Reviewed by Erika Rasure
Fact checked by Katrina Munichiello

In 1913, the Federal Reserve Act established the Federal Reserve System (FRS), an independent governmental entity that would serve as a central bank to the U.S. government.

The act formed a system of 8 to 12 Federal Reserve Banks spread across the United States in addition to the board of governors, the board of directors, and the Federal Open Market Committee (FOMC). Together, the banks’ mission is to provide the nation with a stable monetary policy and a safe and flexible financial system, but what do the Reserve Banks really do?

Key Takeaways

• The Federal Reserve System in the U.S. conducts the nation’s monetary policy and regulates its banking institutions.
• The system is comprised of a minimum of 8, and a maximum of 12, regional reserve member banks, each of which focuses on its particular geographical zone, in coordination with the New York Fed.
• These are currently based in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.

A Network of Regional Fed Banks

The 12 Reserve Banks oversee the regional member banks, protect regional economic interests, and ensure that the public has clout in central bank decisions. Although Federal Reserve Banks don’t operate for profit, they generate income from interest on government securities acquired through Fed monetary policy actions and financial services provided to depository institutions.

Each year, after accounting for operational expenses, the regional banks return any excess earnings to the U.S. Treasury. Overall, these regional banks are involved with four general tasks: formulating monetary policy, supervising financial institutions, facilitating government policy, and providing payment services.

Facilitating Monetary Policy

Regional banks enforce the monetary policies that the Board of Directors sets by ensuring that all depository institutions—commercial and mutual savings banks, savings and loan associations and credit unions—can access cash at the current discount rate.

They also assist the FOMC and the Federal Reserve by contributing to the formulation of monetary policy. Each regional bank has a staff of researchers that collects information about its region, analyzes economic data, and investigate developments in the economy. These researchers advise regional bank presidents on policy matters who then publicize the information to their constituencies in order to survey public opinion.

Supervising Member Institutions

The Board of Governors delegates most supervisory responsibilities over member institutions to the Reserve Banks, which are charged with conducting on-site and off-site examinations, inspecting state-chartered banks and authorizing banks to become chartered.

They also ensure that depository institutions maintain the proper reserve ratio, which outlines the proportion of deposits that must be held on reserve as cash. In addition, Reserve Banks are responsible for writing regulations for consumer credit laws and ensuring that communities can access sufficient credit from banks.

Servicing the Government

Reserve Banks also provide financial services to the federal government by acting as the liaison between the Department of Treasury and depository institutions. The regional banks collect unemployment, income, and excise taxes to deposit in the Treasury and issue and redeem bonds and T-bills in the specified allotments to retain the desired level of bank reserves.

Additionally, Reserve Banks maintain the Treasury Department’s transaction and operating accounts by holding collateral for government agencies to secure funds currently on deposit with private institutions. The banks also make regular interest payments on outstanding government obligations.

Servicing Depository Institutions

Another duty of the Reserve Banks is distributing paper money to chartered depository institutions. Excess cash is deposited at the Reserve Banks when demand is light; when demand is heavy, institutions can withdraw or borrow from the banks. The regional banks have the electronic infrastructure to handle wire transfers, moving funds between its depository institutions.

In addition, the Reserve Banks are a check-clearing system that processes billions of checks annually and routes them to the correct depository institution. The Reserve Banks also provide automated clearinghouses that allow depository institutions to exchange payments to carry out payroll direct deposits and mortgage payments.

Where Are the Federal Reserve Bank located?

The 12 banks are located in:

• Atlanta
• Boston
• Chicago
• Cleveland
• Dallas
• Kansas City
• Minneapolis
• New York
• Philadelphia
• Richmond
• San Francisco

Who Owns the 12 Banks of the Federal Reserve?

The Federal Reserve system isn’t owned by a person or a company. It is controlled by a Board of Governors in Washington, D.C., as an agency of the federal government. Ultimately, it reports to U.S. Congress. The Board is appointed by the President and confirmed by the Senate, but it isn’t funded by congressional appropriations.

The Bottom Line

Often called a bank for banks, the network of Reserve Banks carries out the orders of the Fed, provide support for member banks around the country, and cultivate safe banking practices. Many of the services provided by these banks are similar to the services that ordinary banks offer, except the Reserve Banks provide these services to banks rather than individuals or business customers. Reserve Banks hold cash reserves and make loans to depository institutions, circulate currency, and provide payment services to thousands of banks.

Without these regional banks, the Federal Reserve wouldn’t be able to sanction its policies across the nation, govern the thousands of depository institutions, or ensure that the central bank hears the voices of people from each region when making policy judgments. They are the fiscal agents and the operating arms of the central bank.

Reviewed by Margaret James
Fact checked by Yarilet Perez

Working capital is the money used to cover all of a company’s short-term expenses, including inventory, payments on short-term debt, and day-to-day expenses—called operating expenses. Working capital is critical since it is used to keep a business operating smoothly and meet all its financial obligations within the coming year.

Key Takeaways

• Working capital is the money used to cover all of a company’s short-term expenses, which are due within one year.
• Working capital is the difference between a company’s current assets and current liabilities.
• Working capital is used to purchase inventory, pay short-term debt, and cover day-to-day operating expenses.
• Working capital is critical since it’s needed to keep a business operating smoothly.

Understanding How Working Capital Is Used

Working capital—also called net working capital—reflects the amount of money a company has at its disposal to pay for immediate expenses. Of course, the more working capital a company has, the better it is for the company’s financial situation.

The amount of working capital a company needs to run smoothly can vary widely. Some businesses require increased amounts of working capital to cope with expenses that ebb and flow seasonally.

For example, retail businesses often experience a spike in sales during certain times of the year, such as the holiday season. Retailers need an increased amount of working capital to pay for the additional inventory and staff that will be needed for the high-demand season. As a result, a retailer would likely see higher expenses in the offseason relative to revenues leading up to the holidays.

Conversely, when sales are down in the offseason, the company would still need to pay for its normal staffing despite lower sales revenue. Working capital helps businesses smooth out the gaps in revenue during times of year when sales are slow.

Banks will often lend to companies by providing a working capital credit line, which allows companies to tap into during off-peak seasons when there are capital shortfalls. As a result, company executives and banks that lend to companies monitor working capital very closely. To understand a company’s working capital needs, it’s critical to know the specific items that can lead to increases or decreases in working capital.

Drivers of Working Capital

Companies have both short-term assets and liabilities. A company’s short-term assets are called current assets, while short-term liabilities are called current liabilities. A company’s working capital is the difference between the value of its current assets and its current liabilities for the period.

Current Assets

A current asset is an asset that is available for use within the next 12 months. Current assets are a company’s short-term assets that can be easily liquidated—or converted into cash—and used to pay debts within the next year.

Current assets typically include:

• Cash and cash equivalents—including cash, such as funds in checking or savings accounts, while cash equivalents are highly liquid assets, such as money market funds and Treasury bills
• Marketable securities—such as stocks, mutual fund shares, and some types of bonds
• Inventory—the merchandise that can be quickly sold or liquidated in less than one year
• Accounts receivable—money owed to the company by its customers or other debtors for products and services sold

Current Liabilities

A current liability is a short-term expense that a company owes and must pay within a 12-month period. Current liabilities can include:

• Short-term debt payments, which can include payments for bank loans or commercial paper issued to fund operations
• Suppliers and vendors owed for inventory, raw materials, and services, such as technology support
• Accounts payable, which are short-term bills owed
• Interest payments due to bondholders and banks, which can include interest owed on short-term debt as well as the current interest payments due for long-term debt
• Taxes owed, such as income and payroll taxes due in the next year

The total amount of a company’s current liabilities changes over time—similar to current assets—since it’s based on a rolling 12-month period.

Interpreting and Adjusting Working Capital

Since working capital is equal to the difference between current assets and current liabilities, it can be either a positive or a negative number. Of course, positive working capital is always preferable since it means a company has enough to pay its operating expenses. However, the net working capital figure can change over time, causing the company to experience periods of negative working capital due to unexpected short-term expenses.

Conversely, a company that has consistently excessive working capital may not be making the most of its assets. While positive working capital is good, having too much cash sit idle can hurt a company. Those idle funds could be used for paying down debt, or investing in the long-term future of the company by purchasing long-term assets, such as technology.

Companies monitor their accounts receivable to determine when they’re expected to receive payment from their customers. On the other hand, companies also monitor their accounts payable to determine the dates when payments are due to suppliers. If the accounts payable are due sooner than the money due from the accounts receivable, the company can experience a working capital shortfall.

As a result, companies may offer incentives to their customers to collect the receivables sooner. Conversely, a company may also ask its supplier for better terms, allowing the company to pay at a later date. Monitoring and analyzing working capital helps companies manage their cash flow needs so that they can meet their operating expenses in the coming months.

What Is Working Capital?

Working capital is the difference between a company’s current assets and its current liabilities. It’s a commonly used measurement to gauge the short-term financial health and efficiency of an organization.

What Are Operating Expenses?

An operating expense (OpEx) is an expense that a business incurs through its normal business operations. They are the costs involved in running a business to generate income. Operating expenses can be fixed or variable.

What Is Cash Flow?

Cash flow is the movement of money into and out of a company over a certain period of time. The information can be of great interest to investors as an indicator of a company’s financial health, especially when combined with other data.

The Bottom Line

Working capital matters to company executives because it shows whether their company can meet its short-term financial obligations and operational needs, cover unexpected expenses, and take advantage of growth opportunities.

Working capital matters to banks not only for the same reasons above, but also because it directly impacts the bank’s lending decisions and the overall health of the financial system.

Working capital is the financial lifeline that fuels a company’s daily operations, ensures its timely payments, and determines whether it can grow.

It is your right to not answer them

Reviewed by Andrew Schmidt
Fact checked by Vikki Velasquez

When they come from an employer, questions about certain topics, such as age, race, and pregnancy, are more than just poor manners. Employers can use these types of questions to discriminate against applicants, and it is your right to not answer them.

Here are eight questions an employer shouldn’t ask you.

Key Takeaways

• An employer shouldn’t ask you questions about your age, marital status, or whether you’re a citizen.
• An employer also shouldn’t ask you questions about whether you have a disability, and whether you smoke or drink.
• An employer shouldn’t ask you questions about your religion, your race, and whether you are pregnant.

1. How Old Are You?

The Age Discrimination in Employment Act of 1967 (ADEA) protects people age 40 or older from being discriminated against in the workplace in favor of younger workers. The ADEA doesn’t explicitly forbid asking a job applicant’s age or birth date, but because such questions may indicate an intent to discriminate or discourage older workers from applying, they are closely scrutinized and can put employers at legal risk for age discrimination. There are no federal protections in place to protect workers younger than 40 from age discrimination. To determine if you are legally eligible to perform a job, employers are allowed to ask if you are over the age of 18.

2. Are You Married?

Questions about marital status are prohibited. Employers might be tempted to ask this question to find out if your relationship could have a negative impact on your work. For example, if you are married, you might be more likely to leave the company if your spouse gets a job transfer to a different city. Asking “Do you wish to be addressed as Mrs., Miss, or Ms.?” is not allowed.

3. Are You a U.S. Citizen?

Citizenship and immigration status cannot be used against a potential employee during the hiring process, according to the Immigration Reform and Control Act of 1986 (IRCA). Employers are required to file an Employment Eligibility Verification (I-9) Form for each employee on their payroll and submit documentation that proves identity and employment authorization, but they must wait until after a job offer has been extended to require a worker to complete the form. It is lawful, however, for an employer to ask an interviewee if they are authorized to work in the U.S.

Important

As of 2024, 22 states and Washington, D.C. have passed bans on asking job applicants about their salary history. One of the reasons behind the bans is that any information about current salary tends to perpetuate existing gender pay gaps. 

4. Do You Have Any Disabilities?

This question is illegal under the Americans with Disabilities Act of 1990 (ADA). Employers cannot discount anyone from a job because of a physical or mental disability. In fact, the law requires that employers accommodate a disability unless they can prove it would cause significant difficulty or expense to do so. Employers also cannot ask you if you have had any past illnesses or operations.

5. Do You Take Prescription Drugs?

Concerns about drug, alcohol, or nicotine addictions are valid because they can impact an employee’s quality of work and the rates of a company’s health insurance coverage. However, an employer might find themselves in legal trouble if they don’t carefully frame questions about these potential problems. They are allowed to ask if you have ever been disciplined for violating company policies about the use of alcohol and tobacco products. They can also ask directly if you use illegal drugs, but they can’t ask about your use of prescription medications.

6. What Religion Do You Practice?

Inquiries about religious beliefs are a sensitive issue. An interviewer might be curious to know, for scheduling reasons, whether an employee might need any religious holidays off, or if the candidate will be unavailable to work on weekends because of religious obligations. It is illegal to intentionally discriminate against an employee or harass them based on their religious beliefs.

Note

Employers are required to accommodate an employee’s religious beliefs or practices with regard to dress and grooming or flexible scheduling.

7. What Is Your Race?

There is no situation in which questions about an employee’s race or skin color should be used to determine their eligibility for a job. This protection is granted under Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination on the basis of race, color, religion, sex, or national origin. Employers are permitted to ask an employee to reveal their race voluntarily for affirmative action purposes.

8. Are You Pregnant?

Questions about family status tend to affect women the most, but they can also pertain to men in certain situations. Employers might have concerns about an employee taking time off work for pregnancy leave or not having child care arrangements during work hours. The Pregnancy Discrimination Act of 1978 (PDA) states that an employer cannot refuse to hire a pregnant woman because of her pregnancy, because of a pregnancy-related condition, or because of the prejudices of co-workers, clients, or customers.

It is, however, lawful for employers to allay any concerns they might have about an employee’s availability or commitment to a position by asking about long-term career goals or the ability of an employee to work overtime and travel.

Can an Employer Ask Your Age?

No, an employer can’t ask your age. However, they can ask if you’re over age 18.

Can an Employer Ask if You’re Pregnant?

Though federal law doesn’t prohibit employers asking if you’re pregnant, the U.S. Equal Employment Opportunity Commission recommends employers avoid this line of questioning because “such questions may indicate a possible intent to discriminate based on pregnancy.”

Can an Employer Ask if You’re Married?

According to the U.S. Equal Employment Opportunity Commission, “Generally, employers should not use non job-related questions involving marital status, number and/or ages of children or dependents, or names of spouses or children of the applicant.”

The Bottom Line

It is important to know your rights as an employee. Unlawful questions are not acceptable on applications, during interviews, or in the workplace. Although improper questions by employers might be simple mistakes, they could also be intentional cases of discrimination that should be reported. It can be tricky when they come up in an interview. Try neutrally pointing out that you’re not required to answer or ask how the question is directly related to the job. Then redirect the conversation. If the interviewer persists, you may ultimately decide you’re better off pursuing a job at a different company.

Fact checked by Vikki Velasquez
Reviewed by JeFreda R. Brown

Investing in artificial intelligence (AI) stocks is a prevailing topic in the financial media, as investors seek to capitalize on one of the most transformative sectors. AI, with its vast potential for applications in healthcare, finance, entertainment, and elsewhere in the economy, is not only reshaping how many businesses operate but also how investors approach the technology sector. This beginner’s guide will help guide your journey into investing in the artificial intelligence industry.

Key Takeaways

• AI is a broad and fast-evolving field characterized by the development of algorithms and computational techniques that enable machines to perform tasks that typically require human intelligence.
• AI has been a leading discussion across many industries, including healthcare, finance, the automotive industry, retail, telecommunications, and agriculture, on the idea that it improves efficiency and effectiveness.
• When investing in AI stocks, several factors should be considered: market positioning, the financial health of the company, and the technology and product portfolio.
• Like any other investment, investing in AI stocks involves risks that investors should consider, including technological obsolescence, price volatility, and high valuations.
• Investing in AI stocks requires a strategic approach because of the technology’s dynamic and rapidly evolving nature. Staying informed about the AI industry, evaluating the business models of AI companies, and assessing their competitive advantages are part of your due diligence.

Understanding Artificial Intelligence

AI is a broad and fast-evolving field, characterized by the development of algorithms and computational techniques that enable machines to perform tasks that typically require human intelligence. Its applications span numerous industries, and proponents say it will significantly transform how businesses operate and deliver services.

There are aspects of AI for investors to understand first:

• Machine Learning: This involves algorithms that allow computers to learn from and make predictions based on data.
• Natural Language Processing: This enables machines to understand and interpret human language, facilitating interactions between humans and computers.
• Robotics and Automation: This involves enhancing the efficiency and capabilities of automated systems, typically in manufacturing and logistics.
• Computer Vision: This means teaching machines to interpret and make decisions based on visual data, from photographs to live video streams.

The complex nature of AI—encompassing machine learning, natural language processing, robotics and automation, and computer vision—presents further prospects and challenges. As AI continues to evolve and be integrated into industries across the economy, understanding these is crucial for navigating this dynamic and potentially lucrative sector in a way that aligns with your investment strategies.

Understanding the Artificial Intelligence Industry

Before investing in AI stocks, it’s useful to know that this field differs from the more traditional industries. AI companies frequently command high valuations based on their growth potential rather than current earnings, making them attractive for their capital appreciation prospects and exposing investors to higher volatility and risk.

The industry’s reliance on continuous technological advances and a changing regulatory landscape relating to data use and privacy adds further complexity. As such, a strategic approach that balances enthusiasm for AI’s potential with a pragmatic assessment of risks and market realities is essential for investors navigating this exciting yet challenging domain.

Last, keep in mind there are other factors to a company as opposed to just its exposure to artificial intelligence. A great example is Microsoft, the blue-chip giant involved in devices, software, cloud storage, and video games. The performance of the company’s stock (and the company’s financial performance) may slowly get more exposed to its involvement with artificial intelligence; however, some larger companies may be exposed to other industries at the same time.

Applications of Artificial Intelligence Across the Economy

Discussions about the potential applications of AI are happening across many industries.

• In healthcare, AI algorithms can often analyze medical imaging faster and more accurately than human practitioners. In addition, AI may be able to accelerate the process of drug development by predicting how different compounds will behave.
• In finance and investment, AI algorithms can analyze market data at a speed and depth beyond human capability. Moreover, AI systems may be able to assess risks in investments and credit scoring with greater accuracy.
• In the automotive industry, AI is fundamental in developing self-driving cars, processing data from vehicle sensors to make driving decisions. AI may also be able to optimize production lines and predict maintenance needs in automotive manufacturing.
• Regarding the retail industry, AI has long analyzed consumer behavior to present personalized shopping suggestions. AI may predict inventory needs, optimize stock levels, and reduce waste.
• In agriculture, AI helps in monitoring crop health and soil conditions, leading to more efficient farming practices. Indeed, AI may even forecast environmental effects on crop yield.
• In telecommunications, AI can enhance network performance and predict infrastructure failures. For customer service, AI powers chatbots and automates many customer interactions.
• In entertainment and media, streaming services use AI to recommend personalized content.
• For education, AI may be used to customize learning experiences for each student.
• In cybersecurity, AI systems may be used to detect and respond to cybersecurity threats. Indeed, AI is used to monitor transactions for patterns indicative of fraudulent activity.

The potential for AI is vast, yet it brings ethical considerations such as data privacy, bias in decision making, and the impact on employment. Its applications are diverse, reflecting the adaptability and AI-backed processes. However, balancing innovation with ethical considerations should be front and center in assessing its evolution.

An important consideration for any investment is “moat”, or the defensible position of a company. As AI evolves, it’ll be important to see which companies have the best protection against competitors.

Factors to Consider When Investing in Artificial Intelligence Stocks

Here are just some of the factors that will help you assess the potential risks and rewards of investing in AI-related firms:

• Market Position and Competitive Advantage: You should evaluate the company’s position in the AI market. Companies with a strong competitive advantage, a lead in technology, and intellectual property are generally better positioned for long-term success.
• Revenue Growth and Financial Health: The company’s revenue growth, profitability, cash flow, and debt levels should be reviewed thoroughly. Consistent revenue growth and sound financial health are indicators of a stable investment.
• Research and Development: Companies investing heavily in R&D could parlay that spending into advances later in the rapidly evolving AI field. However, high R&D expenses will also affect short-term profitability.
• Technology and Product Portfolio: You must assess and compare the company’s technology and product offerings to its competitors. A diverse portfolio that serves diverse industries should indicate resilience and potential for growth.
• Partnerships and Collaborations: Affiliations with other major technology companies or industries can provide quicker access to large markets and improve technological capabilities.
• Regulations: You need to understand the regulatory environment in which the company operates, especially concerning data privacy, AI ethics, and potential antitrust issues. Regulatory changes can significantly impact AI companies.
• Global Reach and Scalability: Companies with a global presence and scalable products are usually better positioned to capitalize on the global AI market.
• Risk Diversification: Investing in a single AI stock can be risky, which may lead you to diversify your investments across different companies or sectors within AI; e.g., through the top exchange-traded funds (ETFs).
• Long-Term Vision and Strategy: You should also evaluate the company’s strategic vision. Companies should focus on current trends and have a clear long-term strategy for future growth.
• Customer Base and Market Demand: The size and diversity of the company’s customer base and market demand are central.

Investing in AI stocks requires understanding the technical aspects of AI technologies and assessing the traditional financial metrics. It is important to keep up with the latest developments in the AI field, as the technology and market dynamics can change rapidly.

Notable Artificial Intelligence Stocks

The list below isn’t meant to represent the best companies associated with AI; it’s simply a guide of companies in the space that demonstrate AI’s potential. You can use the list below to begin exploring potential companies to consider investing in; however, be mindful that this list is for educational purposes only and not indicative of any investment guidance.

• C3.ai Inc. (AI): A California-based company that develops enterprise artificial intelligence software. The company recently expanded its collaboration with Amazon Web Services.
• Palantir Technologies Inc. (PLTR): The Colorado-based company builds and installs software development services for the U.S. intelligence community.
• EPAM Systems Inc. (EPAM): The firm provides digital platform engineering and software development services worldwide, including AI-powered platforms.
• SentinelOne Inc. (S): This firm provides cybersecurity with AI-powered autonomous threat prevention, detection, and response capacities.
• Nvidia Corp. (NVDA): The company is well-known for its advanced graphics processing units, a crucial element for AI and machine learning applications. Its latest AI chips are considered highly powerful, augmenting its already-strong position in the AI market.
• Microsoft Corp. (MSFT): Microsoft has been a key figure in the AI space, mainly through its partnership with OpenAI, the developer of ChatGPT. Microsoft also offers a suite of AI services through Azure, its cloud computing platform. It has its R&D teams developing AI applications, including its integration into its Office suite of products.
• Baidu Inc. (BIDU): A Chinese internet search company developing the AI-driven ERNIE Bot.
• IBM Corp. (IBM): The company behind some of the oldest brands in the computer industry, IBM produces advanced computer chips, quantum computing applications, AI, and data infrastructure.
• Intel Corp. (INTC): Intel designs, makes, and sells computing and related products, operating in several segments, including data centers and AI.
• UiPath Inc. (PATH): The company specializes in robotic process automation, a key component of AI that helps automate routine business processes.
• Helix Energy Solutions Group Inc. (HLX): Helix is deploying AI in offshore energy, particularly in its robotics and automated oil and gas exploration and production processes.
• AeroVironment Inc. (AVAV): This company produces drones and tactical missile systems, where AI plays an increasing role in navigation, surveillance, and data collection.
• Pros Holdings Inc. (PRO): A tech company that develops AI-related tools aimed at helping businesses set prices, improve sales strategies, and manage revenue.

These companies are noted for the significance of their advances, market position, and applications of AI technology in their fields. Their presence in the AI market is marked not only by their financial performance but also by how they have integrated AI for diverse industrial and business challenges.

Risks and Challenges of Investing in Artificial Intelligence Stocks

Investing in AI stocks, like any investment, involves certain risks and challenges to consider. Here are some of them:

• Adapting to AI: The commercial success of AI technology depends on how ready employees are to see AI adopted for use in their industries. Slow adoption will hinder growth and profitability.
• Competitive Environment: The AI sector is highly competitive, ranging from startups to longtime tech giants. Standing out and capturing significant market share can be challenging for companies. This is especially the case if some competitors have the backing of their governments.
• Execution Risk: This is a reality. Successfully developing and commercializing AI technology involves numerous technical hurdles, potential material and product delays, and cost overruns.
• Ethical AI: While most companies in the sector have webpages dedicated to processes they have in place to review the use of these technologies, there remain wider public concerns about its influence on jobs, the future of life online, bias in AI algorithms, and more that could lead to legislation barring certain uses of AI technology.
• Hype: Many AI companies, especially those in their growth phases, trade at high valuations based on future potential rather than their current earnings. This can make them more susceptible to market corrections.
• Regulatory Scrutiny: The AI industry faces significant regulatory scrutiny, especially regarding data privacy, ethical use of AI, and antitrust concerns. Regulatory discussions are taking place not just in the United States but worldwide.
• Tech Gets Old Fast: One risk is technological obsolescence. Rapid technological advances in AI could render existing technologies obsolete pretty quickly.
• Volatility: The market’s perceptions of AI’s potential have led to significant fluctuations in stock prices, sometimes based on speculative trends rather than solid financial fundamentals.

As with any investment, you should conduct thorough due diligence, stay informed about industry trends, and consider diversifying your investments to mitigate these risks.

Note

Keep in mind that you can get diversified exposure to the AI industry by buying an index fund.

Tips for Investing in Artificial Intelligence Stocks

Investing in AI stocks requires a strategy that can handle the technology’s dynamic and rapidly evolving nature. Here are some tips:

• Stay Informed: Stay educated about the AI industry, including technological advances, market trends, and regulatory changes. This knowledge is crucial for making informed investment decisions.
• Business Model Valuation: You must clearly understand how the company plans to generate revenue and profit from AI technology. Investors should look for companies with a transparent and viable business model.
• Competitive Advantage Assessment: You should get a handle on what gives a company a competitive edge in its part of the AI business. This could be an advance in technology it has made, proprietary algorithms, strategic partnerships, or a strong customer base.
• Investment Diversification: Due to the inherent risks and volatility in the technology sector, it is wise to diversify investments across different AI companies and sectors. This can help mitigate risk.
• Fundamentals: You should review the company’s financial statements, focusing on revenue growth, profitability, cash flow, and debt levels. Financial stability is a key indicator of a company’s long-term viability.
• R&D Investments: Companies investing heavily in research and development are more likely to innovate and stay ahead in AI. However, it’s not enough to advance what AI can do. The task is to make bringing it to market viable and profitable.
• Market Potential: Companies best placed to grow are likely those in AI areas with high growth potential or industries undergoing digital transformation.
• Long-Term Perspective: AI is a field where significant returns may take time. Thus, it’s prudent not only to keep the long-term view in mind as you invest, but also to see if the company you’re reviewing is doing so.
• Regulatory Environment: Investors should pay attention to the regulatory landscape, as it can significantly affect AI companies, especially those dealing with data privacy and ethics.
• Management Quality: The quality and track record of the company’s management team should be reviewed. Experienced, well-networked leadership is crucial for navigating the AI market.
• Risk Management: Consider your risk tolerance and invest accordingly. AI stocks can be highly volatile, so it is important to manage risk exposure.
• Seek Professional Advice: Consulting with financial advisors or investment professionals who understand the technology sector and AI industry should be considered, particularly if you are unsure about your knowledge of this relatively new tech area.

Combining a thorough understanding of the AI industry with sound investment practices will position you to better capitalize on the investment prospects in this growing field.

Is the AI Industry in a Bubble?

This is being debated among investors, analysts, and industry experts. Indications of a bubble include high valuations, a plethora of speculation, rapid investment growth, and extreme positive market sentiment (hype) that leads to irrational investment behavior.

While signs suggest some elements of the AI industry could be overvalued, there are also strong fundamentals supporting the growth and sustainability of AI as a transformative technology. Investors should exercise caution, conduct thorough research, and consider long-term trends when investing in this sector.

Are There any AI ETFs Available?

There are several exchange-traded funds (ETFs) that offer exposure to a basket of stocks from companies involved in the development, research, and utilization of AI. These include Global X Robotics & Artificial Intelligence ETF (BOTZ), iShares Robotics and Artificial Intelligence Multisector ETF (IRBO), and First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT).

Do AI Stocks Pay Any Dividends?

While some AI or AI-related stocks may pay dividends, the sector as a whole is growth-focused, with many companies reinvesting profits to fuel further expansion and R&D. Investors interested in AI and seeking dividends might need to look at larger, more diversified technology companies or consider AI-focused ETFs that include dividend-paying stocks.

The Bottom Line

Investing in AI stocks could bring significant growth, given the transformative influence of artificial intelligence across many industries. However, it’s important to recognize the unique characteristics of this sector.

AI stocks are marked by high-growth expectations and rapid technological advances, which can lead to inflated valuations and increased volatility. Many AI companies, particularly those in early development stages, prefer reinvestment in technology and market expansion over paying dividends, focusing more on long-term capital appreciation than immediate income generation.

Additionally, the AI sector is influenced by factors such as regulatory changes, ethical considerations of AI technologies, and the competitive landscape. All of these can influence stock performance.

If you’re considering AI or AI-related stocks, you need to account for these dynamics. This includes conducting thorough research to understand the potential and risks associated with AI investments, diversifying across different companies and subsectors within AI to mitigate risk, and maintaining a long-term investment perspective to navigate the inherent volatility. Balancing these considerations with traditional investment analysis will help you make more informed decisions and potentially capitalize on the growth opportunities that AI presents.

A Systematic Approach for Evaluating Trading Prospects

Reviewed by Akhilesh Ganti
Fact checked by Suzanne Kvilhaug

Traders need a structured approach, or any hopes of managing risk and being disciplined will go out the window. Without a systematic approach, even the most promising trading strategy will crumble under the weight of emotional decisions and inconsistent execution.

This five-step framework can transform haphazard trading into professional decisions by filtering out low-probability setups, enforcing strict risk controls, and aligning each trade with broader market conditions. For volatile markets in particular, this disciplined process is what separates consistent performers from those who lose big and have to drop out. By treating each trade as a calculated decision rather than a hopeful gamble, you’ll better preserve your capital and improve your long-term results.

Key Takeaways

• A structured five-step test can help ensure trades align with a trader’s strategy, improving consistency and reducing emotional decision-making.
• Valid trade setups must show a coming together among the trends, volume, volatility, and technical patterns before a position is considered.
• An entry should only be triggered by a clear technical signal that confirms the broader setup, such as a breakout or momentum reversal.
• Every trade should have a predefined stop-loss and profit target to manage risk and support favorable reward-to-risk ratio.
• External triggers like economic events, earnings, or geopolitical developments must be considered to avoid being blindsided by volatility.

5-Step Trade Test
Step	Reason
1. The Trade Setup	Ensure confluence across trend, volume, volatility, technical patterns, and macro context
2. The Trade Trigger	Convert potential into action using a technical or price-based entry trigger
3. The Stop Loss	Protect capital and enforce objective exit criteria
4. The Price Target	Ensure the trade has a logical, high probability exit point
5. Assess the Risk-Reward Ratio (RRR)	Only take trades with favorable RRR and consistent position sizing

Step 1: The Trade Setup 

When evaluating a trade, it is essential to identify a confluence of factors that align with the overall trading strategy. These could include those derived from trend following, mean reversion, momentum, or bar chart and candlestick patterns.

This evaluation typically begins by assessing market trends and strength using tools such as moving averages or the average directional index (ADX), followed by confirming volume to validate price action, especially around breakouts or breakdowns.

Volatility conditions, measured by indicators such as the average true range (ATR), help determine whether the environment suits the requisite trading strategy. Meanwhile, technical analysis signals, including candlestick formations, moving average convergence divergence (MACD) crossovers, and bar chart patterns, can help with more precise entry cues.

Another important factor is ensuring that the trade offers a favorable risk-reward setup and aligns with the broader market, including macroeconomic factors and asset class or sector performance. Every element should reinforce the trading framework, helping to filter out noise, stay disciplined, and focus only on high-probability prospects.

Step 2: The Trade Trigger

You should pull the trigger on a trade only after a trading setup has confirmed it’s time to act. Common triggers include break confirmations, momentum reversals supported by the divergence of the relative strength index (RSI), and candlestick patterns, as well as pullbacks to key levels, such as moving averages and Fibonacci retracements, within a trend.

Intraday traders may look for VWAP reclaims, while swing traders often use MACD crossovers in the direction of the prevailing trend. The entry signal must reinforce, not contradict, the existing setup. In addition, traders should remain disciplined and only enter trades when conditions clearly align with their strategy.

Step 3: The Stop Loss

Setting a stop loss is an integral part of rigorously managing your risks. It protects capital, reduces emotional decision making, and allows for proper position sizing based on a predefined risk tolerance.

Whether based on price structure, ATR, moving averages, or a fixed percentage or dollar amount, the stop-loss order should reflect both strategy and market conditions. The goal is to place the stop logically so it’s tight enough to limit losses, but not so close that normal price noise stops out the position too early.

Furthermore, position size should be considered. One way to do so is to calculate the account risk divided by the distance between entry and stop-loss to ensure that the position stays within the risk parameters.

Step 4: The Price Target

It’s just as important to set a clear profit target. It not only anchors the expected return but ensures that the trades maintain a favorable risk-reward ratio.

Whether using chart patterns, trend channels, Fibonacci extensions, or a fixed multiple of risk, profit targets should be based on objective, measurable price structures. For greater flexibility, especially in trending markets, a trailing stop-loss order, based on a percentage, pip amount, ATR, or moving average, can help lock in profits while allowing the trade to run.

Step 5: Assess the Risk-Reward Ratio

For consistency and long term success, traders should apply the risk-reward ratio (RRR). This measure ensures that potential gains justify the risks taken. Even with a moderate win rate, a favorable RRR makes the trading strategy profitable over time.

Before entering any trade, calculate this ratio by comparing your profit target against your stop loss placement. For example, risking $1 to potentially gain $2.50 creates a favorable 2.5:1 RRR. Disciplined traders establish minimum RRR thresholds (typically 2:1 or higher) and refuse setups that fall short, regardless of how “certain” the trade feels. 

Position sizing should align precisely with your predetermined risk tolerance—e.g., never going over 1% to 2% of your trading capital on a single position. This approach transforms random trading into a mathematical edge, where consistency, not occasional home runs, builds wealth.

Additional Considerations

Beyond technical setups and risk management, traders must also consider external market catalysts that significantly impact price action, introduce volatility, and temporarily invalidate technical indicators. Incorporating these elements into a trading plan can improve decision-making and help avoid costly blind spots. Some of these additional considerations include the following:

• Economic events: Major releases, such as labor reports, inflation data, and GDP reports, or central bank decisions, can cause sudden directional moves across markets. Therefore, it is wise to avoid new positions just before these events, unless you are specifically trading the news.
• Earnings reports: Company earnings often lead to overnight gaps and unpredictable reactions, making it risky to hold positions into these releases unless the trade is structured with defined risk.
• Geopolitical developments: Events such as wars, elections, or trade tensions can rapidly shift global risk sentiment, impacting sectors including energy, defense, and emerging markets.
• Sector-specific news: Regulatory changes, mergers and acquisitions, or supply chain disruptions can drive isolated strength or weakness, so tracking related exchange-traded funds helps assess broader participation.
• Market breadth and sentiment: Indicators like the VIX, put-call ratio, or advance-decline lines help confirm or challenge trade setups by revealing the underlying health of market momentum.

The Bottom Line

This five-step test is a practical and disciplined way to help traders stay aligned with their strategy by ensuring each trade meets key criteria: trend direction, a valid setup, a confirmed entry signal, defined risk through a stop-loss order, and a clear profit target with a forward risk-to-reward ratio. This structure not only filters out low-quality trades but also reinforces consistency, reduces emotional decision making, and protects capital—the cornerstones of professional trading.

Reviewed by Charles Potters
Fact checked by Vikki Velasquez

Thanks to federal and state laws, workers in the United States have certain rights and protections. These laws prohibit certain actions by employers while providing rules for accommodations and workplace safety.

Some of the federal protection laws include the Fair Labor Standards Act, as well as discrimination and equal opportunity laws, state-specific laws, workers’ compensation, and industry-specific protections.

Key Takeaways

• The federal government protects workers through the Fair Labor Standards Act, the Occupational Safety and Health Act, and the Family and Medical Leave Act.
• Equal opportunity laws prevent employers from unfairly treating workers based on their age, gender, and race, among other things.
• The U.S. Department of Labor prohibits retaliation against whistleblowers.
• Some states have laws to enhance the protection of employees, including laws for minimum wages and rest periods.
• Laws are designed to provide workers with health, safety, and financial protection while on the job.

Federal Employee Protection Laws

Federal laws are designed to protect employees across the country. They cover a range of issues to ensure that the country’s workplaces are fair and encourage competition, among other things.

“These (laws) are necessary to prohibit discrimination, sexual harassment, retaliation, wage and hour issues, whistleblower violations, and other unlawful workplace conduct,” said Craig Levey, a lawyer who focuses on employment and business issues. According to Levey, many people aren’t aware of the laws that are in place to protect them.

These laws were passed thanks to workers who fought against issues like low wages, wage theft, the exploitation of children, and discrimination, among other things, according to Todd Vachon, assistant professor and director of the Labor Education Action Research Network at Rutgers University.

“If workers didn’t band together to demand these laws, they would not exist,” he said.

Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act (FLSA) was passed in June 1938 and went into effect in October 1938. The law encompassed federal standards for labor practices, including the minimum wage, overtime, record-keeping, and employment for youth. These standards apply to workers in the public and private sectors.

Occupational Safety and Health (OSH) Act

The Occupational Safety and Health (OSH) Act was signed into law in 1970 to provide safe and healthy working conditions for all workers. Put simply, private-sector employers must keep their workplaces safe and hazard free so their employees aren’t subject to injuries or death while on the job. This also applies to some public-sector jobs. Worksites are subject to regular inspections to ensure they are safe.

Family and Medical Leave Act (FMLA)

The Family and Medical Leave Act (FMLA) allows individuals who work for covered employers to continue receiving healthcare coverage while they take unpaid time off for specific family and medical reasons.

Workers can receive 12 weeks of coverage for 12 months for the following:

• To care for a newborn within its first year
• To care for a newly adopted or foster child within its first year
• To care for a spouse, child, or parent with a serious illness
• If the employee has a serious health condition that prevents them from working
• If an urgent situation arises, if a spouse, child, or parent is on covered active military duty

Employees are also entitled to 26 weeks of leave to take care of a seriously injured or ill service member who is their spouse, child, or parent. This also applies for 12 months.

Discrimination and Equal Opportunity Laws

Equal opportunity laws make it illegal for employers to discriminate against job applicants and existing employees based on factors, such as race, gender, national origin, and age. This includes discrimination in job advertisements, recruitment, the application process, and after an employee is hired.

”Federal and state antidiscrimination laws are critical because discrimination continues to be far too pervasive in workplaces across the United States,” Levey said.

According to the Pew Research Center, 41% of Black workers said they experienced racial discrimination in the workplace. As many as 25% of Asian, 20% of Hispanic, and 8% of White workers said they also felt discriminated against at work.

The Age Discrimination in Employment Act (ADEA) and the Americans with Disabilities Act (ADA) are two key laws, and the Equal Employment Opportunity Commission (EEOC) is one key agency, to address discrimination in the workplace.

Age Discrimination in Employment Act (ADEA)

Lawmakers understood that older workers were at a disadvantage compared to others, because they either couldn’t find work after losing their jobs or couldn’t retain employment because of their age.

The ADEA was passed in 1967 to prevent employers from setting age limits, effectively banning age discrimination in the workplace. It also seeks to educate key stakeholders, including management teams and labor unions, about the needs of older workers.

Americans with Disabilities Act (ADA)

The Americans with Disabilities Act (ADA), which was passed in 1990, protects disabled workers in the workplace, guaranteeing them the same opportunities as those without disabilities. It also provides federal standards for providing government services and accommodations for people living with disabilities.

Equal Employment Opportunity Commission (EEOC) Regulations

The Equal Employment Opportunity Commission (EEOC) is in charge of enforcing federal labor and antidiscrimination laws. They ensure that prospective employees or existing workers aren’t discriminated against because of their:

• Race
• Color
• Religion
• Sex (including sexual orientation and pregnancy)
• National origin
• Age
• Disability
• Genetic information

Important

Employers are also prohibited from discriminating against employees for the following reasons:

• Job assignments and promotions
• Pay and benefits
• References

It is also unlawful for employers to consider race, color, religion, sex (including transgender status, sexual orientation, and pregnancy), national origin, age (40 or older), disability, or genetic information to discipline, fire, or lay off employees.

Whistleblower Protections

The U.S. Department of Labor (DOL) prohibits employers from retaliating against workers who publicly reveal information about issues in the workplace. This may include things about agriculture, food safety, health insurance, mine hazards, and overtime pay. Employers cannot fire, lay off, demote, reduce pay, or deny any employee a promotion if they are considered a whistleblower.

Despite federal protections being in place, many workers are still afraid to speak out, according to Vachon.

“There is still fear in many cases, as it can be difficult to prove that a worker was fired for retaliation, as employers tend to keep discipline records on many things so they can point to those reasons as opposed to retaliation as the reason for punishment,” he said.

State-Specific Employee Protection Laws

Federal laws provide the framework for employee protection in the workplace. But there are also state-specific laws designed to do the same. These laws relate to issues like:

• Minimum wages
• Overtime and overtime pay
• Workplace discrimination
• Rest periods
• Child labor

State laws can provide additional protection to workers but cannot reduce federal laws. Keep in mind, though, that each state has different employment laws in place. This means they are not uniform across the board.

Note

Many employees are unaware that there are laws in place to protect them, even at-will employees, according to Levey and Vachon. At-will employment means employers can terminate your employment at any time if the reason isn’t illegal. Similarly, employees can quit for any reason at any time without notice.

Workers’ Compensation and Benefits

Getting injured or sick while on the job can be financially devastating for employees. Workers’ compensation laws are in place to help alleviate any burden while ensuring workplaces are kept safe and hazard-free. These laws include the Federal Employees’ Compensation Act (FECA). Congress also passed the Employee Retirement Income Security Act (ERISA) to protect the financial interests of employees.

Federal Employees’ Compensation Act (FECA)

Passed in 1917, the Federal Employees’ Compensation Act guarantees that employees receive benefits if they are injured or become ill while on the job. Some of the benefits include wage-loss replacement and survivor benefits. The program is administered by the Department of Labor and the Office of Workers’ Compensation Programs.

Employee Retirement Income Security Act (ERISA)

The Employee Retirement Income Security Act is a federal law that protects employees who participate in voluntary retirement and health plans. These plans must provide participants with information about features and funding. It also establishes guidelines and standards for participation, vesting, and funding. Plan administrators are also required to have a fiduciary responsibility to participants as they manage the assets in the plan.

Specialized Industry Protections

Laws exist to ensure that workers are safe in the workplace. They address different issues and hazards in certain industries, including agriculture and mining.

Migrant and Seasonal Agricultural Worker Protection Act

The Migrant and Seasonal Agricultural Worker Protection Act (MSPA) sets employment standards for migrant and seasonal agricultural workers. They relate to wages, record-keeping, disclosures, housing, and transportation. Under the law, anyone who contracts farm labor must register with the DOL.

Mine Safety and Health Act

The Federal Mine Safety and Health Act was established in 1977. It requires that the country’s mines are inspected annually to make sure they are safe and hazard free. Under the law, mine operators must report any on-site accidents and injuries, conduct mine training programs, and receive approval for the use of equipment in gassy mines that operate underground.

The Bottom Line

The U.S. and state governments have laws in place to protect you as a worker. This means that you cannot be discriminated against and that your employer must provide you with a safe workplace with reasonable accommodations if you need them. Other laws govern protections for whistleblowers and dictate the minimum wage your employer can offer you.

If you feel that your employer has violated your rights and the law, make sure you consult an employment lawyer to discuss your rights.

They are known for their ease and convenience, but there are pitfalls

Reviewed by Margaret James
Fact checked by Vikki Velasquez

If you’re a small business owner, you’ve probably received numerous offers and applications for a small business credit card. These cards can be a convenient way to increase your company’s purchasing power but should be used with caution.

Key Takeaways

• A business credit card gives small business owners easy access to a revolving line of credit with a set limit.
• It has an interest charge if the balance is not repaid in full each business cycle.
• The interest rate on carried charges is usually much higher than the rate on a small business loan.
• A small business owner decides which employees may have a business credit card.

What Is a Business Credit Card?

Small business credit cards provide business owners with easy access to a revolving line of credit with a set credit limit in order to make purchases and withdraw cash. Like a consumer credit card, a small business card carries an interest charge if the balance is not repaid in full each billing cycle.

A business card can be a convenient way to quickly access financing for short-term needs and increase your company’s purchasing power. It is often marketed as an attractive alternative to a traditional line of credit. However, like any source of financing, a business credit card comes at a cost and must be carefully managed.

You may be able to get a credit card through your bank or apply online. Before applying, compare card terms and features and read reviews from credible sources.

There are lots of options out there. Some cards are much more competitive than others, in terms of both fees and benefits, and many specialize in a particular benefit, such as rewards for a certain type of spending or giving customers more time to repay borrowed funds without charging interest. Do some research and choose carefully to ensure you receive the best card possible for your needs.

Note

Don’t just settle for the first credit card you come across. There are many different ones, all with their own features, benefits, and charges.

How to Use a Business Credit Card

Without a good system in place, it can be difficult to keep track of—and keep a handle on—credit card spending, which ultimately affects your bottom line. Certain strategies can be utilized to ensure good credit card practices.

Ensure Accountability

“The most important step a small business can take to make sure credit cards are used effectively is to set up a bomb-proof accountability system,” says John Burton, principal at John Burton Coaching LLC in Bryson City, N.C. “This could mean everything from pre-approval of all credit card spending to rigorous requiring of receipts to pulling credit cards from those who do not report completely and on time with receipts.”

Have a system in place before the first credit card arrives, says Burton, and be consistent, rigorous, and fair while tolerating no exceptions. 

Decide Who Receives a Card

Burton acknowledges the challenges employers may face in deciding who gets a credit card. “I’ve seen businesses that lost control of credit card spending by issuing too many cards to too many people and thinking that all-important officers and travelers needed the convenience of a company credit card,” he says.

While giving everyone a credit card might seem like the right or easy thing to do, it can lead to a “dysfunctional, expensive system and a serious lack of control and accountability,” Burton explains.

Use alternatives and establish rules. “Many companies, especially with salespeople, reimburse for company spending on personal credit cards with excellent accountability—i.e., no receipt, no reimbursement,” Burton says.

It is helpful, however, to have clear rules regarding who gets a card, whether it’s based on seniority, position, or other factors. This can help avoid confusion and mitigate bad feelings from employees who would like a card but are not eligible.

Setting Credit Card Limits

Every business should have clear policies about spending, including which expenses can be put on cards, how much employees can spend, and how often they can use their cards. It’s important to put the policy in writing and have every employee who is issued a card read and sign it. After they do, give each cardholder a copy to use for reference.

Depending on the business card, you may be able to set up restrictions that limit transactions to a certain dollar amount, spending category, and even certain days and times. With some cards, you can set up individual restrictions for each employee.

For example, you may limit one employee to $50 a day any day of the week for gas purchases, while limiting another to $100 for gas and $50 for meals each day, but only on business days.

Keep Tabs on Card Activity

Many business credit cards allow you to set up activity alerts that arrive as text or email messages. The alerts can be set up to notify you each time a transaction takes place or only if an employee uses (or tries to use) a card in an unapproved manner.

Warning

Using a business credit card for large purchases that can’t be fully paid for before the interest charges kick in can be very expensive.

You can also take advantage of online and mobile banking to view up-to-the-minute account activity. Your accounting department should review each statement to make sure each line item is a charge you authorized.

Use the Card Wisely

It’s important to know when a business should use credit. It’s not always the best choice, especially for large expenditures that can’t be paid in full before interest kicks in.

Even though it takes extra effort to secure a loan from a bank or other lending institution, it often makes financial sense to do so, as the interest rate on credit cards is typically much higher than for secured debt instruments.

It’s also possible that a large purchase—or a couple of large expenditures—can max out your credit card and leave you without a source of funds.

Advantages and Disadvantages of a Business Credit Card

Advantages

Business credit cards can offer these advantages:

• Easier way to access credit: It can be easier for business owners who do not have a well-established credit history to qualify for a revolving line of credit with a credit card, especially if it’s secured, rather than a traditional line of credit or bank loan.
• Convenience: Credit cards are the ultimate financing convenience. Business owners can access funds for purchases or cash withdrawal much more quickly and easily than having to find cash and/or use a checkbook.
• Financial cushion: A credit card can provide business owners with a much-needed financial cushion when accounts receivable are behind or sales are slow and the business is short on cash.
• Online ease: Increasingly, business owners make purchases and do business online with vendors, contractors, and suppliers. Using a credit card makes online transactions easier.
• Bookkeeping assistance: In addition to receiving a monthly statement, most cards provide small business cardholders with online record-keeping tools to manage their accounts, including a year-end account summary, which can help a bookkeeper track, categorize, and manage expenses. It can simplify bookkeeping, help when using outside professionals to navigate an audit and pay taxes, and provide an easy way to monitor employee spending.
• Rewards and incentives: Many cards offer business owners rewards programs—including airline miles and shopping discounts—for using the card. Some also provide cash-back incentives, repaying cardholders a percentage of their purchases.
• A tool to build credit: Responsibly using a small business credit card—which means paying the bill on time, paying more than the minimum due, and not going over the credit limit (which can trigger an over-limit fee)—can be an easy way to build up a positive credit report for your business. That, in turn, can boost your chances of qualifying for a loan or line of credit, and at a potentially lower interest rate, in the future. Keep in mind that irresponsible use of the card can damage your credit, however.

Disadvantages

Before rushing to apply for a business credit card, it’s important to consider these potential downsides:

• More expensive: The convenience and ease of business credit cards come at a price: you will typically be charged more to borrow money this way than if you took out a small business loan or fixed line of credit offered by a bank. Interest can add up quickly if card activity is not repaid on time and in full each month. In addition, without a system to regularly and carefully monitor card usage, it can be easy to accidentally overextend your firm financially by going over its credit limit or incurring late fees and penalties. 
• Personal legal liability: Many cards require a personal liability agreement (your personal security) to repay debt. This means that any late or missed payment could result in a negative personal credit report and the inability to personally borrow money. You also may have to pay more with a higher interest rate.
• Security issues: Security measures should be introduced to ensure that cards or card information is not stolen by employees, vendors, contractors, and others who come through the office space. It’s also important to make sure that employees who are authorized to use the card do not use it for personal spending and that they take precautions when making online transactions to avoid being hacked.
• Less protection: Small business credit cards often do not carry the same protection as consumer credit cards. For example, many cards will not provide the same level of assured services when disputing billing errors or needing to make merchandise returns. Be sure to review the level of protection and services a card offers before applying.
• Fluctuating interest rates: Unlike with a loan or fixed line of credit, the company that issues your credit card can reset its interest rate depending on how you use and manage your account. Keep tabs on all communications from the issuer and be aware of how rates work and can change.

Pros

• Easier to qualify for a card than for a loan

• Convenience

• Provides a financial cushion

• Useful online

• Helps with bookkeeping

• Rewards and incentives

• Tool to build credit

Cons

• More expensive than a loan or credit line

• Personal legal liability

• Security issues

• Less protection than consumer credit cards offer

• Fluctuating interest rates

Can I Use an EIN to Obtain a Credit Card?

An employee identification number (EIN) is a tax number that the IRS assigns to your business. You can use it to apply for a small business credit card; however, you will most likely also have to provide your Social Security number to obtain the card.

Can You Get a Credit Card With an LLC?

Yes, many limited liability companies (LLCs) have business credit cards. To apply for and get a credit card with an LLC, you must be an owner, officer, or authorized representative of the LLC. Once approved, you can then, if you wish, get additional cards for employees.

What Is a Corporate Credit Card?

A corporate credit card is a credit card that a business issues to employees. It works in the same manner as a personal credit card but is only meant to be used for business-related expenses, such as business travel, business dinners, and other client-associated expenses. The corporate credit card allows for these expenses to be made so that an employee doesn’t have to pay out-of-pocket and wait to be reimbursed.

The Bottom Line

A business credit card comes with many benefits. It provides easy access to credit, a financial cushion, and a way to separate business expenses from personal credit card expenses. That said, it can also be potentially dangerous and should be used with caution. Interest rates on cards are high, more so than a loan, and business credit cards have less security than personal credit cards.

A crucial lesson from Benjamin Graham—the legendary investor who was a dear mentor to Warren Buffett—involves how different investing is from the other things we do: The very trait that drives success in most areas of life can destroy your financial future.

“While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster,” Graham warned in his classic book, “Security Analysis: Principles and Technique.” This counterintuitive insight from the man who shaped Buffett’s investment philosophy explains why even brilliant investors often fall prey to market bubbles and emotional decision-making.

Key Takeaways

• Market enthusiasm creates psychological biases that override rational analysis, leading investors to ignore the fundamentals of assets they’re investing in.
• Even the savviest traders have taken on massive losses when swept up in investment excitement.

Curbing Your Enthusiasm

In his “The Intelligent Investor,” Graham wrote that Wall Street transforms enthusiasm into a liability even though it fosters success in other fields.

Market enthusiasm, he argues, functions like “an artificial stimulant” that makes investments seem more attractive, as outsized valuations might be validated by other investors and the fear of missing out (FOMO). When investors see others profiting from trending investments, rational analysis is often pushed aside by fear, greed, and, yes, enthusiasm.

This psychological vulnerability affects nearly everyone. As markets rise, enthusiasm creates a self-reinforcing cycle: price increases supposedly confirm existing enthusiasm, drawing more participants, further driving prices upward as herding behavior takes hold—until the inevitable collapse.

Research in behavioral finance shows that during these periods, investors systematically overestimate their ability to sell off without losing too much while underestimating their risks.

Graham noted that even brilliant minds—he references Isaac Newton, who lost a fortune in the South Sea Bubble—can fall prey to irrational exuberance.

Sticking to preset investment rules and entertaining contrarian views can help you avoid enthusiasm-driven mistakes.

Fairy Tales and Failing Scales

Central to Graham’s work was his claim that enthusiasm causes investors to lose sight of what’s most important to him and Buffett: the actual value of a stock. As the bulls run on the stock market, conversations shift from fundamentals. Price-to-earnings ratios may soar, say, from 15 to 50 or more, as overenthusiastic investors justify these valuations with tales about exponential growth or revolutionary business models.

When pressed on valuations, enthusiastic investors often respond with some version of “this time is different” or “traditional metrics don’t apply here.” Investors stop being analysts and become trend followers, often with disastrous consequences when fundamentals do reassert themselves.

Echoing Graham, Buffett once told Berkshire Hathaway Inc.’s (BRK.A) shareholders about the perils of moments: “The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money.”

Defense Mechanisms

Here are some safeguards that can help during market run-ups:

• Put in some guardrails: Set specific objective criteria for buying and selling that must be followed, no matter how the market or investor sentiment shifts. This might include maximum valuation thresholds based on financial models or automatic profit-taking rules.
• Record your trades: This goes beyond just listing your trades—your brokerage will have that anyway—to recording why you made them.
• Cultivate skepticism and contrarian thinking. While not every trendy investment is bad, ready yourself to be especially cautious when ideas become hot topics at social gatherings or dominate social media. As Buffett often repeats, “Be fearful when others are greedy, and greedy when others are fearful.”

The Bottom Line

“The market is not a weighing machine” where price tells you exactly the value of something, Graham wrote. “Rather, should we say that the market is a voting machine,” reflecting a mix of reason and emotion. Indeed, few saw the dot-com or housing bubbles bursting—until they did.

For both Buffett and Graham, what’s central to successful investing isn’t a superior intelligence but the ability to resist the enthusiasm that’s so often destructive of portfolios.

Reviewed by Somer Anderson
Fact checked by Michael Rosenston

Tesla, Inc. (TSLA) is often synonymous with its CEO, Elon Musk, whose leadership and controversies have often kept the company in the limelight. Tesla’s sleek designs, once cutting-edge technology, and skyrocketing stock price have made it one of the most valuable and most-watched companies in the world.

Yet beneath the surface lies a more complex and intriguing story—one that begins not with Musk, but with two engineers, Martin Eberhard and Marc Tarpenning, whose work prepared the way for Tesla to become perhaps the most important car company of the past two decades.

Key Takeaways

• Tesla Motors was founded as an electric carmaker by engineers Martin Eberhard and Marc Tarpenning in 2003.
• Elon Musk, co-founder of X.com, which later merged to form PayPal Holdings Inc. (PYPL), was an early investor in Tesla and a board member before taking over as CEO in 2008.
• After a series of internal conflicts, Musk, once chair of the board, pushed out Eberhard, with Tarpenning leaving soon after.
• While Musk has helped lead Tesla to global success, Tesla owes its core vision to the creativity of its original founders.

From E-Readers to EVs: The Founding of Tesla Motors

Martin Eberhard and Marc Tarpenning founded Tesla Motors in July 2003, choosing the company name as a tribute to the inventor and electrical engineer Nikola Tesla. Both had backgrounds as technology entrepreneurs, not automobiles, with Eberhard earning a degree in electrical engineering from Stanford University and Tarpenning completing computer science studies at the University of California, Berkeley. Eberhard became CEO of the new company, while Tarpenning headed up its engineering and financial operations.

Eberhard and Tarpenning met in the 1990s when they co-founded NuvoMedia, a company that produced one of the first successful e-readers, the Rocket eBook. After selling NuvoMedia to Gemstar-TV Guide for $187 million in 2000, the duo began exploring new ideas. Eberhard’s interest in sports cars, combined with a growing concern about climate change and America’s dependence on foreign oil (particularly after 9/11), led them to turn to electric vehicles (EVs.)

“I got interested in the idea of the electric car somewhere in 2002, just because I was looking for my next car,” Eberhard recalled in an interview. The transition from e-readers to EVs wasn’t that far of a leap. Both combined new technologies with established product categories, and both required solving complex problems concerning battery life and power management.

Tesla wouldn’t be the first to attempt to build and market EVs for the masses. General Motors (GM) had produced the EV1 between 1996 and 1999, though they recalled and destroyed most units. Toyota Motor Company (TM) released the RAV4 EV in 1997, and various startups like AC Propulsion (whose tzero sports car would later influence Tesla) had promising prototypes. Other companies during the 2000s, like Fisker Automotive, Think Global, and Coda Automotive, were also working on EV technologies, though most failed.

What set apart Eberhard and Tarpenning’s vision for Tesla was their aim to design a high-performance mainstream electric sports car that would overturn the common view that EVs could only be slow-moving and golf cart-like.

Other co-founders of Tesla originally included J.B. Straubel—the company’s chief technology officer (CTO) until 2019—and Ian Wright, who left Tesla in 2004. Wright later founded the EV powertrain company Wrightspeed.

The Roadster

Eberhard and Tarpenning soon turned to the lithium-ion batteries used in laptops and cell phones as the most viable power source for electric cars. They undertook extensive testing, buying and dismantling thousands of laptop battery cells to evaluate their performance for automotive use.

The first Tesla Roadster was a collaborative effort. The company licensed AC Propulsion’s zero electric powertrain technology and worked with Lotus to modify its Elise chassis to avoid the massive overhead of building an entire car from scratch.

A key distinction between the Roadster and earlier electric cars involved the 6,831 lithium-ion battery cells integrated into its complex energy management system. This powered the Roadster beyond the then-existing ranges for EVs (about 245 miles per charge) while delivering sports car performance (0 to 60 mph in under four seconds).

The engineering challenges were immense. New cooling systems had to be invented to prevent the batteries from overheating, and new software had to be written to manage power distribution-along with first-of-its-kind safety features to protect the car’s occupants and the battery packs during accidents. Each Tesla vehicle has since integrated some version of these foundational technologies.

The Need to Raise Capital: Enter Elon Musk

Eberhard and Tarpenning had funded the business with their own money. Despite generous government subsidies for electric carmakers, by 2004, the founders realized they still needed significant external funding.

The pair approached Musk, who had a growing reputation for backing ambitious, high-tech ventures. Tesla raised $7.5 million in its Series A funding in 2004, with Musk leading the round by investing $6.5 million, thus guaranteeing himself the role of chair of the company’s board. Despite an initial lack of involvement in day-to-day operations, Musk’s notoriety and outsized investment played a crucial role in establishing the fledgling company’s credibility and attracting other investors.

Tesla continued to face mounting financial pressure—automotive manufacturing is capital-intensive enough, but EV manufacturing came with significant technological and regulatory hurdles. Musk provided further capital in additional funding rounds, eventually investing over $70 million.

Internal Struggles and Leadership Changes

The company opened its first manufacturing plant in Fremont, California, a 5.3 million square-foot factory that had previously been co-owned by Toyota and General Motors. It included two paint facilities and 1.5 miles of assembly lines. Meanwhile, Musk began asserting greater control over Tesla’s operations, strategy, and public image. Though initially an advisor and investor, he wanted greater control over product decisions and designs, often overriding management on critical issues.

As Tesla grew, tensions between Eberhard and Musk began to flare about the company’s direction, spending, and management. By 2007, with the Roadster behind schedule and well over budget, those conflicts came to a head.

In August 2007, Tesla’s board of directors—dominated by Musk—decided to demote Eberhard from CEO to president of technology and appointed Michael Marks as interim CEO. Within five months, Eberhard was gone from the organization entirely. Ze’ev Drori took over for Marks, only to be replaced by Musk in October 2008 as the company faced a crisis amid the global financial crisis.

Tarpenning, too, left Tesla in 2008. Within the next decade, Musk would bring the Roadster to market, along with the Model S luxury sedan, Model X SUV, and more affordable, mass-market Model 3.

The Legal Battle and Historical Narrative

In 2009, Eberhard filed suit against Tesla and Musk for breach of contract and slander, respectively. At the heart of the dispute was Eberhard’s claim that Musk was portraying himself as Tesla’s founder, rather than an early investor who later usurped control.

Eberhard settled out of court in September 2009—the terms weren’t made public. Still, one visible outcome was that Tesla would legally recognize five people as company founders: Wright, Eberhard, Tarpenning, Straubel, and, of course, Elon Musk.

Whatever the settlement, the dominant press narratives were about “Elon Musk’s Tesla,” relegating Eberhard and Tarpenning to mere footnotes in the recounting of the company’s history.

Legacy and Recognition

Eberhard and Tarpenning are responsible for many crucial technological and engineering changes that made both Tesla and the wider adoption of EVs possible:

• Pioneered the use of lithium-ion batteries in EVs
• Developed the original business plan for starting with a premium electric sports car before moving to mass-market vehicles
• Created the Tesla brand and its association with exciting cars and sustainability
• Built the initial team that would develop much of the foundational technology

After parting ways with Tesla, Eberhard led Volkswagen AG’s (VWAGY) EV unit for a short while before establishing a company specializing in EV battery systems. At the same time, Tarpenning became a venture investor in several clean technology startups.

The Value of Tesla Today

Some analysts have long puzzled about Tesla’s market valuation. Despite producing far fewer vehicles than established automakers like Toyota, Ford Motor Company (F), or Volkswagen, Tesla’s market capitalization often exceeds that of all major American automakers combined.

This disconnect stems from many viewing Tesla not primarily as a car manufacturer but as a technology company with multiple growth vectors. As a UBS analyst noted in 2025, “We can almost definitively say the market doesn’t treat TSLA like an auto company, but rather an AI company,” with less emphasis placed on quarterly automotive deliveries and more on the company’s potential to monetize its renewable energy, software, and AI capabilities.

This valuation approach has been controversial. Critics argue that Tesla faces intense competition in autonomous driving from both tech companies and traditional automakers, and that its AI advantages are likely overstated, especially since competitors like OpenAI, Anthropic, and Alphabet Inc. (GOOG) dominate the AI space. Supporters, nevertheless, counter that Tesla’s vertical integration—controlling everything from hardware to software—gives it unique advantages in developing and deploying AI applications.

When Was Tesla Motors Founded?

Tesla Motors was established in 2003 as an electric car maker by a pair of American engineers: Marc Tarpenning and Martin Eberhard.

When Did Tesla Start Producing Cars?

Tesla launched in 2003 and released its first car in 2008. Between that time, Tesla focused its operations on research and development and the production of its first product. Its first offering was the Roadster, which has since been discontinued.

How Successful Is Tesla Motors?

Tesla has the largest market capitalization of all automakers at over $790 billion as of April 2025. However, it remains far from the leader in auto sales, and is seeing increasing competition from other EV makers.

The Bottom Line

The story of Tesla is far more nuanced than the “Great Man” narrative that has entered popular culture. While Musk’s leadership has undeniably helped transform Tesla into the industry giant it is today, its origin, vision, and core technologies owe much to its original co-founders, Eberhard and Tarpenning.

Understanding Tesla’s history provides insights not just about the company itself, but about the nature of technological change, the cutthroat world of startups, and the personal dynamics that often shape industries as much as earnings and market share.

What Is the De Minimis Exemption?

A trade loophole known as the de minimis exemption is set to expire on May 2, 2025, possibly driving up the cost of packages for U.S. shoppers who purchase goods online from China.

The de minimis exemption is a rule that allows foreign companies to avoid paying tariffs and taxes on small packages shipped to the U.S. Shipments worth less than $800 qualify for the duty-free exemption, simplifying the customs procedures. This exemption was created by the U.S. Congress in 1938 to streamline purchases and shipping of inexpensive goods for small businesses and individual consumers.

The Trump administration is eliminating the de minimis exemption for packages arriving from China and Hong Kong. Those packages will be subject to three-figure tariffs on their value (or a per postal item fee of about $100 starting May 2 or $200 after June 1). Additionally, mail carriers will be required to provide information about the package to Customs and Border Protection.

Key Takeaways

• The de minimis policy exempts packages worth less than $800 from China from U.S. taxes.
• Starting on May 2, the policy will change.
• Packages will be subject to a $100 tax per parcel beginning on May 2, and a $200 tax per parcel beginning on June 1.

Why Is The De Minimis Exemption Important?

E-commerce retailers—like Shein and Temu—take advantage of the de minimis exemption by directly shipping low-value packages to U.S. customers. Temu and Shein comprise nearly half of all de minimis shipments to the U.S. from China, according to a 2023 U.S. House Select Committee report.

However, some retailers have already taken steps to minimize the impact of these new changes on consumers. According to CNBC, Temu has promoted more products on its app that are shipped from U.S. warehouses instead of directly from China.

The number of Chinese exports subject to the de minimis exemption has skyrocketed in recent years. According to a Congressional Research report, in 2023, small-value Chinese exports were $66 billion, compared to just $5.3 billion in 2018.

This could be, in part, because the exemption increased from $200 to $800 in 2016, allowing more packages to qualify for it. The de minimis exemption was first proposed by the Tariff Act of 1930, also known as the Smoot-Hawley Tariff Act.

The Trump administration has claimed that eliminating the de minimis exemption with China will help stem the flow of drugs from China into the U.S.

Note

This isn’t the first administration to take aim at the exemption. In 2024, the Biden administration proposed rules that would have made certain products ineligible for the exemption and required more specific data on de minimis packages.

However, some argue that getting rid of the exemption would harm lower-income consumers. In a recent NBER working paper, economists analyzed data from millions of international shipments to the U.S., finding that lower-income zip codes were more likely to receive de minimis exempt packages from China. According to the researchers, eliminating the exemption “would disproportionately hurt low-income and minority households.”

The Bottom Line

The de minimis exemption enables retailers in foreign countries to send packages worth less than $800, to U.S. consumers without paying tariffs, taxes, or duties. In the past few years, the number of packages subject to the exemption have increased substantially. However, lawmakers on both sides of the aisle have sought to tighten the loophole.

If you purchase goods online from Chinese retailers in the coming months, you may notice a higher cost, as the Trump administration has eliminated the exemption for packages from China and Hong Kong.

Beginning May 2, those shipments will have a 120% tariff on the value of the package or a per postal item fee of $100. This fee will increase to $200 after June 1.