Investing

How They Differ and Practical Uses in Finance and Investing

Standard Error of the Mean vs. Standard Deviation

Suppose you’re choosing between two jobs. You’re told both pay an average of $5,000 a month, but there’s a catch: Job A has a traditional salary that pays $5,000 every month according to a contract. Job B is gig work, where you might earn $7,500 one month and $2,000 the next. They have the same average but mean something very different when you are planning your rent or mortgage payments.

Situations like this are why statistical measures like standard deviation (often symbolized as σ) and standard error of the mean (SEM) are employed—they give you more depth than simple averages. Standard deviation tells you how wild those income swings might be. In our example, Job A’s steady salary would have a smaller standard deviation (in fact, none at all month to month), while Job B’s unpredictable gig income would have a large one.

SEM tackles a different question: how much can you trust the figure of $5,000 per month? If Job A’s average comes from tracking hundreds of employees over several years, but Job B’s is based on just a few gig workers’ experiences last month, that’s crucial information for your decision. Most succinctly put, standard deviation is about where the data are clustered in one sample data, while SEM is where the means would be clustered around many samples taken of a given set of things. We tackle both below.

Key Takeaways

• Standard deviation describes how much variability—or fluctuation—exists within a data set.
• The standard error of the mean (SEM) indicates how accurately a data set represents the true population by comparing the dataset’s average to the population’s average.
• The size of the data set—the sample size—doesn’t affect standard deviation, but the sample size is a key factor in calculating the SEM.
• A larger random sample will always provide a mean that is closer to the mean of the population.

How SEM and Standard Deviation Are Used

Both standard deviation and SEM are widely used in scientific research, business, and finance to measure the variability and estimate the reliability of data. They are usually reported together.

Using Standard Deviation

Standard deviation is employed in everything from sports analytics to finance and investing. In finance, standard deviation is key to helping businesses and investors quantify risk and, therefore, the return they would require from an investment to make it worthwhile.

In modern portfolio theory, standard deviation is used to determine the range of possible outcomes of future performance, both for individual assets and portfolios as a whole. Another way of putting it is that it measures volatility, which is a way of measuring risk. The higher the standard deviation of possible outcomes or volatility, the greater the risk.

Let’s return to our example of the jobs available. Say you’re looking at that gig work position where your monthly income bounces around. The company tells you the average (mean) monthly income is $5,000, and the standard deviation is $1,000. But what does that actually mean for your bank account?

The standard deviation of $1,000 tells you that about two-thirds of your monthly paychecks will fall within $4,000 to $6,000 ($5,000 ± $1,000). But some months will fall outside this range. You might have a great payday one month at $6,100, but you must also be prepared for those tougher months when you make $4,100.

This is practical knowledge: With a steady job, you might only need to keep one month’s expenses as a safety net. That’s because its standard deviation should be zero, set by contract. But with your gig work and its $1,000 standard deviation, you’d need a bigger emergency fund to handle those low-income months.

Using Standard Error of the Mean

SEM is commonly used in scientific studies, medical studies, and clinical trials, as well as political surveys and numerous other fields. In finance and investing, SEM is used to judge the consistency—or uncertainty—of estimates such as average returns, risk, and economic indicators by assessing the reliability of the sample data set.

For example, investors or fund managers often use historical data to calculate projected average returns of a stock or index. They use SEM to calculate how much those future returns are likely to fluctuate based on the data sample used, including different time frames, market conditions, etc.

While standard deviation reveals how much variation exists within a single sample, SEM shows how likely the mean of the sample is correct. The smaller the SEM, the closer your sample’s mean is to the actual average of the whole population (remembering that in statistics, “population” isn’t just people but might be all monthly salaries for a specific job).

Here’s the formula:

$SEM = frac{sigma}{sqrt{n}}$SEM=n​σ​

Where:

• σ represents the standard deviation of the population. In practice, we rarely know the true population standard deviation. We usually use the standard deviation of our sample as an estimate.
• n is the sample size—the number of data points in your sample.
• √n is the square root of the sample size.

While online calculators can take care of the above for you, the concept is straightforward: the smaller the sample size, the less chance you’re matching the real population.

Coming back to our job example, let’s say you’re not just considering one gig work opportunity, but you’re researching the income of all gig workers in your field. You can’t possibly survey everyone, so you take a sample. Let’s say you survey 100 gig workers and find their average (mean) monthly income is $5,000, with an SEM of $100.

The SEM of $100 is not about your individual salary but about how reliable that $5,000 average is for all gig workers. The SEM of $100 tells you that if you were to repeat your survey many times, taking different samples of 100 gig workers each time, the average of those sample means would cluster around the true population mean. Specifically, about 68% of those sample means would fall within $4,900 and $5,100 ($5,000 ± $100). About 95% of them would fall within two standard errors ($4,800 to $5,200, or $5,000 +/- $200.

This is practical knowledge when examining research. Imagine another researcher surveys only 25 gig workers and also reports an average income of $5,000. Because their sample size is smaller, their SEM will likely be larger (let’s say, $200). This means their $5,000 average is less reliable than yours. There’s a wider range of uncertainty around their estimate of the true population mean.

The SEM gives you a sense of how much confidence you can place in the reported average. A smaller SEM means more confidence, indicating that the sample mean is a good representation of the actual population mean. A larger SEM indicates greater uncertainty, meaning the true population mean could be very different from the sample’s average.

The Bottom Line

Both standard deviation and standard error of the mean are commonly used measures of variability in finance and investment as well as any field that requires statistical analysis. In investing, both are used to assess risk: standard deviation looks at how significant the fluctuations within a data set are, and SEM assesses how reliable the mean is compared with the actual population.

A step-by-step homebuying timeline

Fact checked by Timothy Li
Reviewed by Doretha Clemon

Most people’s biggest purchase is a home. Investing a significant amount of time in the homebuying process makes sense, but how long does it take?

Once you’re under contract, the typical timeline is about 40–50 days to close on a home. Let’s not forget the steps leading up to that point—house hunting, pre-approval, and application process. When all is said and done, purchasing a home can take several months or even up to a year.

Key Takeaways

• Researching what you’re looking for in a home and determining your budget can streamline the homebuying process.
• You can shop for a home anytime, but you’ll probably want to shop for a mortgage within two weeks to avoid damaging your credit score.
• Buying a home takes about 40–50 days once you’re under contract.
• The average time to close in January 2025 was 46 days, according to ICE Mortgage Technology.

The 6 Steps (and Time To Complete Them)

1. Find an Agent (1-2 weeks)

Word of mouth is one of the best ways to find an agent. Ask friends, family members, or colleagues who have recently bought a house for a referral. You should be able to contact a reputable agent in about a week.

You’re looking for someone you like and trust and who has a knowledgeable grasp of the available inventory in your desired community. A good agent should help you avoid a bad purchase and see you through the twists and turns of sealing the deal.

2. Get Pre-Approval (1-2 weeks)

Loan pre-approval is required and will let you know if you qualify for a mortgage. You’ll be required to provide documents including tax returns, pay stubs, debt, and credit information—and if you’re buying with a spouse or partner, both of you will need these things. You can also apply with several lenders to check for the best rates. During the pre-approval process, there’s a 45-day window in which credit bureaus count credit inquiries as only one since you’re buying a home.

Keep in mind that pre-approval letters are typically valid for a specific period of time, usually 30 or 60 days. If you don’t purchase a home before the pre-approval expires, you’ll have to complete the pre-approval process again.

3. House Hunting (4-5 months)

Depending on your timeline and urgency to secure a new home, you may spend anywhere from a few days to a few months. The timeline varies based on factors such as the time of year, your financing needs, the type of home you’re looking for, and the inventory of homes on the market.

Visit open houses to familiarize yourself with your market and narrow your list of wants in terms of home type, features, and location. Your real estate agent will also set private appointments for you to view the homes you want to see.

Depending on the local real estate market, a home offer may be accepted the same day, or you may need to sharpen your bidding skills to compete with others on your new home.

Important

Some important questions to ask are:

• How long has the property been on the market?

• What is the cost of comparable homes in the area? 

• Is the home in a flood zone? Or likely to be impacted by other natural disasters?

• Is there a homeowners association?

4. Make an Offer (1-7 Days)

You’ve found the house, and now all you need to do is put in an offer. Your agent will explain everything you need to know, but basically, you and the agent decide on the price you’re offering, and you’ll need the standard 1%-5% earnest money (yes, you get it back if you’re not accepted). Plus, in a tight seller’s market, you might want to bump that up to 3%–6% to show that you’re playing for keeps. You could also include a personalized letter to the owner telling them how much you love the home and why you’re interested in their house.

5. Get a Mortgage (21 Days)

Your offer is accepted! Now, the mortgage process starts. Though the lender you selected can lock in your interest rate, you’re about to jump through more hoops and gather more documents, like current bank statements and work stubs, for the final mortgage documents. Lenders will also require an appraisal and inspection, review the lengthy list of closing expenses, and revise your loan estimate.

This process can take up to a few weeks, during which you can hear from your lender via email or phone every few days with a new request. You’ll have to manage your inspection and appraisal reports, and if there are any problems with either, then you may need to renegotiate the price, arrange for repairs, or compromise with the seller on any work that needs to be done.

There will be a title search to make sure the home is free and clear of liens, and you’ll be expected to select homeowners insurance and provide the lender with all of the information. Your insurer may even need a pre-inspection before insuring you. There’s much to do in these weeks as your mortgage is prepared. One-third of the Insight Media study respondents found that the process took longer than expected.

6. Close on the House (40–50 Days)

You should have a final walk-through on the day of closing or the day before to make sure that repairs are complete and nothing has been damaged. Your lender has likely told you how you must pay closing costs—whether to bring a cashier’s check or how you’ll make a digital transfer of the money. You’ll also need a photo ID and a good pen for the pages and pages of documents that you’ll be signing. In the end, keys are put in your hand, and congratulations are in order. You’ve bought a home!

What Is the Longest Part of the Home Buying Process?

Actually closing on the home for which you’ve received a mortgage is typically the longest part of the homebuying process. Having a final walkthrough, paying closing costs, handling any inspection or repair issues, and negotiating and exchanging contracts can take up to four months.

What Should You Look for When House Hunting?

While every situation is different, a good location is one of the most important things people look for. You may want the property located conveniently for work or school, or perhaps you prefer a certain area. Other things that many people find helpful to note are curb appeal, the size and layout of the home, the number of beds and baths, and the placement of windows for natural light.

What Are Some Red Flags to Note When House Shopping?

Look for big cracks in the driveway, foundation, or walls. The home shouldn’t feel damp inside or have a musty odor. Check for cracked paint on window frames. Don’t be fooled by staging furniture or baking smells.

The Bottom Line

Buying a home can be complicated and stressful. The better prepared you are for each step, the better your odds are of landing a good home within your timeframe. Gather your documents, choose a real estate agent, find a lender, and shop for an insurance provider before you start searching. By assembling a homebuying team, you can streamline the purchase process.

Reviewed by Thomas J. Catalano

If you own your home and are at least 62 years of age, a reverse mortgage provides an opportunity to convert some of your home equity into cash. In the most basic terms, a reverse mortgage allows you to take out a loan against the equity in your home that you do not have to repay during your lifetime as long as you are living in the home and have not sold it.

If you want to increase the amount of money available to fund your retirement, but do not like the idea of making payments on a loan, a reverse mortgage is an option worth considering. However, there are also some risks, costs, and pitfalls to be aware of.

Key Takeaways

• A reverse mortgage allows older homeowners to convert their home equity value into cash.
• The home serves as collateral, and repayments are required only when the homeowner moves or upon death.
• Several types of reverse mortgages exist, optimized for different purposes or goals.
• There are also several different options for how to receive the money from the reverse mortgage.

How Reverse Mortgages Work 

With a reverse mortgage, a lender makes payments to the homeowner based on a percentage of the value in the home. When the homeowner dies or moves out of the property, one of three things can happen:

1. The homeowner or heirs can sell the home to pay off the loan.
2. The homeowner or heirs can refinance the existing loan to keep the home.
3. The lender can be authorized to sell the home to settle the loan balance.

While there are several types of reverse mortgages, including those offered by private lenders, they generally share the following features:

• Older homeowners are offered larger loan amounts than younger homeowners. More expensive homes qualify for larger loans.
• A reverse mortgage must be the primary debt against the house. Other lenders must be repaid or agree to subordinate their loans to the primary mortgage holder.
• Financing fees can be included in the cost of the loan.
• The lender can request repayment if the homeowner fails to maintain the property, fails to keep the property insured, fails to pay its property taxes, declares bankruptcy, abandons the property, or commits fraud. The lender may also request repayment if the home is condemned or if the homeowner adds a new owner to the property’s title, sublets all or part of the property, changes the property’s zoning classification, or takes out additional loans against the property.

Warning

Mortgage lending discrimination is illegal. If you think that you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps that you can take. One such step is to file a report with the Consumer Financial Protection Bureau (CFPB) or the U.S. Department of Housing and Urban Development (HUD). 

HECM Loans 

Reverse mortgages have been around since the 1960s, but the most common reverse mortgage is a federally insured home equity conversion mortgage (HECM). These mortgages were first offered in 1989 and are provided by the U.S. Department of Housing and Urban Development (HUD).

HECMs are the only reverse mortgages issued by the federal government, which limits the costs to borrowers and guarantees that lenders will meet the obligations. The primary drawback to HECMs is that the maximum loan amount is limited.

$1,149,825

The maximum claim amount for an HECM insured by the Federal Housing Administration (FHA) as of 2024.

Non-HECM Loans

Non-HECM reverse mortgages are available from a variety of lending institutions. The primary advantage of these reverse mortgages is that they offer loans in amounts that are higher than the HECM limit. One of the drawbacks of non-HECM loans is that they are not federally insured and can be significantly more expensive than HECM loans.

Total Annual Loan Cost on an HECM

Although the interest rate on an HECM is set by the government, and the origination cost of an HECM loan is limited to 2% of the value of the home, the total cost of the loan can still vary by lender. Furthermore, in looking for a lender, borrowers must consider third-party closing costs, mortgage insurance, and the servicing fee.

To assist borrowers in comparing mortgage costs, the federal Truth in Lending Act requires mortgage providers to present borrowers with a cost disclosure in the form of the total annual loan cost (TALC). Use this number when comparing loans from different vendors; just keep in mind that the actual costs of a reverse mortgage will depend largely on the income options selected.

HECMs Provide Several Income Options

HECM reverse mortgages provide the widest variety of income-generating options, including lump-sum payouts, credit lines, monthly cash advances, or a combination of these.

The credit line is perhaps the most interesting feature of an HECM loan, because the amount of money available to the borrower increases over time by the amount of interest. Non-HECM loans offer fewer income options.

Interest Rates on an HECM

The interest rate on HECMs is tied to the one-year U.S. Treasury security rate. Borrowers have the option to select an interest rate that can change every year or every month.

A yearly adjustable rate changes by the same rate as any increase or decrease in the one-year U.S. Treasury security rate. This annual adjustable rate is capped at 2% per year or 5% over the life of the loan. A monthly adjustable-rate mortgage (ARM) begins with a lower interest rate than the ARM and adjusts each month. It can move up or down 10% over the life of the loan.

Can Reverse Mortgages Help Seniors?

Research investigating the impact and utility of reverse mortgages for seniors has mixed conclusions.

In a Brookings Institution summary of this research, it found that several studies have indicated that reverse mortgages can markedly benefit consumers. The percentage of households that would benefit from a reverse mortgage, however, is a cause of debate: Some studies argue that just 9% of seniors would benefit, while others put this same number as high as 80%. Most studies indicate that reverse mortgages benefit lower-income households the most. This is not just because the money that these households receive from a reverse mortgage can be used to cover otherwise catastrophic healthcare costs, but also because there are psychological and health benefits associated with being able to continue living at home.

The same Brookings study also argues that the dangers of foreclosures for reverse mortgages are often overstated in the media. Though local authorities may initiate foreclosure proceedings against homeowners for nonpayment of taxes, few do. In the years running up to 2019, about 18% of reverse mortgages ended in foreclosure, but 75% of these are because the homeowners had left the home. The remaining 25% were because the homeowners had not paid the property taxes. Often, lenders have an incentive to work with homeowners to remedy nonpayment of taxes because foreclosures are costly.

A study by the Financial Planning Association has concluded that including a reverse mortgage as part of a retirement portfolio may reduce seniors’ exposure to deleterious market fluctuations. Contrary to expectations, this study found that retirement strategies that use a reverse mortgage as an alternative source of cash flow to a traditional investment portfolio hold the greatest benefit for mass affluent Americans—generally defined as those with $100,000 to $1.5 million in investible assets. Rather than using reverse mortgages as a last resort, this research suggests, even wealthy retirees could benefit from a reverse mortgage.

Overall, the current consensus among researchers seems to be that there is a gulf between the potential benefits of reverse mortgages and the low demand for them. In other words, many retirees who may regard a reverse mortgage as a semi-predatory, risky proposition could actually benefit from one.

Important

Seniors considering a reverse mortgage as a solution to credit card debt should evaluate whether the amount of home equity that they will lose in reverse mortgage fees and interest is worth it in terms of the amount of credit card interest that they will save. This is a complex calculation that is best performed by an accountant or financial planner. A reverse mortgage counselor may not be knowledgeable enough to answer this question.

What Are Good Alternatives to a Reverse Mortgage?

A home equity loan, a home equity line of credit (HELOC), or a cash-out refinance offers much lower fees and competitive rates for those who qualify for them. Selling a car that is no longer needed and taking advantage of local transportation programs for seniors can also be a great source of cash for seniors.

Can Borrowers Lose Their Home With a Reverse Mortgage?

Yes. Borrowers can lose their home to foreclosure with a reverse mortgage for several reasons. In the few years running up to 2019, about 18% of reverse mortgages ended in foreclosure, but 75% of these were because the homeowners no longer lived in the home and the remaining 25% were due to nonpayment of property taxes.

How Can I Protect Myself From Reverse Mortgage Scams?

The reverse mortgage process is relatively complex, with a lot of unfamiliar terms, which make this strategy ripe for scammers. The Federal Bureau of Investigation recommends protecting yourself from reverse mortgage scams by ignoring unsolicited advertisements, not signing anything you don’t fully understand, and seeking out your own reverse mortgage counselor directly.

The Bottom Line

Taking out a loan against your home is a big decision that will affect your current finances and the estate that you leave to your heirs. There are substantial costs involved, including loan origination, servicing, and interest.

You also need to remember that, with a reverse mortgage, your debt increases over time due to the interest on the loan. If you change your mind about the loan or need to move out of the property due to health reasons, proceeds from the sale of the property are used to pay off the reverse mortgage. Depending on the size of the loan and the value of the property, there may be little or no money remaining after the loan is repaid.

Before taking out a reverse mortgage, you should research the topic thoroughly, compare costs from a variety of lenders, and read all disclosure documents. While investing the proceeds from a reverse mortgage is generally not advisable because of the need to recoup the costs of the loan plus the interest, the income from a reverse mortgage may provide an opportunity to refocus other elements of your investment portfolio. Before assuming the mortgage, consider the cash flow that the reverse mortgage will provide and review the implications that this new source of income will have on your overall investment strategy.

Stay on track for retirement by knowing how much you need to save by what age

Fact checked by Vikki Velasquez

Retirement is a dream for many working people. Leaving the workforce gives you time to do some of the things you’ve always wanted, like traveling or taking up a new hobby. But, you’ll need a steady source of income to accomplish this, especially when you consider that Social Security probably won’t be enough to maintain your desired lifestyle.

Unless you’re incredibly wealthy, you’ll have to plan carefully and save for your retirement. How much you’ll need to set aside to retire comfortably depends entirely on several factors, such as when you want to retire, your desired lifestyle, and your health. We’ve laid out a few retirement savings strategies from some financial experts to help get you on track.

Key Takeaways

• Retirement savings is the money you’re saving and growing to fund your retirement through employer-sponsored plans, IRAs, annuities, pensions, and savings accounts.
• Some factors that can affect your retirement savings are the age at which you want to retire, your desired lifestyle, and your health.
• Ensure you save a percentage of your salary based on your age.
• Experts suggest saving early and consistently, automating your savings, and catching up if you fall behind.

Setting Retirement Savings Goals

Retirement savings is any money you invest and set aside to fund your retirement. You can accomplish this using accounts like:

• Employer-sponsored plans (ESPs), such as a 401(k) or 403(b)
• Individual retirement accounts (IRAs), including traditional and Roth IRAs
• Annuities
• Pension plans

Other accounts and investments, such as savings and money market accounts, mutual funds and exchange-traded funds (ETFs) held in brokerage accounts, and certificates of deposit (CDs), can complement your retirement savings. Consider using different accounts to take advantage of their benefits (like an employer match for your 401(k) and high yields on a savings account. Regardless of the account(s), your retirement savings goals should never waver. Knowing how you want to spend your retirement can help you set your goals.

“A good target is 10 to 12 times your final salary or enough to replace 70% to 80% of your pre-retirement income each year,” according to Taylor Kovar, the founder and chief executive officer (CEO) of 11 Financial in Lufkin, Texas. Kovar says how you want to live out your retirement will affect your savings strategy. “Someone planning to travel the world will need more than someone with a simple, low-cost retirement.”

Note

As much as 28% of working Americans did not have any retirement savings, according to a 2022 report from the Federal Reserve. Of those who did save for retirement, only 31% said they were on track to meet their retirement goals.

Factors Influencing Retirement Savings Needs

How much you need to save for retirement depends entirely on several factors, including when you want to retire, your health, and the lifestyle you intend to lead after leaving the workforce.

Age of Retirement

The age at which you retire is entirely up to you. The average retirement age varies by state, ranging from 61 in Alaska and West Virginia to 67 in the District of Columbia. But, the ideal retirement age for most Americans is 63, according to a survey from MassMutual. Some people leave the workforce entirely, while others continue working part-time after they retire.

The Social Security Administration (SSA) will begin paying your retirement benefits as early as 62, but it will be less than if you waited until later to claim them. For most people, the full retirement age (FRA) is 66 or 67, depending on your birth year. Remember that delaying your benefits beyond 70 can get you more than 100% of your retirement age benefits.

Desired Lifestyle in Retirement

Ask yourself how you plan to live and what you want to do when you reach that milestone. Your goals may include traveling and/or taking up a new hobby. You may also want to own a vacation home, be debt-free, and/or leave a legacy for your loved ones after your death. On the other hand, you may simply want to maintain the lifestyle you already lead. The goals you set can help you understand how much you need to save.

Your Health

Your health also plays an important role in how you save for retirement, according to Ryan Perry, certified financial planner (CFP) and accredited investment fiduciary (AIF) with Falcon Wealth in Ontario, California. That’s because it directly impacts your bottom line during retirement.

“If you are quite healthy with a family history of longevity, it is best to plan for a long retirement,” Perry told Investopedia in an email. Your healthcare spending will probably be significantly lower if you’re healthy, so you may be able to allocate more of your money elsewhere.

Other Considerations

While retirement age, lifestyle, and health may affect how you save, you should consider inflation and investment returns. You should also take Social Security expectations into account. The fund is expected to pay 100% of benefits up to 2033, after which its reserves will pay 79% of scheduled benefits.

But that’s not all, according to Kovar. “Where you live and whether you’re carrying debt into retirement also make a huge difference,” he said.

Age-Based Savings Milestones

Your age plays a big role in how much you save before you retire. The earlier you start, the better off you’ll be in the long run. The general rule, according to Kovar and Perry, is to set aside a certain percentage of your salary based on your age. The table below highlights the general benchmark for savings by age:

Age	Annual Salary
By 30	1x annual salary
By 40	3x annual salary
By 50	6x annual salary
By 60	8x annual salary
By 67	10x annual salary

“Keep in mind this does not factor in pensions and other savings vehicles,” Perry said. “That’s why it is best to consult with a professional to see where you are at rather than relying on a ‘rule of thumb’ guideline.”

Strategies to Achieve Retirement Savings Goals

Saving for retirement doesn’t have to be difficult, especially if you choose and stick to the right strategies. According to Perry, prioritize long-term goals over short-term wants and have a plan for every dollar you save. “What is it for? Think about what each dollar is trying to accomplish and stick to your plan,” he suggested.

Start early and save consistently. You have more time to save and recover from market volatility when you are younger. Another benefit to starting early is that your earnings will earn interest because of compounding. Put simply, the interest you earn will also earn interest, which grows your savings even more.

Max out your contributions and take advantage of employer matches if they’re available. For 2025, you can save as much as:

• $23,500 in a 401(k) with an additional $7,500 if you are 50 or older
• $7,000 in an IRA with an additional $1,000 if you are 50 or older

The types of investments you choose can also help you reach your goals. Aside from investments with employer matches, Kovar said he advises his clients to consider alternative assets like real estate, private equity, and business investments. Diversifying your investments can “provide solid returns while offering more flexibility than traditional stock-based retirement accounts,” he said.

Consider automating your savings through payroll deductions and automatic savings plans. Doing so can help you save before you even consider spending your money. Additionally, be sure to catch up if you fall behind. The best way to do that, Perry said, is to save more if you start later or need to catch up.

The Bottom Line

Knowing when you want to retire and how you want to spend your time after leaving the workforce can help determine how much you’ll have to save. You can reach your savings goals if you start early, save consistently, and don’t give up if you fall behind. If you aren’t sure of how or where to start, a financial professional can help you create a plan and stay on track.

KEY TAKEAWAYS

• President Donald Trump’s 25% tariffs on Canada and Mexico, and the doubling of levies on goods from China, took effect Tuesday—and Beijing and Ottawa immediately hit back.
• In response to the additional 10% in tariffs imposed by the U.S. on imports from China, Beijing slapped tariffs on a wide array of farm goods it buys from the U.S. and imposed export controls on some American defense companies.
• Canada hit back with 25% tariffs on C$30 billion ($27 billion) worth of U.S. goods, while tariffs on C$125 billion of products will come into effect in 21 days.

President Donald Trump’s 25% tariffs on Canada and Mexico, and the doubling of 10% levies on goods from China, took effect Tuesday—and Beijing and Ottawa immediately hit back.

U.S. stock futures are little changed, though stocks had closed sharply lower Monday as investors worried that Trump’s sweeping tariffs would escalate a trade war with America’s largest trading partners while hurting the economy.

Beijing retaliated with a slew of levies on a wide array of farm goods China buys from the U.S. and imposed export controls on more American companies—including several defense firms.

The Chinese Ministry of Finance announced 15% tariffs on imports of chicken, wheat, corn, and cotton from the U.S., as well as 10% tariffs on imports of sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables, and dairy products starting March 10. Beijing also added 15 American companies to an export-control list, including several U.S. defense firms. 

Canada Also Hits Back as Trump’s Tariffs Take Effect

Canada also retaliated after Trump’s tariffs took effect following a monthlong pause of their implementation.

Canadian Prime Minister Justin Trudeau said Ottawa would impose 25% tariffs on C$30 billion ($27 billion) worth of U.S. goods starting Tuesday, while tariffs on C$125 billion of products will come into effect in 21 days.

“Our tariffs will remain in place until the U.S. trade action is withdrawn, and should U.S. tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures,” Trudeau said.

Reviewed by JeFreda R. Brown

The eurozone, also called the euro area, is a union of 20 European Union member states that have officially adopted the euro as their primary currency and sole legal tender. These member states exist under one monetary authority, the Eurosystem.

At the beginning of 2018, Italy was the third-largest economy in the currency bloc. When Italy entered into a deep political and economic crisis, it was a concern for the European Union (EU) and the global markets. At the time, Italy accounted for 11% of the EU’s gross domestic product (GDP).

At the end of September 2018, the ruling coalition comprising the Five Star Movement (M5S)—a political party that espoused a populist, anti-establishment view (and was critical of the EU)—and the Lega Nord—also a political party in Italy—submitted their 2019 budget to the European Commission.

The proposed spending plan called for a deficit equal to 2.4% of the gross domestic product (GDP). At the same time, Italy’s total government debt was equal to 134% of the GDP (more than double the eurozone limit); the eurozone contingent had been pressuring Italy to decrease its debt. As a result, this move upset Italy’s eurozone partners.

Key Takeaways

• Italy’s political and economic crisis in 2018 caused problems in the eurozone and global markets, with its high debt and unstable government.
• Difficulties between Italy’s populist coalition and pro-EU leaders led to government instability.
• Italy’s economy has long struggled with slow growth, high debt, and unemployment, but recent years have exhibited improvement.
• The election of Giorgia Meloni as prime minister in 2022 has brought political stability, with her government focusing on tax cuts and a stronger role for Italy in the EU.

Failure to Form a Stable Government

Political chaos and the failure to form a stable coalition government were at the root of the problems in Italy. Despite several weeks of prolonged discussions and negotiations, an agreement failed to materialize between the EU-skeptic populist group, M5S, and the pro-EU establishment lawmakers. This left the country in a deep political and economic crisis.

After the March 2018 vote produced a hung parliament, Italy was without a proper government. At this time, the populist M5S party emerged as the largest contender; they attempted to join the far-right Lega Nord party to form a coalition government. While the two groups agreed on Giuseppe Conte, a law professor, to be their prime ministerial candidate, his surprise resignation shortly thereafter caused a stir.

This development was attributed to President Sergio Mattarella’s refusal to accept a euro-skeptic candidate, Paolo Savona, as economy minister. Savona had been an opponent of the single currency in the past, calling it a “German Cage.” He has also advocated for a “Plan B” alternative to EU membership.

Under the law, the Italian president has the authority to block individual cabinet appointments. As M5S and Lega Nord refused to offer a different choice for finance minister, the coalition went for a toss. Instead, President Mattarella appointed former International Monetary Fund (IMF) official Carlo Cottarelli as interim prime minister; this paved the way for another round of elections.

Cottarelli thus became responsible for planning the new elections, as well as for introducing the new budget. (Cottarelli has a reputation for significantly cutting down on public spending, which has earned him the title “Mr. Scissors.”)

Unfortunately, this decision by the president did not bode well with the M5S and Lega Nord parties. Mattarella, who was instituted by the earlier pro-EU government, faced calls for impeachment from the leaders of M5S, as a result of Mattarella’s refusal to accept Savona as economy minister, appointing Cottarelli as interim prime minister, and mandating fresh elections.

At the time, Lega Nord’s leaders did not support the impeachment that the leaders of M5S were calling for. When these political developments hit the Italian economy, it caused further turmoil.

Weak Fundamentals in the Italian Economy

Many of Italy’s economic problems were longstanding, including a high number of problem loans on its central banks’ balance sheets, combined with decades of slow growth.

The country ranks among the countries with the highest government debt to GDP. Its total debt level was $2.5 trillion in 2019 ($3.2 trillion in 2025), and the country has been facing high unemployment since before the 2007-2009 financial crisis made things worse. The unemployment rate has significantly decreased since 2014, however, when it was 12.77%, and as of 2024, it is 7%.

In fact, after the 2008 financial crisis, Italy never made any significant strides towards a recovery. Greece and Italy were the two of the advanced economies carrying the highest debt burden at the beginning of the crisis; in subsequent years, only Greece suffered a more severe and more protracted economic depression. 

Note

The countries with the highest debt to GDP as of 2023 are Sudan, Japan, Lebanon, Greece, Singapore, Argentina, and Italy.

Political Shifts and Improvements

Italy’s politics took a dramatic shift in 2022 when Giorgia Meloni was elected as the country’s first female prime minister. Her party, Brothers of Italy, formed a right-wing coalition with Lega and Forza Italia, focusing on nationalistic agendas.

She has focused on stricter immigration policies, tax cuts, and a stronger role for Italy in the EU. In December 2024, the government passed the budget for 2025, valued at $31 billion, which involved tax cuts and social security benefits for low-income citizens.

While the Italian economy has been improving, it also continues to face challenges. Economic growth in 2024 was a meager 0.7%, below the 1% target; however, the budget deficit fell from 7.2% of GDP in 2023 to 3.4% in 2024. Public debt remains high at 135% of GDP but has significantly come down from 146% in 2021.

Though the country still has many obstacles to face, the economy and stability of the nation have improved since 2018.

Is Italy Doing Well Economically?

Italy’s economy is complicated. While the country is the fourth-largest economy in Europe, and its unemployment and budget deficits have decreased, the country still faces significant challenges. Economic growth has been slow and public debt as a percent of GDP is extremely high. Tourism, luxury goods, and manufacturing are the highlights of Italy’s economy but low productivity and continued challenges in political stability are a drag on the nation.

What Is the Largest Economy in Europe?

The largest economy in Europe is Germany, followed by the United Kingdom, France, Italy, Russia, and Spain.

What Is Italy’s Biggest Industry?

Italy’s biggest industry is services, which accounts for over 70% of GDP. This includes tourism, retail, and finance. Italy is one of the most visited countries in the world thanks to the fame of its cities and regions like Rome, Florence, Venice, and Tuscany. It is also home to many luxury brands, including Ferrari, Lamborghini, Prada, Versace, Gucci, and Armani.

The Bottom Line

Italy has come a long way from the political and economic instability in 2018 that caused problems for the country and the eurozone. While the country still struggles with high debt and slow growth, political shifts with Meloni’s election have brought some stability.

Budget deficits have shrunk, unemployment has decreased, and despite only modest economic growth, Italy is on a stronger footing than it was in 2018.

Warren Buffett, the renowned billionaire investor and CEO of Berkshire Hathaway Inc. (BRK.A), has long been a vocal advocate for tax equity, emphasizing that the wealthy and large corporations should pay their fair share.

In recent statements, Buffett has made clear that his company’s outsized tax payments—at $26.8 billion in 2024, it was the largest tax payment in U.S. history—are a point of pride for him, revealing further his philosophy about corporate responsibility and growth.

Key Takeaways

• Warren Buffett believes that fair taxation from large corporations and wealthy individuals would reduce the tax burden faced by ordinary Americans.
• He argues balancing the tax system would allow the U.S. to manage the increasing fiscal deficit and provide enough funding for public services and infrastructure.

Buffet’s Statements on Corporate Taxes

At Berkshire Hathaway’s 2024 annual meeting, Buffett argued that federal taxes could be effectively zero for every American if some 800 companies had paid their fair share of taxes while also noting that his company paid over $5 billion at a 21% federal rate for 2023. That figure would vastly increase for the 2024 tax year—the $26.8 billion U.S. federal tax bill, he said, was the equivalent of 5% of all corporate taxes owed that year. Added together, Buffett said, Berkshire Hathaway’s total cash payments to the IRS over the years have been more than $101 billion.

While his statement is largely rhetorical—he’d need to specify what he means by “fair” to test the ability of 800 companies to pay all U.S. income taxes—he has long emphasized the potential contributions missing from large corporations.

Breakdown of 2023 Federal Tax Revenue
Revenue Source	Amount ($ Trillions)	Percentage of Total
Individual Income Taxes	$2.18	48.7%
Payroll Taxes	$1.63	36.6%
Corporate Income Taxes	$0.421	9.4%
Other (Customs, Excise, etc.)	$0.169	3.8%
Total	$4.47 trillion	100%

Billionaires and the “Buffett Rule”

In addition to criticizing corporate tax, Buffett has come out against ultrawealthy individuals. “The wealthy are definitely undertaxed relative to the general population,” Buffett remarked in a 2019 CNBC interview. He contends that the current tax system—by granting preferential rates and many loopholes—allows billionaires like himself to pay only a fraction of what they reasonably should, ultimately shifting an unfair burden onto ordinary Americans.

Buffett has said his own low effective tax rate (around 0.1% between 2014 and 2018) isn’t an endorsement of the current system—it’s exactly the problem he highlights. In his view, the current tax code disproportionately favors the ultrawealthy and allows them to pay far less, percentage-wise, than ordinary workers.

His advocacy for increasing the earned-income tax credit (EITC) and addressing dynastic wealth stems from a broader desire to level the playing field. If the tax code were reformed to eliminate loopholes and preferential rates, even someone like Buffett would pay a higher, fairer rate.

Buffet’s position gained attention when he supported tax legislation that emerged in 2011 during President Obama’s administration. The regulation would have imposed a minimum 30% tax for people who made more than $1 million each year, and became known as the “Buffett Rule” because Warren Buffet revealed that he paid taxes at a rate of only 17.4% while his secretary paid 35.8% due to differential tax rates on capital gains versus ordinary income. 

Critics, however, argued that the Buffett Rule was effectively a capital gains tax rate hike that would hurt business growth. Ultimately, the bill didn’t receive enough votes in Congress to pass.

Buffett has famously remarked that he wants his kids to have enough money to pursue their goals but not so much they don’t need to work.

The Bottom Line

Through his persistent arguments and public statements, Warren Buffet has argued that the current tax system in the U.S. disproportionately benefits wealthy individuals and corporations and supports changes that would raise their tax obligations to bring about a fairer system, even if that means he would also have to pay a higher tax bill.

These self-made women have risen to the top of a variety of industries

Reviewed by JeFreda R. Brown
Fact checked by Pete Rathburn

In recent decades, several women have risen to the top of their fields, building impressive businesses and brands. Below is a list of 10 of the most successful women entrepreneurs who have made a significant mark in various industries.

This list is in no particular order and is by no means exhaustive—it simply strives to recognize women who have built world-renowned brands.

Key Takeaways

• More and more women are becoming business leaders and innovators.
• While there are a handful of woman founders from the past, such as Estée Lauder, the last few decades have marked a great upsurge in self-made women in business.
• Women entrepreneurs are historically most known for running fashion houses or cosmetic companies, but more recently, many have made their mark in other industries, such as real estate and pharmaceuticals.

Real Estate

Zhang Xin

Zhang Xin is co-founder of SOHO China, a real estate development firm in China that went public in 2007. Known as “the woman who built Beijing,” she was a factory worker before graduating from Cambridge University with a master’s degree in economic development. Zhang worked for Goldman Sachs before launching her company. She has since amassed a $1.1 billion fortune, as of March 2025.

Biotechnology

Kiran Mazumdar-Shaw

Kiran Mazumdar-Shaw is the founder of Biocon, a global biopharmaceutical company. She began Biocon out of a rented shed and grew it into India’s largest listed biopharma firm in terms of revenue. Biocon went public in 2004 and became the second Indian company to reach $1 billion on its first trading day. Mazumdar-Shaw has a net worth of $2.8 billion, as of March 2025. 

Workforce Management

Janice Bryant Howroyd

Janice Bryant Howroyd is the founder and CEO of ActOne Group, the first Black female-led company to bring in more than $1 billion in annual revenue. ActOne is a Los Angeles-based employment agency and consultancy with more than 17,000 clients in 33 countries. Like many of her counterparts on this list, Howroyd started from very humble beginnings, launching her company with just $1,500 in 1978.

Entertainment and Media

Oprah Winfrey

Media mogul Oprah Winfrey has built a large media empire throughout her career. Winfrey, a TV personality turned entrepreneur, co-founded Oxygen Media in 2000. She continued hosting her talk show until 2011, subsequently creating OWN: Oprah Winfrey Network, which she leads as CEO. In 2015, Winfrey bought an equity stake in Weight Watchers International and was a spokeswoman for the popular subscription weight loss program. She stepped down from the board of Weight Watchers in February 2024. Winfrey has a net worth of $3 billion as of March 2025, according to Forbes.

Beyoncé Knowles-Carter

The singer-songwriter, who began her career in the mid-1990s as a member of Destiny’s Child, has since become a top-selling solo artist. Beyoncé signed a $50 million endorsement deal with PepsiCo in 2012. In 2010, she founded Parkwood Entertainment, a management, production, entertainment company and record label. In 2019, she landed a three-project contract with Netflix worth $60 million.

Arianna Huffington

Arianna Huffington launched the news website The Huffington Post in 2005. She sold it to AOL in 2011 but continued to guide it and grow the Huffington brand overseas. In that same year, Time Magazine included her in its list of the world’s 100 most influential people. In 2016, she stepped down from The Huffington Post to launch health and wellness startup Thrive Global, which she leads as CEO. Huffington has also authored 15 books.

Note

In the U.S., businesses owned by women are growing at more than double the rate of all other firms. Women-owned businesses contribute nearly $3 trillion to the economy and are directly responsible for 23 million jobs, according to the World Bank.

Fashion and Beauty

Tory Burch

Founder of her namesake company, Tory Burch launched her U.S.-based clothing and fashion line in 2004. She was included in Forbes’ 50 Over 50 (Lifestyle) in 2022 and America’s Self-Made Women list in 2023. Burch is also a philanthropist who launched the Tory Burch Foundation to support women entrepreneurs.

Sara Blakely

The inventor of Spanx undergarments for women and men, Blakely started with only $5,000 of her own money, an idea, and pure drive. Today, the brand is sold in more than 50 countries. Blakely also has a foundation to help women worldwide. To support women entrepreneurs during the 2020 economic crisis, she teamed up with GlobalGiving to launch the Red Backpack Fund, which awarded more than a thousand $5,000 awards to women business owners.

Katie Rodan and Kathy Fields

The co-founders of skincare company Rodan + Fields felt so strongly about eradicating acne for all ages that they joined together to develop their flagship product, Proactiv, in 1995. The makers have since taken the dermatologic knowledge that helped them conquer the acne market to the anti-aging skincare market. Kathy Fields has a net worth of $500 million as of May 2024 and Katie Rodan has a net worth of $440 million as of May 2024. Both are included in Forbes’ 2024 America’s Richest Self-Made Women list.

Rihanna

Just 37 years old, Rihanna is the youngest woman on this list. The superstar singer has made most of her $1.4 billion fortune (as of March 2025) from Fenty Beauty, a cosmetics line she co-owns with luxury goods group LVMH. She also co-owns Savage X Fenty, a lingerie line, with investors. Her foundation, the Clara Lionel Foundation, distributed $7.1 million across 10 regions in 2023. Rihanna headlined the Super Bowl LVII halftime show in 2023, revealing that she was pregnant with her second child.

Who Are the Top Women Entrepreneurs?

Women entrepreneurs have shaped many industries. Zhang Xin is known as “the woman who built Beijing” thanks to her work in real estate as co-founder of SOHO China. Kiran Mazumdar-Shaw founded Biocon, the largest listed biopharmaceutical company in India based on revenues. Janice Bryant Howroyd co-founded ActOne Group, a workforce management firm with over 17,000 clients in 33 countries. ActOne was the first Black-owned company to achieve $1 billion in annual revenues. Ariana Huffington, The Huffington Post founder, sold the publication to AOL for $315 million in 2011. Rihanna, singer and business owner, runs Fenty Beauty, a billion-dollar company.

Who Are the Top Women Entrepreneurs in Entertainment?

With a net worth of $2.8 billion, Oprah Winfrey is one of the most famous entrepreneurs in media and entertainment. Winfrey runs the multinational cable network OWN and co-founded Oxygen Media. Ariana Huffington, Rihanna, and Beyoncé are among the top entrepreneurs in media and entertainment.

Who Are Notable Women Entrepreneurs?

Behind the scene of many well-known companies and brands are women founders and entrepreneurs. 23andMe, a DNA testing company, was co-founded by Anne Wojcicki in 2006. Robotics firm Automation Anywhere was co-founded by Neeti Mehta in San Jose, California. Computer security company CloudFlare was co-founded by Michelle Zatlyn in 2009, while Payal Kadakia co-founded subscription marketplace ClassPass in 2013.

The Bottom Line

Women have been successfully building businesses for decades. From Estée Lauder, who launched her cosmetics company in the 1940s, to Ruth Fertel, who aspired to have the best steak restaurant when she opened Ruth’s Chris Steak House in 1965, women entrepreneurs have been able to withstand economic and business pressures to be the best. In recent decades, more women entrepreneurs have risen to prominence in a wide range of industries.

Reviewed by JeFreda R. Brown
Fact checked by Pete Rathburn

Founded in 1998 by a group of tech superstars, including Elon Musk, Max Levchin, and Peter Thiel, PayPal became the go-to brand name in online money management and was bought by eBay in 2002.

As of 2025, PayPal accounts for 45% of the global payments market and its transaction volume was $6.6 billion in Q4 2024.

Key Takeaways

• As of 2025, PayPal accounts for 45% of the global payments market.
• PayPal helps keep transactions secure by not sharing financial information with sellers and also monitors transactions 24/7.
• Popular alternatives to PayPal include Venmo, Apple Pay, Stripe, and Skrill.

PayPal Main Features

One advantage that PayPal has is its large, multi-service platform with diverse offerings that many other digital payment systems lack. PayPal (PYPL) offers the following features:

• PayPal lets you pay for your favorite things at millions of online stores in the U.S. and across global markets.
• PayPal allows for making recurring payments to monthly bills and subscriptions.
• PayPal charges different fees depending on the transaction.
• PayPal earns fees from each merchant checkout transaction.

PayPal is not alone in the growing digital money space as consumers are turning to online payment systems in record numbers every year.

Here are 9 popular alternatives to PayPal:

1. Skrill

• Skrill has different fees based on the type of transaction, such as deposits, withdrawals, sending/receiving money, account levels, services, the country of operation, etc.
• In the U.S., there is no fee for local or global deposits.
• There is a withdrawal fee of $5.50 for ACH transactions.
• There is no fee to send money between Skrill accounts.
• There is no fee when receiving money from U.S. customers but if not a U.S. customer, there is a 3.99% foreign exchange fee.
• There is a service fee of $5 if you don’t log in or make a transaction at least once every 12 months.

2. Payoneer

• Payoneer operates in more than 190 countries.
• Receiving payments from another Payoneer customer’s balance is free.
• Payoneer has many different fee setups based on the specific details of the transaction, such as where the payment or charge is coming from, the country of operation, if the other party has a Payoneer account, and how the payment is being made.

3. Stripe

• Stripe is supported in 46 countries, with more availability planned.
• Fees are very clear; Stripe charges 2.9% plus 30 cents on every transaction.
• The checkout process for Stripe is self-hosted and occurs on the business owner’s site rather than sending customers to an external site such as PayPal.
• The Stripe network automatically deposits the funds into an outside bank account.

4. Venmo

• Venmo is a checkout option with several apps and websites, including Uber and GrubHub.
• When you withdraw money from your Venmo balance, it can take a few business days to transfer money to your bank account. If you need money faster, Venmo offers instant transfers for a 1.75% fee, with a minimum of $0.25 and a maximum of $25.
• Venmo doesn’t have regular fees, like monthly or annual fees.
• Venmo includes popular features from social networks, including likes, comments, and messages attached to each payment. 

Note

After PayPal, Stripe has the second-highest market share of payment processors on websites worldwide at 17% as of January 2025.

5. Apple Pay

• Apple Pay is built into the iPhone, Apple Watch, Mac, and iPad.
• Apple Pay is accepted by 85% of retailers in the U.S.
• Apple does not charge any fees when you use Apple Pay, whether in stores, online, or in apps.
• Apple Pay enables you to make secure, contactless purchases using Apple Cash, Apple Card, and any other credit and debit cards that you add to your Wallet.

6. Square

• A retail platform that allows retailers to sell in-person and online.
• Options for point of sale, eCommerce, invoices, and contactless payments.
• Free to use but retailers can add tools as needed including those for payroll and timecards for employees.
• Square’s Intuitive Dashboard keeps a retailer’s business data in one place.

7. Amazon Pay

• Using Amazon Pay does not add fees, including transaction fees, membership fees, and currency conversion fees, to purchases on sites and organizations accepting Amazon Pay.
• Transactions are safe and secure, and everything can be tracked with an Amazon account.
• Amazon Pay accepts credit and debit cards. 
• Donations, movie tickets, and more can be made with voice connection through Amazon’s Alexa.

8. QuickBooks Go Payment

• Requires a credit card reader for retailers to take payments right from a mobile phone or tablet.
• Swipe rates starting as low as 1.6% for pay-as-you-go or monthly plans are available starting at $19.95.
• It works with iPhones, iPads, Android phones, and Android tablets.

9. Shopify Payments

• Requires a Shopify account to accept Shopify Payments.
• Customers can use their preferred payment methods such as Visa, Mastercard, or Apple Pay.
• Includes a built-in fraud analysis feature and flags potentially fraudulent orders.
• Pricing plans for Shopify account sellers range from $29/month to $299/month.

Does PayPal Provide Protection for Buyers?

PayPal helps keep transactions secure by not sharing financial information with sellers and also monitors transactions 24/7. PayPal also monitors fraud prevention and helps with dispute resolution, putting a hold on funds until the issue is resolved.

Who Is the Largest Payment Processor?

The largest payment processor in the world is PayPal with a global market share of 45%.

What Is a Cryptocurrency Payment Gateway?

A cryptocurrency payment gateway is a payment processor for digital currencies, similar to the payment processors, or gateways, that banks or credit cards use. Cryptocurrency gateways enable you to accept digital payments and receive fiat currency immediately in exchange.

The Bottom Line

While PayPal may have almost half of the global payments market, there are plenty of other payment options out there that may be better suited to individuals and businesses based on their specific needs and budgets.

Fact checked by Suzanne Kvilhaug
Reviewed by Andy Smith

Real estate banking provides the critical financial services the sector requires for buying and owning properties. These bankers offer financing, mortgage lending, advisory services, and investments.

A major part of real estate banking focuses on sizable real estate capital markets transactions. Real estate investment bankers help assess significant commercial properties and portfolios for public real estate investment trusts (REITs), private equity firms, investment managers, and commercial developers.

Key Takeaways

• Real estate banking offers financing and advisory services for real estate transactions including those for sales and development.
• Real estate investment banking zeros in on significant capital market transactions and advisory services, playing a vital role in REITs and large-scale developments.
• These bankers manage complex deals and they value real estate assets.
• The sector is evolving as it digitizes more of its services.
• More attention to sustainability is influencing its approach to investments and management.

The Role of Real Estate Banking

Real estate bankers finance commercial and residential investors, developers, and property owners. Many large national and regional banks have specialized real estate banking divisions. Their expertise includes construction lending, mortgage financing, refinancing, REITs, and commercial real estate loans. Real estate banking may also include advisory services, equity investing, sales and trading of property, and helping to manage mergers and acquisitions.

The capital made available through real estate banking fuels new construction projects and property investments. This enables the industry to meet rising housing demand and support critical business activities across many sectors given real estate’s central role in the global economy.

Real Estate Investment Banking

Large-scale real estate transactions are complex and involve many parties and assets. Real estate investment bankers are crucial in structuring these deals. They determine the most suitable financing mix.

Investment banking is a subsector of real estate banking. It’s at the intersection of finance and property and it focuses on large real estate capital markets transactions and advising services. It primarily advises REITs, land developers, and property management firms. This advisory role extends to structuring deals and valuing real estate assets that are critical for successful investment and development.

Advising on REIT equity and debt issuance enables REITs and real estate companies to raise capital through public offerings or private placement deals. These firms also provide valuations of companies and real estate purchases.

This subsector also advises buyers and sellers of major commercial real estate assets or portfolios in structuring, valuation, and negotiations in mergers and acquisitions. It designs financial models to structure joint venture partnerships, leasebacks, and complex real estate transactions. It works with real estate private equity firms to raise funds from institutional investors and limited partners.

Note

Top investment banking firms such as JPMorgan Chase & Co. and Bank of America have specialized teams that work with real estate private equity funds, REITs, commercial brokers, and developers. They leverage quantitative models and industry knowledge to package deals for their clients.

The investment bank might structure a deal in a large development project to have a loan cover the immediate construction costs and equity investments that provide long-term working capital. Getting this mix right ensures that the project has enough funding to keep its debts manageable.

Real estate investment bankers also value real estate. This requires understanding the market, its trends, sector and geographic projections, and the specific character of each property. Bankers use different models and methods to determine these values.

These include two main methods: the income approach which involves estimating the future cash flow for the property and the comparable sales approach. This assigns a value based on similar properties that have recently sold. Valuation is critical not only for setting the sale price but also for how the deal will be structured.

Real Estate Investment Banking Careers

Careers in real estate investment banking can be lucrative and fast-paced for those who are interested in high-impact real estate deal-making and number crunching. Professionals work on sophisticated financial transactions that fuel large-scale property investments and developments.

Investment banking analysts are entry-level professionals who support senior bankers by conducting research, financial modeling, preparing presentations, and analyzing deals. Analysts generally have an undergraduate business degree and a solid financial modeling ability.

Associates with two to four years of experience get more responsibility for advising clients, structuring deals, and building client relationships. An advanced degree is usually required for this role.

Vice presidents are intermediate-level bankers who lead small teams and run transactions and client accounts. They typically have five to 10 years of experience is typical.

Managing directors and partners are senior executives who oversee all real estate banking practices. These individuals have a track record of successful deal-making, deep sector expertise, and strong institutional client relationships.

Key Skills Needed

• Financial modeling
• Complex data analysis
• Excel and presentation software
• Communication and relationship-building
• Strong work ethic and attention to detail

Hours and Pay

Real estate investment bankers work long hours given the demand for transactional deal volume. It’s often necessary to work on weekends when transaction milestones are coming up or at the end of reporting periods. The intense workload pays off through above-average industry salaries and bonuses, however.

The average pay for a real estate analyst was about $80,000 a year in the United States as of March 2025, according to the Economic Research Institute. The institute predicts that this average will increase to almost $90,000 in 2030.

Benefits of Real Estate Investment Banking

Real estate investment banking benefits institutional real estate investors and high-net-worth individuals (HNWIs) who are looking to enter the sector. It does so by providing a variety of services.

• Expertise in the market: Offers clients in-depth finance and real estate market knowledge, guiding investors through complex investment landscapes.
• Portfolio diversification: Provides institutional investors with prospects to diversify investment portfolios, cut risk, and potentially stabilize returns.
• Improves real estate deals: Creates financial structures for real estate that increase returns and lower risks including favorable loan and equity arrangements.
• Professional asset management: Helps with efficiently managing real estate, covering development, maintenance, and tenant management, freeing up the investor for other projects.
• Enables large-scale projects: Helps with planning and executing substantial projects like residential complexes, infrastructure projects, and commercial centers.
• Reduces risk: Puts insurance policies and structured financing into place to balance risk and reward, offering more stable real estate investment options.

Risks and Challenges in Real Estate Investment Banking

Real estate banking has certain unique drawbacks given the volatility of the real estate market. Real estate prices fluctuate based on economic factors, interest rates, and market demand. They periodically experience cycles of expansion and contraction tied to macroeconomic trends and this creates further problems for banks and their customers.

Borrowers risk defaulting on loans or backing out of deals and this affects the bank’s financial stability. The real estate sector is subject to assorted local, state, and federal regulations that can change and do change periodically, influencing investment strategies and project viability. Bad valuations of real estate assets can lead to poor investment decisions and financial losses and real estate assets are relatively illiquid.

Important

The potential for environmental liability or legal disputes related to a property can also cut into investment returns and delay projects.

Mitigation Strategies

Real estate banks use prudent risk management to navigate these inherent industry risks.

They diversify across geographic regions and asset classes to insulate the bank from market downturns that are isolated to a few sectors or locations. Conservative loan underwriting criteria, enforced loan covenants, and reasonable loan-to-value limits can help guard against credit losses. Rate locks and interest rate hedges can help shield against short-term rate changes.

Putting aside a good-sized capital cushion that’s above regulatory minimums helps banks absorb occasional losses while continuing to lend. Banks can mitigate losses by also stress testing loan exposure, matching asset and liability timing, and securing backup sources for funds through government programs, securitization, and credit.

Developing and maintaining strong client relationships and hands-on asset management also help bankers quickly address issues with underlying properties. Real estate banks can be resilient with layered risk monitoring, contingency planning, and prudent capital reserves.

Trends in Real Estate Banking

Emerging trends and technologies are significantly shaping the future of real estate banking which is mainly influenced by sustainability, digitalization, and changing consumer preferences. These trends reflect a shift in the industry’s investment, financing, and property management approach.

A key trend in the real estate sector was the change in the office market after the COVID-19 pandemic. Remote work was widely adopted and the demand for office space decreased notably, leading to a bifurcated market. This had profound implications for office owners, managers, brokers, and urban development.

Some industry leaders indicate that not all office buildings can be economically converted to other uses. They suggest that demolishing buildings and repurposing the land might be more viable for some. There’s been a growing interest in reimagining office spaces while learning how other industries survived radical change such as when the retail sector adapted to ecommerce​.

Note

Rising interest rates significantly affect the real estate market, resulting in a slowdown in purchases and lending across many sectors including industrial, office, retail, hospitality, multifamily, and senior living. This slowdown primarily occurs because of the increased costs of borrowing.

​The financing landscape in real estate is evolving. Mortgage debt funds have increased, particularly in North America and Europe. These funds are increasingly important for developing more transactions when acquisition stagnates. The launch of new debt funds and the dominance of top firms in private real estate debt fundraising highlight the growing influence of this means of finance​.

Environmental, social, and governance (ESG) factors are driving changes across many sectors. Real estate firms are incorporating ESG practices into their operations. This shift underscores the growing significance of roles like head of ESG and other sustainability-focused positions in real estate banking.

What Is the Role of Real Estate Investment Banks in the REIT Sector?

Real estate investment banks help REITs raise capital, conduct initial public and secondary equity offerings, facilitate mergers and acquisitions, and provide debt financing. They advise on property value for reporting and transactions.

What Is the Role of Real Estate Investment Bankers in Major Deals?

Real estate bankers structure joint ventures, mezzanine debt, preferred equity issuance, leasebacks, and recapitalizations for their own and their clients’ property needs.

How Has Technology Changed Real Estate Investment Banking?

Technological advances have profoundly affected real estate banking operations and client services. The integration of technologies such as big data analytics, artificial intelligence, and blockchain have been used in property valuations, risk assessments, and purchases.

Clients can use digital platforms and online tools to apply for loans, do virtual property tours, and manage their digital contracts. Property technology like machine learning analytics can also be used for estimating property values, remote online notarization, and drone property assessments.

The Bottom Line

Understanding real estate banking is essential for meeting this sector’s needs for investment capital for purchases and development. Real estate banking includes financing, mortgage lending, advising, and investment. The industry supports those in commercial and residential real estate, providing capital for new construction projects and investments.

Real estate investment banking, a specialized subset, additionally focuses on large-scale transactions and advisory services for entities like REITs and developers. Real estate investment banking guides significant investments and developments with its deal structuring and asset valuation expertise while offering finance professionals lucrative career prospects.