo-advisors typically invest in a diversified mix of exchange-traded funds (ETFs) that are designed to spread risk across a wide range of assets. This diversification generally leads to a lower risk profile compared to investing in individual stocks.

These platforms are registered with regulators and approved to handle investor money. They often have the backing of larger financial institutions and they’re covered by Securities Investor Protection Corp. (SIPC) insurance just like any other brokerage account.

The Bottom Line

Both online brokers and robo-advisors use technology to make accessing financial markets easier and low-cost. Choosing between an online broker and a robo-advisor hinges on your investment knowledge, time commitment, and the level of control you want over your portfolio. Both options have their merits and can successfully guide you toward your financial goals.

Disclosure: Investopedia does not provide investment advice. Investors should consider their risk tolerance and investment objectives before making investment decisions.

Reviewed by Charlene Rhinehart

The price-to-earnings (P/E) ratio is arguably the most effective and often used valuation metric in equity analysis. Here, you’ll learn how to calculate the trailing twelve-month (TTM) P/E, the forward P/E, and examine how P/E analysis can be applied to the entertainment content behemoth, Netflix, Inc. (NFLX).

Key Takeaways

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Trailing Twelve-Month (TTM) P/E

To determine this calculation, one must first understand the underlying components, which are as follows:

• The numerator of the P/E ratio is the current price of the stock, symbolized by the letter “P.”
• The denominator of the P/E ratio is the earnings-per-share (EPS), symbolized by the letter “E.”

The EPS is itself a ratio that breaks earnings down by the company’s shares outstanding, which can be calculated as follows:

(Net Income – Preferred (Net Income – Pre Dividends) / Weighted Average Number of Diluted Outstanding Shares = EPS

Together, the price divided by the EPS results in the P/E, which reflects how much investors are willing to pay per $1 of a company’s earnings. The price portion is straightforward. One must simply pull up Netflix’s share price (the numerator) on any given day. Determining the denominator is also easy for investors, because the Securities and Exchange Commission requires all public companies to report this ratio in their quarterly Form 10-Qs and annual 10-Ks.

Remember that EPS reflects the company’s earnings to outstanding shares, which demonstrates how much money the company makes per share. This is a fluid and ever-fluctuating value, due to changes in earnings and outstanding shares. For instance, if shares outstanding increase without a corresponding increase in earnings, EPS will decrease.

Furthermore, EPS is typically calculated using diluted shares, which accounts for any convertible shares that may be issued through bonds, warrants, employee benefits, or other sources.

For a TTM P/E example, consider Netflix’s reported EPS for the four quarters ended Dec. 31, 2024:

• Q1/2024: $5.28
• Q2/2024: $4.88
• Q3/2024: $5.40
• Q4/2024: $4.27

Adding these figures up yields a TTM EPS of $19.83. And by dividing Netflix’s Dec. 31, 2024 closing price of $891.39 by that number, we arrive at $44.95 ($891.39 ÷ $19.83), which is NFLX’s TTM P/E ratio on that day. This tells us that at that time, investors were willing to pay $44.95 per $1 of NFLX’s earnings.

Forward P/E

While TTM P/E calculations are objectively measured by historical data, forward P/Es are subjective calculations that consider a company’s projected earnings-per-share growth. The growth rate can be inferred through management guidance, industry prospects, and growth models based on fundamentals, such as return on invested capital.

For 2024, analysts projected an average EPS of $4.21 for Netflix. But keep in mind that the forward P/E also uses the current price of the stock in the numerator. Consequently, determining the forward P/E required the following calculation: $305/$4.21 = 72.50. As was typically the case, the forward P/E was lower due to a higher EPS projection at that time.

Analysis

P/E values can be considered in the context of a company’s competitors. Consider the following TTM and forward P/E ratios for several of Netflix’s rivals: (Note: this analysis also considers price-to-sales (P/S) ratio.)

Name	Ticker	$ Price	TTM P/E	Forward P/E	P/S
Alphabet Inc. A	GOOGL	1,057.05	44.73	22.78	5.88
Amazon.com	AMZN	1,661.25	130.63	63.69	3.86
Apple Inc.	AAPL	215.30	18.91	16.0	4.13
Comcast Corp A	CMCSA	34.12	6.50	12.12	1.74
Meta Platforms Inc.	META	146.11	22.17	18.38	8.83
Netflix Inc	NFLX	301.62	109.30	72.50	9.42
Verizon Comm	VZ	57.42	7.23	11.36	1.70
Average		496.12	48.50	30.98	5.08

This data shows that Netflix had the second-highest TTM P/E and the highest forward P/E. Growth data for the first three quarters of 2018 tells us that revenue had been growing at a 25% rate, and earnings were expected to grow at a rate ranging from 50% to 100%. Netflix also boasts one of the highest P/S ratios. 

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The Bottom Line

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Fact checked by Vikki Velasquez

Semiconductors are materials that conduct electricity but only under certain conditions. They’re an essential component in modern electronics found in products from smartphones and laptops to cars and medical devices. Semiconductors include microprocessors, memory modules, and integrated circuits.

The semiconductor industry is notoriously cyclical and faces vast shifts in demand but it’s expected to grow significantly into the early 2030s.

Key Takeaways

• The semiconductor industry is critical to modern electronics and is a major global industry.
• The industry has occasionally faced chip shortages due to disruptions in the supply chain caused by the pandemic, trade tensions, and shipping delays.
• The semiconductor industry is driven by increasing demand for technologies such as AI and major investments from the U.S. and governments worldwide.
• The largest semiconductor makers in the world are U.S.-based Intel (INTC) and Taiwan’s TSM.
• China, Japan, Taiwan, South Korea, and the United States were the top five countries producing semiconductors as of 2024.

The Semiconductor Industry: An Overview

The importance of semiconductors in the global economy lies in their ability to process and transmit information. Semiconductor companies are among the largest in the global stock markets and include NVIDIA Corporation (NVDA), Taiwan Semiconductor Manufacturing Company (TSM), and Broadcom Inc. (AVGO). Semiconductors are essential to technologies such as artificial intelligence (AI) and the Internet of Things.

The U.S., EU, and other areas have committed billions to expand regional semiconductor manufacturing due to worries about the effects on national security and competitiveness of shortages.

The U.S. CHIPS and Science Act of 2022 provided $39 billion in grants and a 25% investment tax credit plus $13.2 billion in research and development. The Semiconductor Industry Association predicted in a 2024 report that these and similar incentive programs in Taiwan, South Korea, Japan, and India should help propel about $2.3 trillion in private-sector investment in wafer fabrication from 2024 through 2032. The U.S. would see the largest increase in capacity at about 203%.

Semiconductor Shortages

The semiconductor industry faced a prolonged chip shortage after the pandemic that disrupted supply chains and delayed manufacturing in autos and other sectors. PC sales slumped but overall demand for semiconductors from basic microcontrollers and memory chips to the most sophisticated high-performance processors outgrew producer capacity. Production and supply chain slowdowns were largely mitigated by mid-2024, however.

Demand was already outstripping supply before the pandemic because of the increasing demand from companies involved in AI, the Internet of Things (IoT), and advanced cellular networks that require more powerful and efficient semiconductors. The pandemic also reshaped global demand as people shifted to remote work and online learning, exacerbating trends that were already underway. International trade in semiconductors increased 43% between 2017 and 2022.

The semiconductor industry has also been an issue in geopolitical strife and trade tensions. The U.S. government placed export restrictions on Chinese semiconductor companies, citing concerns about intellectual property theft and national security.

Record Profits

The semiconductor industry enjoyed record profits and record stock prices from 2020 through 2024 despite a brief dip in 2022.

Chip stocks slumped in 2022 due to fears of a global recession. Weaker consumer spending meant that companies cut back on semiconductor products even as chipmakers invested billions in new fabrication plants to increase supply. Then the U.S. Department of Commerce announced strict export restrictions on selling semiconductors and equipment to China in 2022 which cost billions of dollars in revenue for several struggling semiconductor firms.

This chart shows the VanEck Semiconductor Index ETF (SMH) prices from 2020 to the second quarter of 2024.

The semiconductor sector began recovering by mid-2023 and reached record highs in early 2024 due in no small part to the rise of NVIDIA, a leader in the growing GPU market for crypto mining and AI applications. NVIDIA is the largest holding for SMH at about 20% with TSM at about 13% and Broadcom at 8%.

Technological Advances in Semiconductors

The semiconductor industry’s future is closely intertwined with the development of several key technologies including AI, IoT, green energy, autonomous vehicles, and 5G+ networks. The increasing demand for faster, more efficient, and more powerful computing devices is driving the need for semiconductor materials, manufacturing processes, and chip architectures.

The Return of Germanium

The return of germanium as a semiconductor material has been a notable development. Germanium was used in the first transistors but it was largely replaced by silicon because silicon is abundant, costs less, and tests better for certain aspects of conductivity. Germanium’s higher electron and hole mobility makes it more efficient for high-performance transistors, however.

Researchers are exploring ways to integrate germanium channels into circuits. This could lead to faster and more energy-efficient devices. Advances in germanium-based transistors such as FinFETs and nanowire designs could help overcome some of the limitations of silicon as the industry approaches the physical limits of its materials.

Highly Purified Silicon

Researchers have also made a breakthrough in manufacturing highly purified silicon and this could be a boon for quantum computing. They’ve created a material that can sustain the delicate quantum coherence necessary for reliable quantum calculations by using a focused beam of pure silicon-28 to replace the undesirable silicon-29 atoms in a chip. This brings the realization of robust, scalable quantum computers one step closer.

Scaling up Capacity

Scaling up production while maintaining quality and reliability is critical for the semiconductor industry. It could involve investing in manufacturing technologies such as extreme ultraviolet lithography which enables the creation of smaller and more precise chip features. The development of sophisticated packaging techniques such as 3D chip stacking and wafer-level packaging can also help improve chip density and performance.

The funding from the CHIPS Act should vastly increase the size of the U.S. semiconductor industry, tripling domestic semiconductor manufacturing capacity by 2032. The EU will also see the fruits of its European Chips Act and China has initiated the third phase of its semiconductor funding. Incentive programs emerged or expanded in the first half of the 2020s in Taiwan, South Korea, Japan, and India.

Companies have made significant investments in both established and new semiconductor manufacturing regions. These will also increase production across the world.

Wafer Fabrication

Wafer fabrication is projected to become more durable by geographically diversifying with leading-edge capacity expanding beyond Taiwan and South Korea to include the U.S., Europe, and Japan. China and Taiwan should continue to hold the largest share in global capacity in assembly, testing and packaging (ATP). Countries in Southeast Asia, Latin America, and Eastern Europe are expected to expand ATP activity, however, helped along by government and investor support.

The development of sophisticated packaging and chiplet designs is also driving some ATP production growth in the U.S. and Europe near their wafer fabs.

Industry Challenges

The semiconductor industry also faces some challenges, however. A major concern is the increasing cost and complexity of chip manufacturing as sizes continue to shrink. Developing manufacturing processes and materials such as germanium requires billions in research and development. Geopolitical tensions and trade disputes such as those between the U.S. and China, can cause bottlenecks in trading.

U.S.-China Semiconductor Tensions

Lingering tensions between the U.S. and China in the semiconductor space stem from U.S. efforts to curb China’s technological advances while also aspiring to rejuvenate domestic chip manufacturing.

Top Semiconductor Stocks and ETFs

The largest semiconductor stocks by trailing 12 months revenue in 2024 were:

1. Samsung (005930.KS): $197 billion
2. TSM: $74 billion
3. NVIDIA: $61 billion
4. Intel: $54 billion
5. Broadcom: $39 billion
6. Qualcomm Inc. (QCOM): $36 billion
7. ASML Holding N.V. (ASML): $30 billion
8. Applied Materials (AMAT): $26 billion
9. Advanced Micro Devices Inc. (AMD): $23 billion
10. SK Hynix (000660.KS): $22 billion

Samsung is based in South Korea and has semiconductor revenues but it’s a diversified business. The others have a very high percentage of their companies involved in semiconductors.

These exchange-traded funds (ETFs) track the semiconductor sector:

• VanEck Semiconductor ETF (SMH)
• iShares Semiconductor ETF (SOXX)
• SPDR S&P Semiconductor ETF (XSD)
• Invesco Semiconductors ETF (PSI)
• First Trust Nasdaq Semiconductor ETF (FTXL)

Who Leads the Semiconductor Industry?

The largest semiconductor makers in the world are South Korea’s Samsung, U.S.-based NVIDIA and Intel, and Taiwan’s TSMC. The top five countries producing semiconductors were China, Japan, Taiwan, South Korea, and the U.S. in 2021.

Why Invest in Semiconductors?

Investors often consider adding semiconductor stocks or ETFs to a diversified portfolio. The semiconductor industry is a crucial component of the technology sector and plays a significant role in powering many devices including computers, smartphones, and other electronic devices.

Demand for semiconductors is likely to grow as technology continues to advance, driving revenue and profits for semiconductor companies. A focus on innovation can lead to significant long-term growth potential for companies that are successful in developing new products.

What Is the Future of Semiconductors?

The semiconductor industry is expected to grow over the long term, driven by continued demand for electronics and technological advances. The industry itself is highly innovative and chips have become exponentially more efficient and powerful.

Semiconductors won’t be replaced anytime soon although they’ll continue to improve. The discovery and application of materials like graphene, a novel form of carbon, the advent of quantum computing, and the use of photonic circuits may also be used alongside traditional semiconductors.

The Bottom Line

The semiconductor sector is a major part of the stock market. It’s not just a major player by market capitalization but is critical to many industries such as automotive, healthcare, and telecommunications. Disruptions in the industry such as after the pandemic showed its importance across the economy.

The performance of semiconductor stocks can impact the broader market, as seen in 2024 when the sector hit record highs. This followed a sluggish 2022 and 2023 when the sector experienced losses, contributing to a measurable drag on the overall market. Investors should closely monitor the performance of the companies that make them because the chip market is expected to continue growing.

Fact checked by Vikki Velasquez

The severity of risk in trading depends on the preferences and objectives of the trader. Buying options tends to be less risky than selling options from the perspective of a trader who’s making a single trade. Your risk is limited to the premium you paid for the option contract because the most you can lose is 100% of your investment if the option expires worthless. The dynamic is reversed when you’re selling options.

Option sellers tend to win more trades than they lose but the losses are larger. An option seller might feel that they’re taking on greater risk because the losses could be larger. The trade even has unlimited risk in some cases.

Key Takeaways

• Options are contracts that grant the right but not the obligation to buy or sell an asset at a predetermined price.
• Buying options involves the risk of losing the initial premium but it offers the potential for unlimited gains.
• Selling options can generate immediate income but it exposes the seller to potentially unlimited losses.
• It will limit both their upside and their downside if sellers also buy other options to make spreads.
• Both buying and selling options have their advantages and pitfalls.

What Are Options?

Options are financial derivative contracts that give buyers the right but not the obligation to buy or sell an underlying asset at a predetermined price known as the “strike price.” They must do so on or before a specified date. The underlying asset could be a stock, bond, commodity, currency pair, or index. There are two main types of options: calls and puts.

Call options provide the holder the right to buy the underlying asset. Purchasing a call option on a stock gives the owner the right to buy that stock at the strike price before the expiration date.

Put options give the holder the right to sell the underlying asset. The seller of a call or put option is obligated to sell or buy the underlying asset if the holder chooses to exercise the option.

The buyer of an option pays a premium for the right to choose the price of the option. The seller receives this premium in exchange for the obligation to fulfill the contract if it’s exercised. This dynamic sets the stage for the varying risk profiles of buying and selling options and shapes the strategies traders employ to capitalize on market movements or to generate income.

Options can be used to speculate on the direction of markets or to hedge an existing position in the underlying asset.

A trader might buy a call option if they expect the stock price to rise. An investor might buy put options to protect against a potential downside in a stock they own.

Understanding Options Risks

An option seller receives the premium upfront but they’re obligated to buy or sell the underlying asset at the strike price if it’s assigned. This exposes you to unlimited risk if the market moves against your position. Selling options can generate income from collected premiums but it requires more experience and risk management to limit losses from adverse price moves.

Option buyers take on defined, limited risk. You pay a premium upfront and your maximum loss is limited to 100% of that premium if the option expires worthless.

Option sellers take on an undefined, potentially uncapped risk if the market moves against their position. Selling options can generate income from the premiums received but it exposes the seller to large losses if they’re assigned on the contracts.

Risk/Return Profile of Options Contracts
	Maximum Potential Gain	Maximum Potential Loss
Long Call	Unlimited if the stock goes up	The amount paid for the option
Long Put	The difference between the strike price and zero if the stock goes down	The amount paid for the option
Short Call	The amount received for the option	Unlimited if the stock goes up
Short Put	The amount received for the option	The difference between the strike price and zero if the stock goes down

Risks When Buying Options

Buying options isn’t without risk. You could lose the entire premium you paid if the option expires worthless which happens if the underlying asset doesn’t move in the direction you were hoping for. This is particularly true for out-of-the-money options where the chances of making a profit are statistically slimmer.

The phenomenon known as “time decay” works against option buyers as well. The value of an option naturally deteriorates as its expiration date nears so you not only have to be right about the direction in which the stock will move but also about the timing of that move. Every day that passes without significant movement in the underlying asset chips away at the option’s value.

Options are highly sensitive to volatility. Increased volatility can boost the value of an option you’ve bought but decreased volatility can do the opposite even if the underlying asset moves in the direction you anticipated. This is known as “volatility risk” and it can be a double-edged sword. Trading options also often involves additional costs such as commissions and fees which can eat into any profits you might make or exacerbate your losses.

Risks When Selling Options

Selling options comes with the possibility of unlimited losses but the risk profile is often more nuanced than this suggests. Many sellers employ strategies that can mitigate some of these losses such as using stop-loss orders or selling options as part of more complex strategies. These might include spreads or covered calls that can limit the downside.

The term “unlimited losses” might imply that these losses can skyrocket to staggering sums in a very short period but this usually isn’t the case.

Important

It’s crucial to remember that the premium received is generally much smaller than the potential loss. It serves more as a buffer than a safeguard against significant losses.

The market in the underlying asset will often have its own set of checks and balances. Extreme moves in underlying assets often trigger trading halts or other mechanisms that are designed to cool down overly volatile trading. Many options contracts are never exercised. They expire worthless or are closed out before expiration.

The theoretical risk is unlimited but the practical risk is often less dire than it might appear. Selling options can provide a cushion against losses due to the upfront premium received. This premium offsets some of the risk and can turn what would have been a losing position into a break-even or slightly profitable one.

Pros

• Unlimited upside potential

• Limited downside risk

Cons

• Can lose the entire premium if the option expires worthless

• Option premium can be expensive

• Options prices decay over time

Pros

• Can collect the entire premium as income earned

• Benefit from time decay

Cons

• Unlimited potential losses

• Gains limited to the premium amount

• Requires margin and may entail margin calls

Is Buying or Selling Options Right for You?

The decision to buy or sell options isn’t one-size-fits-all. It varies based on your investment goals, risk tolerance, market outlook, and even your level of trading experience.

Buying options is often the best way to go for novices and holders of small accounts. Beginners might find that buying options is more straightforward because the concept of paying a premium for the potential of larger gains is easier to grasp. Selling options often involves more complex strategies and requires a deeper understanding of market mechanics. It’s generally more suitable for experienced traders.

Selling options and especially “naked” unhedged options often requires a margin account and a significant amount of capital that you can set aside as margin. This capital requirement could be a limiting factor if your trading account is relatively small. Buying options doesn’t have this requirement, making it more accessible for traders with smaller accounts.

Selling options might be more appealing, however, if you’re looking to generate immediate income. You receive the premium upfront. This could be an option if you’re a more sophisticated trader with the resources and understanding to manage your risk.

One balanced approach to consider is writing covered calls on stocks you already own. This lets you pocket the premium upfront while mitigating some risks because you’re not required to purchase the stock at market price if the option is exercised. This strategy does cap your upside potential, however, because you’ll be obligated to sell your stock at the strike price if the option is exercised. You could potentially miss out on larger gains.

Selling an Option or Shorting a Stock

Selling a call option and shorting a stock both involve betting on a decline in asset value. Selling a put would be a bullish position. They’re fundamentally different strategies with distinct risk profiles, however.

You’re borrowing shares to sell with the hope of buying them back at a lower price later when you short a stock, pocketing the difference. The risk is potentially unlimited because stock prices can rise indefinitely.

You’re selling someone the right to buy or sell a stock at a certain price when you sell an option. You receive a premium upfront and you must buy or sell the stock at the strike price if the option is exercised. Selling a call option also exposes you to potentially significant losses if the stock price rises sharply. Selling a put option exposes you to significant but not unlimited losses because the stock price can only go down to zero.

Option contracts have expiration dates but short positions in stocks can be held indefinitely. Both strategies aim to profit from asset depreciation but they operate under different mechanics and come with unique risks and obligations.

Can You Combine Buying and Selling Options?

Yes, there are more complex strategies that involve both buying and selling options. They include spreads, butterflies, and iron condors. They can be used to hedge against risk, capitalize on volatility, or generate income. They often require a deeper understanding of options, however, and they may involve multiple transactions, increasing your exposure to fees and complexity.

Buying often offsets some of the risks of the short option and selling offsets some of the costs of buying the long option.

What Happens If My Options Expire Worthless?

You lose the premium you paid for it if you’re the buyer and your option expires “out of the money” or worthless. You get to keep the premium received if you’re the seller and your option expires worthless. Your obligation to buy or sell the underlying asset is nullified.

Can I Exit an Options Trade Before Expiration?

Yes, you generally can exit an options trade at any time before the contract expires for American-style options. This can mean selling the option back to the market if you’re the buyer and it’s gained value or you could simply let it expire if it hasn’t. Sellers can buy the same option contract to offset their original position, effectively closing it out.

Exiting early can be a way to secure gains or minimize losses but it’s important to consider the costs that might be involved such as additional commissions or fees.

The Bottom Line

Options trading is a double-edged sword, offering both opportunities and pitfalls, but buying options is generally less risky than selling them. Buying options limits your downside but selling them can lead to potentially unlimited losses. You can navigate the risky but rewarding world of options trading more confidently when you understand these aspects.

Disclosure: Investopedia does not provide investment advice. Investors should consider their risk tolerance and investment objectives before making investment decisions.