Reviewed by Lea D. Uradu

Being able to assess a company’s operating cash flow (OCF)—and how that is impacted by taxes—is an important skill in evaluating a company’s overall health.

The operating cash flow is vital when considering whether the company can generate enough positive funds to maintain and grow its operations. If not, the company may require external financing.

Shorter turnover rates in inventory and shorter times for receiving funds increase a business’s operational cash flow. Items such as depreciation and taxes are included to adjust the net income, rendering a more accurate financial picture. Higher taxes and lower depreciation methods adversely impact the operational cash flow.

Key Takeaways

• Operating cash flow reveals the cash that a company generates through its business operations.
• This is an important indicator for gauging how well a company can continue its operations and grow.
• Calculating taxes in operating cash flow involves reverse-engineering the following equation: Operating Cash Flow = EBIT + Depreciation – Taxes where EBIT refers to earnings before interest and taxes.

Understanding Operating Cash Flow

Operating cash flow is a metric used in financial analysis representing the cash generated or used by a company’s core business operations. It provides insights into a company’s ability to generate cash from its day-to-day activities, excluding financing and investing activities. By focusing solely on cash generated from operations, OCF offers a clearer picture of a company’s liquidity, financial health, and ability to sustain its operations over the long term.

Investors, lenders, and analysts use OCF as it tells part of the story of a company’s health. A positive OCF indicates that the company is generating sufficient cash from its core operations to cover operating expenses. Conversely, a negative OCF suggests that the company may be experiencing cash flow issues. By understanding and monitoring OCF, stakeholders can better informed decisions based on cash implications of a company.

Components of Operating Cash Flow

Before we look more specifically at taxes, let’s take some time to look at operating cash flow at a high level. The calculation of OCF starts with net income, which is the profit a company earns after all expenses, taxes, and interest have been deducted from total revenue. Unlike net income, which is calculated on an accrual basis, OCF adjusts for non-cash items and changes in working capital to provide a clearer picture of cash availability.

One key component of OCF is adjustments for non-cash items. These are expenses or revenues reported on the income statement that do not involve actual cash transactions. Common examples include depreciation and amortization which account for the wear and tear of tangible and intangible assets, respectively. Although these expenses reduce net income, they do not impact cash flow since no cash is spent. By adding back depreciation and amortization to net income, OCF adjusts to remove the effect of these non-cash charges.

Changes in working capital are another essential component in calculating OCF. Working capital refers to the difference between current assets and current liabilities, representing the short-term financial health of a company. Adjustments to OCF include changes in accounts receivable, inventory, and accounts payable. For example, an increase in accounts receivable indicates that more sales were made on credit, reducing cash flow. Conversely, an increase in accounts payable suggests that the company is delaying payments to suppliers, which temporarily boosts cash flow.

How to Calculate Taxes in Operating Cash Flow

The operating cash flow indicates the cash a company brings in from ongoing, regular business activities. It can be found on a company’s annual or quarterly cash flow statement. Simply, it is Total Revenue – Operating Expenses = Operating Cash Flow.

Taxes are included in the calculations for the operating cash flow. Cash flow from operating activities is calculated by adding depreciation to the earnings before income and taxes and then subtracting the taxes.

A company’s EBIT—also known as its earnings before interest and taxes—consists of its net income before income tax and interest expenses are deducted. Once a company’s EBIT is known, multiply that by the tax rate to calculate the total tax paid. Finally, to calculate operating cash flow, use the following equation: EBIT – tax paid + depreciation.

In terms of how to calculate OCF with the tax rate already known, the equation above can be simply reverse-engineered, solving for the unknown variables.

Impact of Taxes on Cash Flow

Proper tax planning is important since it can impact a company’s cash position. Companies can assess their overall tax situation, considering income tax, indirect tax, and tax benefits. 

Tax policies can also impact how businesses depreciate capital assets. In this way, faster depreciation can theoretically reduce the user cost of capital and increase the cash flows of companies.

OCF and Deferred Tax Assets

Deferred tax assets represent potential tax benefits that can reduce future tax liabilities and increase cash flow. For example, if a company has net operating losses or unused tax credits, it may be able to offset future taxable income, resulting in lower tax payments and higher cash flow. On the flip side, deferred tax liabilities represent future tax obligations that will require cash outflows, reducing cash flow in the future.

Deferred tax assets and liabilities are recorded on the balance sheet and adjusted periodically to reflect changes in tax laws, rates, and expectations about future profitability. When calculating OCF, adjustments are made to account for changes in deferred tax assets and liabilities. For example, Increases in deferred tax assets are added back to net income, as they represent future tax benefits that will enhance cash flow. Meanwhile, increases in deferred tax liabilities are deducted from net income, as they represent future tax obligations that will reduce cash flow.

Importance of OCF After Taxes

Investors find it important to look at the cash flow after taxes (CFAT), which indicates a corporation’s ability to pay dividends. The higher the cash flow, the better the company is financially, and the better positioned it is to make distributions. Income the company has from outside of its operations is not included in the operating cash flow. Any dividends paid and infrequent long-term expenses are often excluded from this calculation as well.

One-time asset sales are also noted, as they inflate the cash flow numbers during the relevant time period. Investors look at the balance and income statements to gain a better knowledge of the overall health of a company.

OCF and Tax Planning

Companies may leverage OCF to better plan for tax implications in an attempt to reduce what it may owe in the future. One key strategy is to defer taxable income and accelerate deductible expenses whenever possible. By delaying the recognition of income until future periods and accelerating expenses into the current period, businesses can potentially reduce current tax liabilities.

Another strategy is that businesses may choose to defer the receipt of income or delay the sale of assets until tax rates are lower, thereby reducing their tax obligations and preserving cash flow. Such strategies like this may only be possible if a company best understands not only its current operating cash flow but it’s future or forecasted operating cash flow. This ensures that the company does not risk operations in favor of potential tax savings.

Does Operating Cash Flow Include Taxes?

Yes, operating cash flow includes taxes along with interest, given that they are part of a business’s operating activities.

Is Operating Cash Flow the Same As EBIT?

Operating cash flow is different from earnings before interest and tax (EBIT), but both are metrics used to assess a company’s financial health. Operating cash flow is the cash generated from a company’s core business activities. By contrast, EBIT shows a company’s profitability by looking at its net income before expenses, interest, and tax have been deducted. EBIT is also used to analyze the performance of a company’s core business.

What Is the Formula for Calculating Taxes in Operating Cash Flow?

Calculating taxes in operating cash flow requires reverse-engineering the following formula: Operating Cash Flow = EBIT – tax paid + depreciation. You would then solve for unknown variables, assuming the tax rate is known.

The Bottom Line

A company’s operating cash flow can be significantly impacted by higher taxes and lower depreciation methods. In this way, it can be important to calculate the taxes in operating cash flow to get a clearer picture of how they impact a company’s overall financial situation and its ability to pay dividends.

Tips and ideas to lower the cost of your wedding

Fact checked by Suzanne Kvilhaug

The average wedding cost in 2025 is expected to reach $36,000, according to Zola, a wedding registry that surveyed close to 6,000 couples planning weddings. Bigger guest lists, pricey destination weddings, and splurging on professional planners and entertainers are a few of the many reasons for the rising price tag.

Given the climbing price, some people may wonder if getting married is worth the cost.

Key Takeaways

• There’s no need to spend so much on a wedding and there are several ways to trim costs, including keeping the guest list small, choosing brunch over a full dinner, and skipping fancy invitations and floral arrangements.
• Talk over wedding priorities with your partner and stick to a budget.
• Don’t let social media influence you into spending more on a wedding than you can afford.

“Marriage itself? Absolutely. A lifelong commitment to a partner is priceless. But a wedding doesn’t have to cost a fortune to be beautiful, memorable, or meaningful,” says Jessica Bishop, founder of The Budget Savvy Bride.

“The idea that a wedding has to cost tens of thousands of dollars is largely fueled by industry marketing and societal expectations. The reality? You can have an amazing wedding on any budget. I’ve helped couples plan stunning celebrations for $10,000, $5,000, and even $1,500! The key is prioritizing what truly matters and getting creative with spending.”

How Much Should You Spend on a Wedding?

How much should a couple spend on their wedding day? Is it worth it to splurge on a big amount? It depends on your specific situation.

“Weddings are deeply personal, and whether it’s “worth it” to spend $36,000 or any amount depends on a couple’s priorities, financial situation, and long-term goals,” Bishop said. She went on to say that the most important input in your decision should be making the day meaningful to you, not spending a specific dollar figure.

“Some couples feel that a lavish wedding is worth the expense, while others would rather invest in a home, travel, or savings,” said Bishop.

Important

“A wedding should be a celebration of love, not a financial burden,” said Jessica Bishop, founder of The Budget Savvy Bride.

How to Control Wedding Costs

If you are looking for ways to lower the cost of your wedding day, consider these tips.

Trim the Guest List

It might be hard, but holding a small wedding and reducing the guests to your closest friends and family members will greatly impact the final cost. Keep in mind that the more guests, the more food expenses, chair rentals, and the higher the cost of the venue. It may be better to keep things small.

Use a Nontraditional Venue

There’s no rule that your special day needs to be held in a lavish setting or sizable event space. “Consider parks, backyards, or nontraditional venues that don’t require a hefty rental fee,” Bishop says. “Some restaurants even offer free event spaces if you meet a food and beverage minimum.”

Consider the “Off Season”

Consider getting married in January, February, July, or November. These are generally not considered popular wedding months, and thus, you might get a good deal. Also, skip the Saturday ceremony.

“Venues and vendors charge a premium for Saturdays in peak months. A Friday or Sunday wedding or even a brunch reception can save thousands!” Bishop says.

Rent or Buy Pre-owned Items

Everything you wear or use during the ceremony doesn’t have to be brand new. In fact, the traditional saying about what to wear includes the word “borrowed.” Wedding dresses, tuxedos, and even your decor, can be rented or bought secondhand, and often for a fraction of the price.

And don’t get swayed by social media trends. It’s not up to Instagram, Pinterest, or Facebook to dictate your wedding expenses.

“I have personal experience with many young couples getting inspired from Insta reels and going to any cost to replicate them,” Carissa Kruse of Carissa Kruse Weddings. “It’s good to take inspiration, but don’t let social media pressure you to overspend and regret later.”

Limit the Open Bar and Full Dinner

An open bar is going to be pricey. By skipping a full bar option, you’ll save some serious cash. “Opt for beer, wine, and a signature cocktail instead of a full bar to keep things budget-friendly,” Bishop said.

Then consider hosting a brunch or cocktail-style reception instead of a formal rubber chicken dinner, which can drive up the costs.

“A more casual, interactive meal experience can save money while still feeling special,” Bishop says.

Ask for Help

Your friends and loved ones would probably love to get involved. Bishop recommends tapping talented people in your life to help with specific tasks such as photography, DJ duties, baking desserts, or even decorating help.

Go the Simple Route

It’s always a wise choice to keep things simple and skip the extras, when you’re looking to save money. Bishop points out that fancy invitations, elaborate favors or floral arrangements aren’t must-haves. What’s more important is to focus on making the day and experience of getting married meaningful to you.

Start Planning Early

You should start making plans well before your wedding date. This can impact the final cost.

“Discuss your budget and priorities with your partner early in the planning process,” says Kruse. “Do not let the pressure of a perfect wedding day push you into overspending.”

Use as many cost-saving strategies as you can to make the wedding you want more affordable and in line with your budget.

“At the end of the day, a wedding should reflect your love story and financial reality. You don’t have to go into debt for a dream wedding, because the real dream is the life you’re building together after the big day!” Bishop says.

The Bottom Line

You don’t have to spend a tremendous amount of money on your wedding day. There are plenty of ways to keep costs down, and still have a meaningful wedding celebration.

Take the time to plan your wedding well in advance. Stick to a small guest list. Get married in the offseason. Have friends and family volunteer their services. Have a limited bar. Go nontraditional with your venue, and avoid a big rental fee. Having your wedding in a park or backyard will save you money. Don’t let social media convince you to spend more on your wedding than you can afford.

Learn what you need to speed up the approval process

Mortgage lenders offer pre-approval letters to buyers they believe can repay their loans. However, unlike mortgage pre-qualification, the pre-approval process is a more detailed look into your finances, including running a hard check on your credit. Your pre-approval letter may include everything from your maximum loan amount to your estimated interest rate. The letter will also have an expiration date for when the terms of the pre-approval letter are valid.

However, while the terms pre-qualification and pre-approval may be used interchangeably, they don’t necessarily mean the same thing. Let’s break them down.

Key Takeaways

• Mortgage pre-approval is a more thorough evaluation of your finances than pre-qualification.
• During the mortgage pre-approval process, a lender will likely conduct a hard credit inquiry and look at documentation such as proof of employment, income tax returns, and assets. 
• A mortgage pre-approval is usually valid for around 90 days, but it can also be valid for 30 or 60 days.
• The lender will relay the maximum loan amount the borrower can take out in the mortgage pre-approval letter.

Pre-Qualification vs. Pre-Approval

A pre-qualification letter includes a preliminary estimate of how much of a loan you may be eligible for based on self-reported financial data. If you’re looking for a mortgage, you may have visited the lender’s website and entered details such as your income and desired loan amount. In this case, the lender may have sent you a letter outlining an estimated loan amount you’re eligible for and, at the most, ran a soft inquiry into your credit.

The pre-qualification process is usually quicker than the pre-approval process and typically doesn’t require tax information from you.

On the other hand, a pre-approval letter indicates that the company has taken more time to look into your financial profile as a mortgage candidate. It likely has run a hard credit check, which involves requesting a copy of your credit report from one of the three major credit bureaus. A single hard inquiry can shave a few points from your credit score. 

In the pre-approval process, the lender will likely ask for pay stubs, W-2 statements, and signed tax documents from previous years. This may take a week or longer, depending on the lender. However, having a pre-approval letter at hand often shows you’re more serious in your home-buying journey and may offer a competitive edge over other home buyers. You generally need to provide sellers with a pre-approval letter before they accept an offer. 

Note

A pre-approval letter is not a guarantee that you’ll get a mortgage. If there are changes, for instance, in your financial profile after receiving this letter, you may not get a loan.

Requirements for Pre-Approval

Mortgage pre-approval requires a buyer to fill out a mortgage application; provide proof of income, employment, and assets; and demonstrate good credit through a hard credit pull.

Proof of Income

Your lender may require proof of income through W-2 statements from the last couple of years. 

Proof of Assets

Another document lenders may need for a pre-approval letter is proof of assets, which can be your bank or investment account statements. These statements need to show evidence that you have enough cash to pay for expenses such as, but not limited to, the required down payment and associated closing costs. If you do not have the expected down payment requirement (usually around 20%), your lender may require you to purchase private mortgage insurance (PMI). 

Good Credit

Usually, conventional mortgages require you to have a credit score of 620 or higher. However, mortgages insured by the Federal Housing Administration (FHA) and other agencies may allow you to get a loan at a lower credit range. For instance, borrowers with a credit score as low as 500 may be able to take out a mortgage backed by the FHA. Lenders get a sense of your credit score by requesting a copy of your credit report, otherwise known as a “hard credit inquiry,” from one of three major credit bureaus. 

Employment Verification

To verify your employment during the pre-approval process, a mortgage lender may look at your W-2 forms and seek an official employment verification letter. They may also call your employer to verify your job title, income, and employment status. 

Other Documentation

During the pre-qualification process, you may also be required to provide your driver’s license, Social Security number, and consent for the lender to conduct a credit inquiry. If you are self-employed, you may need to provide additional income documentation.

Important

Upfront fees on Fannie Mae and Freddie Mac home loans changed in May 2023. Fees were increased for homebuyers with higher credit scores, such as 740 or higher, while they were decreased for homebuyers with lower credit scores, such as those below 640. Another change: Your down payment will influence what your fee is. The higher your down payment, the lower your fees, though it will still depend on your credit score. Fannie Mae provides the Loan-Level Price Adjustments on its website.

Pre-Approval vs. Approval

A mortgage pre-approval is one of the early steps in buying a home. It is a conditional (but not permanent) commitment from your lender to offer you a loan of a select balance, interest rate, and other criteria. You are not guaranteed that you will get the mortgage.

Final approval is one of the last steps before closing your mortgage. By this time, mortgage underwriters have reviewed your application and financial documents. They may accept your application with or without certain conditions or deny it altogether.

The property you wish to buy has likely also been financially appraised. This is to ensure that the property value aligns with the loan amount. 

What If You Don’t Get Pre-Approved?

If you don’t get pre-approved, you should note the reason. If, for instance, it shows your debt-to-income (DTI) ratio is too high, making you a risky candidate for the lender, you may choose to work on paying off your debt. For instance, the maximum DTI is around 36% for Fannie Mae-backed loans. Depending on the loan type you’re considering taking out, you may want to see where your debt profile lies. 

Consider asking your lender how to improve your application for your next attempt at pre-approval. 

The Bottom Line

The mortgage approval process is more in-depth than a simple pre-qualification. Lenders take the time to look at your proof of income, assets, credit score, and evidence of employment, among other documents. It’s a more serious signal to sellers that you want to buy their home. 

Fact checked by Suzanne Kvilhaug

Income Tax vs. Capital Gains Tax: An Overview

Income taxes and capital gains taxes are both ways the government collects revenue, but they apply to very different types of income. In general, income taxes are levied on the money you earn through employment or self-employment, while capital gains taxes apply to profits made from selling a capital asset like your home, stocks, and bonds.

While both affect your take-home earnings, the rules, rates, and strategies for minimizing them can vary significantly, and knowing the difference will help you better manage your finances—and potentially lower your tax bill.

Key Takeaways

• Income tax applies to wages, salaries, and other earned income and is taxed at ordinary income rates based on tax brackets.
• The U.S. income tax system is progressive, with rates from 10% to 37%, meaning higher-income earners are taxed at higher rates than lower-income earners.
• A capital gains tax applies to profits from the sale of assets like stocks or property; long-term assets, which are held for more than one year, are generally taxed at a lower rate than short-term assets.

Income Tax

Income tax is applied to most forms of earned income. This includes wages, salaries, tips, commissions, and income from freelance or contract work. It also covers unearned income such as interest and rental income, depending on your situation.

The United States operates on a progressive income tax system, so your income is taxed at increasing rates as it reaches higher brackets. For example, in 2025, the federal income tax brackets range from 10% to 37%, depending on your filing status and total taxable income. Most states also have their own income tax systems, which can be either flat or progressive.

Employers typically withhold income tax from paychecks, and self-employed individuals make estimated tax payments quarterly. Further, taxpayers can reduce their income tax burden through deductions, tax credits, and some types of retirement contributions.

2025 Federal Tax Brackets and Rates
2025 Tax Rate	Single	Married Filing Jointly	Head of Household	Married Filing Separately
10%	$0 to $11,925	$0 to $23,850	$0 to $17,000	$0 to $11,925
12%	$11,926 to $48,475	$23,851 to $96,950	$17,001 to $64,850	$11,926 to $48,475
22%	$48,476 to $103,350	$96,951 to $206,700	$64,851 to $103,350	$48,476 to $103,350
24%	$103,351 to $197,300	$206,701 to $394,600	$103,351 to $197,300	$103,351 to $197,300
32%	$197,301 to $250,525	$394,601 to $501,050	$197,301 to $250,500	$197,301 to $250,525
35%	$250,526 to $626,350	$501,051 to $751,600	$250,501 to $626,350	$250,526 to $375,800
37%	$626,351 or more	$751,601 or more	$626,351 or more	$375,801 or more

Capital Gains Tax

Capital gains tax is triggered when you sell an investment or asset for more than you paid for it. Common examples include stocks, bonds, mutual funds, real estate, and even household furnishings and collectibles. The tax applies only to the gain—the difference between the selling price and the original purchase price.

Capital gains are considered either short-term or long-term. If you hold the asset for one year or less before selling, it’s considered a short-term capital gain and taxed at ordinary income tax rates. If you hold the asset for more than a year, it’s considered a long-term capital gain and generally taxed at lower rates—0%, 15%, or 20%, depending on your taxable income. Some types of asset sales may trigger a capital gains tax rate that is greater than 20%—for example, net capital gains from selling collectibles are taxed at a maximum 28% rate.

There are also surtaxes, like the 3.8% net investment income tax, that may apply to high earners. And while capital gains taxes are mostly a federal concern, some states tax them as well and sometimes treat them the same as regular income. The following table shows the capital gains tax brackets.

Capital Gains Tax Rates and Taxable Income Amounts for 2025
Filing Status	0% Tax Rate	15% Tax Rate	20% Tax Rate
Single	$0 to $48,350	$48,351 to $533,400	$533,401 or more
Married Filing Jointly	$0 to $96,700	$96,701 to $600,050	$600,051 or more
Married Filing Separately	$0 to $48,350	$48,351 to $300,000	$300,001 or more
Head of Household	$0 to $64,750	$64,751 to $566,700	$566,701 or more

Key Differences

The main difference between income tax and capital gains tax lies in the type of income being taxed and the rates applied. Income tax covers earned income and is subject to a progressive tax structure. Capital gains tax applies to investment profits and can offer lower rates, especially for long-term holdings. It’s also important to note that long-term capital gains do not impact your ordinary income, so you don’t need to worry about this type of sale pushing you into a higher tax bracket.

From a planning standpoint, capital gains taxes often offer you more flexibility. For example, you might choose when to sell an asset to time the gain with a year when you’re in a lower tax bracket. You can also be mindful about holding assets for at least one year before selling for a gain. That kind of timing isn’t available for income taxes, which are based on when the income is earned.

How to Calculate Capital Gains

To calculate a capital gain, you should subtract your cost basis from the selling price of the asset. The cost basis includes what you originally paid for the asset, plus any fees or commissions related to the purchase.

Capital Gain = Sale Price – Cost Basis

If the result is positive, you’re dealing with a capital gain. If it’s negative, you’ve incurred a capital loss, which can be used to offset other gains or even reduce your taxable income (up to $3,000 per year, as allowed by the Internal Revenue Service).

For assets held longer than one year, you’ll need to apply the long-term capital gains. And remember: If you sell within one year, your gain is taxed at your ordinary income tax rate, which can be substantially higher.

Income Tax vs. Capital Gains Tax Example

Let’s say you earn $80,000 in salary in a given year. That income is subject to federal income tax, possibly in the 22% bracket depending on your filing status. You’ll pay income tax through paycheck withholding, and possibly owe more or get a refund when you file your tax return.

Now, imagine you also sold stock for a $10,000 profit. If you held the stock for more than a year, the gain qualifies for long-term capital gains treatment. At your income level, you’d likely pay 15% in federal taxes on that gain, or $1,500 (assuming you’re filing single). If, instead, you sold the stock after holding it for just six months, the gain would be taxed as ordinary income—so, potentially at the same 22% rate as your salary.

The Bottom Line

Income taxes and capital gains taxes both affect your personal finances, but they apply to different activities and warrant different tax considerations. While income tax is largely unavoidable and based on what you earn, capital gains tax can often be managed more proactively; for example, by holding an asset for more than a year, you’ll likely pay far less in taxes than if you sold for a gain within a month.

By understanding how each works—and how they interact—you can make more informed decisions about your income, investments, and tax planning. When in doubt, working with a tax advisor can help you chart the most effective path forward.

Yes, for rings more expensive than what standard homeowners insurance covers

Reviewed by Chip Stapleton

Should you insure your wedding rings? It certainly doesn’t sound as fun as planning the honeymoon. But when it comes to engagement rings, wedding bands, and other wedding jewelry, securing sufficient protection can prove as essential as any other wedding-related task.

The national average spent on engagement rings varies. For example, The Knot’s 2024 Jewelry and Engagement Study notes the averages around $5,200. However, that figure can certainly be higher depending on where you live, the type of metal, and the type and quality of the gemstone used.

If you’re looking at an expensive engagement ring, consider a plan to insure it. Add in the cost of wedding bands for both spouses, and it’s clear that the average $1,500 of jewelry coverage offered by standard renters and homeowners insurance won’t cut it for your carats.

Key Takeaways

• Consider insurance If you plan to buy an expensive engagement and/or wedding ring.
• Couples may spend thousands of dollars on engagement and wedding rings, but the limited coverage of renters or homeowners insurance often offers just a fraction of an item’s worth.
• Options to insure expensive wedding jewelry include adding a rider to a current homeowners policy that itemizes the pieces or buying a separate insurance policy.
• The general rule to insure engagement and wedding rings is $1 to $2 for every $100 of value, paid annually.
• Those who elect to acquire added coverage should know the finer points of the new policy, including what’s covered, how they’ll be reimbursed, and the way the ring will be valued.

Are Wedding Rings Covered by Homeowners Insurance?

The short answer is yes, jewelry is included in renters and homeowners insurance policies that cover the value of items in your home. However, coverage for jewelry only goes up to a certain dollar limit, and there may be group limits on it, such as a limit for the collective value of all items. Circumstances such as loss or damage may not be included. And, in most cases, coverage is subject to a deductible before you receive any reimbursement.

Engagement and wedding rings can be covered more comprehensively with the purchase of a rider or floater, or by an extension to your current policy. This is also called scheduling property. Scheduled personal property goes over and above the typical renters or homeowners policy so the full value of the designated, high-priced item is covered in the event of a claim. Generally, you do not pay a deductible on a scheduled item.

The simplest step would be to add a floater itemizing your jewelry to your existing insurance policy. However, if you don’t have a renters or homeowners policy or if the coverage offered through your existing provider doesn’t meet your needs, then you can purchase a separate policy specifically for your rings. Your jeweler might recommend a certain insurer.

Important

Shop around to find an insurance company that suit your needs. You might consider looking for a specialist in jewelry coverage.

Wedding Ring Insurance: What to Look For

As with any other type of financial contract, the fine print of an insurance policy always matters when it comes to choosing a provider and policy for your ring(s). Here’s what to consider.

Coverage

You cover all your bases when it comes to your home and vehicle. So why not do the exact same thing with your wedding jewelry? After all, you’ve invested a lot of money (and time) into purchasing it, so you should ensure you get the right coverage.

A good policy should cover all contingencies when it comes to your engagement and wedding rings. This includes loss, theft, and even damage as a result of an accidental drop down the garbage disposal. Make special note of any circumstance that isn’t covered.

Replacement

There are certain questions you should ask and get the answers to before you sign up for coverage. For instance;

• How will the insurance company replace your rings?
• Will it try to find a replacement for you?
• Would you have to obtain it at a certain jeweler?
• Can you just opt to receive a check as compensation?
• Will repairs or partial losses be covered?

Make sure you evaluate the replacement policy against your financial and sentimental concerns.

Assessment of Value

This is key. How will the insurance provider assess the value of your ring for reimbursement? Will it use the current appraisal value or will it only consider the original purchase price?

Documentation requirements

Note all of the required paperwork for your policy so that everything is readily available if you need to file a claim. These documents typically include receipts, photos, and up-to-date appraisals.

Get an Appraisal

If you’re a homeowner or ever considered purchasing one, you may already be familiar with the appraisal process. Getting one done will tell you the value of the property. The same principle applies to your wedding ring(s).

An appraisal of a ring is often required when purchasing supplemental insurance coverage. The store that sold it might provide one, but if a lot of time has gone by since the purchase, then you’ll need to get an independent appraisal, which some insurers prefer anyway.

A professional jewelry appraisal can help verify facts about the ring while assessing its value for insurance purposes. You can ask the jeweler for recommendations. The American Gem Society also has a directory of qualified professionals that can be searched by ZIP code. Appraisal rates generally range from $50 to $150 an hour.

Consider Coverage Options

It’s important to compare not only the cost of one insurance provider to another but also the relative cost to the relative coverage, as both vary greatly from provider to provider and even from policy to policy.

The general rule for insuring wedding and engagement rings is $1 to $2 for every $100 of value, paid annually. A $5,855 ring, for example, would cost around $59 to $118 per year to insure. If you live in a city where the risk of theft is higher, then you can expect to pay a bit more for your coverage. But insurance companies may lower premiums for those willing to install a home security system, purchase a safe, or rent a safe deposit box in which to store rings when they aren’t being worn.

Some policies have deductibles while others don’t. Those without deductibles tend to have higher premiums, but they will reimburse more fully and with less fuss. In the case of a policy with a deductible, look to see which types of repairs can affect your coverage costs.

After you’ve combed through the policy fine print, assessed the value of your rings, and compared relative costs, you should have enough information to choose an insurance policy that meets your needs. Don’t wait too long to secure coverage, though. You’ll want to make sure you’re protected if anything happens in the days after your purchase or receipt of the ring.

3 Months

Industry guidance is to acquire a ring that equals a certain number of months’ salary. For example, some note the ring should cost three months salary.

Once You’re Insured

Keep all insurance-related documents in a safe, secure, and dry place. By this point, you should be familiar enough with the details of your policy to know exactly what documentation you need to keep on file: a written appraisal, ring receipts, photos, gem certificates, etc. Also, make sure that any policy details you’ve discussed with your insurance agent are included in the paperwork. All promises need written documentation.

Values of precious metals and fine jewels change frequently. Consider having an appraisal done every two to three years—even if your insurance policy doesn’t require regular appraisals—to ensure your insurance coverage is still adequate. Keeping an evaluation up to date is particularly important for vintage, antique, and/or collectible rings. Bring a copy of your original or most recent appraisal so your appraiser can work from that rather than start from scratch, helping to save you time and costs.

How Much Does It Cost to Insure a Wedding Ring?

The cost to insure a wedding ring depends on a number of factors, including the type of ring, the metal used, stone set. and where you live. But you can generally expect to spend $1 to $2 for every $100 of value. For a $2,000 ring, you can expect to pay $20 to $40 per year.

Does Homeowners Insurance Cover the Loss of a Wedding Ring?

Your homeowners insurance policy may cover the loss of a wedding ring. But keep in mind that they may be limited as to how much they’ll pay you compared to the actual value of the ring. Some companies allow you to purchase a rider that can give you additional coverage that’s specific to your ring. If this doesn’t work, you can shop around for a separate policy.

Where Can I Get Wedding Ring Insurance?

Your homeowners insurance policy may cover the loss or damage to a wedding ring. But these policies may be limited to how much they’ll pay. You may be able to purchase an additional rider that will cover your ring. There are also specific policies that cover jewelry, especially engagement and wedding rings.

The Bottom Line

Given the high average cost of wedding rings, acquiring insurance is a prudent move. If your jewelry is adequately covered under the modest personal property allowance of your current renters or homeowners insurance, that’s fine. But if not, then how and where you decide to insure your wedding rings will depend largely on your specific needs and assessments of value. By doing your due diligence in combing through the fine print of potential policies and comparing true costs and coverage, you can ensure that you’ve properly protected jewelry that has both monetary and emotional value.

Reviewed by Margaret James
Fact checked by Suzanne Kvilhaug

Walt Disney (DIS) is one of the most successful companies in one of the most powerful sectors of any economy: entertainment. Before it became the empire it is today, Disney was more closely associated with the vision of the man after whom it was named. It was this vision that laid the groundwork for the company to become the media giant it is today.

In this article, we’ll look at the rise of Walt Disney – both the man and the company – and why Disney was so successful. No doubt, his life can teach entrepreneurs lessons even today.

Key Takeaways

• Walt Disney – the man and the company – is one of the most successful and powerful entertainment companies in the world, with a market cap of $187 billion.
• Only by constantly innovating and pushing the boundaries of both animation and business, was the company able to go from a moderately successful animation studio to a complete entertainment experience – with theme parks, merchandising, cruise ships, and more.
• After its acquisition of 21st Century Fox in March 2019, Disney became the largest media powerhouse on the planet.

Setting Forth, Again and Again

Like many creative talents, Walt Disney started his career working for others. In 1919, Walt was back from driving for the American Ambulance Corps in World War I and looking for work as an artist. He found it at Pesmen-Rubin Commercial Art Studio, where he met and befriended Ubbe Iwwerks. Iwwerks proved to be one of the most talented animators in the world and a key to Walt’s later success.

At the start of 1920, Walt and Iwwerks were both out of a job, so they tried to open up their own studio. This first business promptly failed and the pair left for paying work, doing animation at Film Ad Co., where they worked on the advertising shorts that were shown before the features. Before too long, they were working together on side projects that grew into Laugh-O-Grams, a series of comedic shorts. Walt and Iwwerks set forth together again and turned Laugh-O-Grams into a business. However, once again, the venture ended belly-up in 1923, after which time Walt left for Hollywood.

The Disney Brothers

Perhaps Walt’s least appreciated skill was convincing others to buy into his vision. In Hollywood without Iwwerks, Walt convinced his brother Roy to help him start Disney Brothers Studio, later renamed Walt Disney Studio. Sure enough, Walt soon had Iwwerks, who was no spelling his name Iwerks, convinced to come back to work with him, as well.

Walt Disney Studio was no more profitable than the previous incarnations, but it was staying afloat. The company was doing work for Universal Pictures, creating a character called Oswald the Lucky Rabbit. In 1928, Walt and Roy had the unpleasant surprise of finding out that all of their animators, with the exception of Iwerks and a few others, had been hired away by one of the people he was dealing with at Universal. To add salt to the wound, the rights to Oswald belonged to Universal.

The experience embittered Walt and made him swear to only work for himself. Walt began looking to deliver his films directly to distributors, but he needed a new character.

The Mouse

There is some controversy over where Mickey Mouse came from; theories range from a wastepaper basket in Kansas to Iwerks flipping through animal photos and sketching. However he originated, Mickey Mouse represents the start of Disney as we now know it.

Walt assembled a new team to work with Iwerks on this new character. The first two films were not hits, but the third, “Steamboat Willie,” was a huge success. It was also the finest early example of a film that synchronized sound and animation.

Being on the cutting edge of technology became par for the course, as the company pushed the boundaries of animation. The next decades, including the Great Depression, saw Disney create the first color cartoons, as well as the first animated feature-length film, “Snow White and The Seven Dwarfs.”

Disney’s IPO

The costs of these groundbreaking films were so high, and the margins so low, that a poor box office could still sink the studio. Walt and Roy started 1940 with great films, but a lot of debt. From 1923 to 1938, the Disney Brothers partnership was actually split into four companies that were successful in varying degrees, before being absorbed into one in 1938.

The company name that lived on was Walt Disney Productions and, on April 2, 1940, Walt Disney Studios issued 155,000 shares of 6% convertible preferred stock. This issue was in the over-the-counter market and raised around $3.875 million for the company.

The brothers soon found themselves back in debt, however, as the box offices continued to be slack for films that we now consider masterpieces, namely “Bambi,” “Fantasia,” and “Cinderella.” This isn’t to say they weren’t successful, they were just very expensive to make.

Instead of slowing down, Walt looked to do more. The brothers set up their own distribution company, Buena Vista, and began producing high-margin nature documentaries. Walt also began to have visions of the ultimate amusement park, but it was a gamble his company couldn’t afford. Still, little by little, Walt diversified the history of Disney adding business units to its core animation studio.

Disneyland

In order to create the “happiest place on earth,” a lot of financial maneuvering needed to take place, and Walt made it happen. Even after funding a private company, using a loan from his own life insurance, Walt needed much more capital. He had himself to offer, but he was clever about it. Walt set up another private company that owned the merchandising rights to his name. Incidentally, Walt Disney Productions paid $46.2 million in shares to buy the company back, in 1981.

He then offered to create a TV series for a TV network that would invest in Disneyland; ABC jumped at the chance. Walt had his funding and ABC had a show that turned into a cultural phenomenon, watched by millions. Originally named “Disneyland,” but wearing different titles over the years, the show ran for 29 years.

In 1955, Disneyland finally opened and became a huge success. Over the next five years, Walt Disney Productions purchased Disneyland by buying Walt’s private company. Over these same five years, the gross income at Walt Disney Productions, which had been at $6 million in 1950, grew from $27 million to $70 million.

Merchandising, branding, and expansion were all coming together for Walt Disney Productions. Sadly, though, it was destined to go on without one of its founders, as Walt died in 1966. One of his last features, “Mary Poppins,” was the top-earning film in 1964. His brother Roy took over.

Beyond Walt and Roy

After the death of Walt and his brother Roy, Disney struggled. The company was listed in 1957, and despite its past successes and several profitable theme parks, the rise in its stock price was nominal.

In the 1980s, the company was thought to be so undervalued in terms of brand assets, which included the film catalog and the theme parks, that hostile takeover artists began circling. The company fended off the takeovers and began to focus on profiting from its vast brand equity.

From the 1980s to the 1990s, the stock grew in leaps and bounds, making Disney the largest entertainment empire in the world. The company has continued to prosper and grew to be a favored dividend-paying investment. This growth was helped in no small part by the foundation that Walt and Roy laid for the company.

Modern Day Disney

Over the years, The Walt Disney Company has navigated a rapidly changing media landscape, adapting its business strategy to shifting consumer habits and industry challenges. As streaming became the dominant force in entertainment, Disney positioned itself at the forefront through Disney+, ESPN+, and Hulu.

Beyond streaming, Disney has strengthened its position through its theme parks, experiences, and consumer products. Disney has continued investing in expansion, immersive storytelling, and new attractions at its theme parks around the world. The cruise line business also saw growth as Disney introduced new ships (now up to 7 cruise ships).

Disney’s leadership has also undergone notable changes, with a renewed focus on efficiency and strategic decision-making. The return of CEO Bob Iger marked a pivotal moment, as he spearheaded initiatives to streamline operations, reduce costs, and refocus the company’s creative efforts.

Iger has publicly stated the company’s strategic initiatives and financial outlook. He’s discussed priorities such as achieving sustained profitability in streaming, evolving ESPN into a leading digital sports platform, enhancing film studio output, and expanding the Experiences sector. He also expressed confidence in the streaming business reaching and maintaining profitability, with the integration of Hulu content into Disney+ expected to boost engagement and reduce subscriber churn.

How Many Theme Parks Does Disney Have?

Disney operates 12 theme parks across six resorts worldwide: Disneyland Resort (California), Walt Disney World Resort (Florida), Disneyland Paris, Tokyo Disney Resort, Hong Kong Disneyland, and Shanghai Disney Resort.

Who Founded Disney?

The company was founded in 1923 by brothers Walt and Roy O. Disney as the Disney Brothers Studio, which later became The Walt Disney Company.

What Streaming Services Does Disney Own?

Disney owns Disney+, ESPN+, and a majority stake in Hulu.

What Is The Disney Vault?

The Disney Vault was a marketing strategy where Disney would periodically release animated classics on home video for a limited time before discontinuing them. With Disney+, most of these films are now always available for streaming.

The Bottom Line

Financial history is full of outsized personalities and towering figures. Many of the richest people in history got there by building empires of fur, oil, steel, rails, and, yes, software. All of these are tangible products with a simple formula: keep the costs down and sell more. Disney, the man and the company, were birds of a different feather.

Only by constantly innovating and pushing the boundaries of not just animation but also what Disney became as a business was the company able to go from a moderately successful animation studio to a complete entertainment experience – with theme parks, merchandising, cruise ships, and so forth.

In a quote often attributed to Walt Disney, a Disney Imagineer once said, “If you can dream it, you can do it.” The story of Walt’s life and the creation of his company reminds us that once you dream it, you must continually re-dream and re-imagine it to succeed.

They can provide income for life, though often at a high price

Reviewed by Charlene Rhinehart
Fact checked by Amanda Jackson

Insurance agents and financial advisors have been investing their clients’ retirement money in annuities for decades. This practice has its detractors, with the criticism usually focusing on the high commissions paid to annuity salespeople and stiff fees charged to annuity owners year after year. In fact, when comparing the costs of an annuity versus a mutual fund, there can be a big difference, with a mutual fund being less expensive. It pays to know the details about annuities before you invest.

Here’s a rundown of the pros and cons of annuities, compared with other ways to invest for retirement.

Key Takeaways

• Annuities can provide a reliable income stream in retirement, but if you die too soon, you may not get your money’s worth.
• Annuities often have high fees compared to mutual funds and other investments.
• You can customize an annuity to fit your needs, but you might need to pay more or accept a lower monthly income.

How Annuities Work

An annuity is a contract between an individual and an insurance company. The investor contributes a sum of money—either all up-front or in payments over time—and the insurer promises to pay them a regular stream of income in return.

With an immediate annuity, that income begins almost right away. With a deferred annuity, it starts at some point in the future, typically during retirement. The dollar amount of the income payments are determined by such factors as the balance in the account and the age of the investor.

Annuities can be structured to pay income for a set number of years, such as 10 or 20, or for the life of the annuity owner. When the owner dies, any money remaining in the account typically belongs to the insurance company; however, if they live happily to, say, 120 years old, the insurance company still has to keep those regular payments coming.

Annuities can also be fixed or variable. In a fixed annuity, the insurance company pays a specified rate of return on the investor’s money. In a variable annuity, the insurer invests the money in a portfolio of mutual funds, or “subaccounts,” chosen by the investor, and the return will fluctuate based on their performance.

Pros

• Guaranteed income

• Customizable features

• Money-management assistance

Cons

• High commissions

• High fees

• Surrender charges

The Pros of Annuities

Despite the criticisms, annuities do offer some advantages for investors who are looking toward retirement.

Guaranteed Income

The insurance company is responsible for paying the income it has promised, wether for a finite period or the rest of the person’s life, however, that promise is only as good as the insurance company behind it. This is one reason investors should only do business with insurers that receive high ratings for financial strength from the major independent ratings agencies.

Customizable Features

Annuity contracts can often be adapted to match the buyer’s needs. For example, a death benefit provision can ensure that the annuity owner’s heirs will receive at least something when the owner dies.

A guaranteed minimum income benefit rider promises a certain payout regardless of how well the mutual funds in a variable annuity perform. A joint and survivor annuity can provide continued income for a surviving spouse. All of these features come at an additional price, however.

Money-Management Assistance

Variable annuities may offer a number of professional money-management features, such as periodic portfolio rebalancing, for investors who’d rather leave that work to someone else.

The Cons of Annuities

High Commissions

When it comes to the commissions made for selling annuities versus mutual funds, the former is almost always higher than the latter. Say an investor rolls a $500,000 balance in a 401(k) into an individual retirement account (IRA). If the money is invested in mutual funds, the financial advisor might make a commission of about 2%. If it is invested in an annuity that holds the same or similar mutual funds, the advisor could make a commission of 6% to 8% or even higher.

Therefore, a $500,000 rollover into mutual funds would pay the advisor a $10,000 commission at most, while the same rollover into an annuity could easily pay the advisor $25,000 to $35,000 in commission. Not surprisingly, many advisors will direct their clients into the annuity.

High Fees

Most annuities do not assess sales charges upfront. That may make them look like no-load investments, but it doesn’t mean they don’t have plenty of fees and expenses.

Annuity contracts impose annual maintenance and operational charges that often cost considerably more than the expenses associated with comparable mutual funds. This has been changing somewhat in recent years, and some insurers are now offering annuities with comparatively low annual expense ratios. Still, as always, investors should scrutinize the fine print before they sign.

Surrender Charges

If an annuity owner needs to get money out of the annuity before a certain period of time has elapsed (typically six to eight years, but sometimes longer), they may be subject to hefty surrender fees charged by the insurer.

No Added Tax Benefits for IRAs

Annuities are tax-sheltered. The investment earnings grow tax-free until the owner begins to draw income. If the annuity is a qualified annuity, the owner is also eligible for a tax deduction for the money they contribute to it each year.

A traditional IRA or 401(k) has the same tax benefits—and if it’s invested in conventional mutual funds, it’s typically at a much lower cost. Placing an annuity in a 401(k), as investors may be urged to do by some salespeople, is redundant and needlessly expensive.

Important

If you’re planning to buy an annuity, make sure you’re dealing with a financially solid insurance company that’s likely to be around—and able to make good on its promises—when you start drawing income.

A Compromise Solution

One practical option for investors is to stick with mutual funds until retirement and then move some of their money into an annuity, especially one with a downside protection rider. That keeps the fees to a minimum during the investor’s working years but guarantees a steady income in retirement.

Can You Lose Money With Annuities?

You can’t lose money with annuities in the traditional sense that you can with other investments tied to the market. You can, however, lose money on annuities if the insurance company that issued the annuity goes out of business and defaults on its obligation. There is a degree of regulatory protection for investors in case this happens.

Why Are Annuities a Poor Investment Choice?

Annuities are considered poor investments for many reasons. Depending on the annuity, these include a variety of high fees, with little to no interest earned, an inability to keep up with inflation, and limited liquidity.

What Is Better Than an Annuity for Retirement?

There are a variety of options that are better than an annuity for retirement, depending on your financial situation and goals. These include deferred compensation plans, such as a 401(k), IRAs, dividend-paying stocks, variable life insurance, and retirement income funds.

The Bottom Line

Though annuities are one of the most established retirement savings options, they aren’t necessarily for everyone. Annuities work for people who are looking for simple, fixed payments—and who don’t mind the disadvantages, such as high fees.

When considering an annuity, make sure to pay attention to all of the details in the contract. Evaluate all of the pros and the cons.

Reviewed by Robert C. Kelly
Fact checked by Kirsten Rohrs Schmitt

A severance package is compensation a company offers to employees who face layoffs. It can include money and other benefits, such as continuing insurance coverage, job placement assistance, or a performance bonus.

A severance agreement, signed by the employee, outlines the financial terms on which the employee will leave the company.

Key Takeaways

• A severance package can include payment, continuation of insurance coverage, and job placement assistance.
• A severance agreement defines the financial terms for an employee when their employment is terminated.
• Severance packages are not required by law, but employers tend to offer them as gestures of goodwill or to be competitive in their industries.

What’s Included

• Severance Pay: Employers may offer one to weeks of severance pay for every year the employee worked for the company. Middle managers and executives may receive a higher amount. A considerable lump-sum severance payment could push the employee into a higher tax bracket.
• Insurance Coverage: The Consolidated Omnibus Budget Reconciliation Act (COBRA) guarantees temporary group health coverage, typically for 18 months, for employees, former employees, spouses, and dependent children when health coverage is lost due to a layoff. However, most former employees must pay the employer’s portions of the premium with the amount they paid while employed.
• Job Placement or Training: Many employers provide outplacement services, one-on-one counseling, or retraining opportunities.
• Unemployment Insurance: Employees commonly contribute to an unemployment insurance fund through their pay. The Federal-State Unemployment Compensation Program provides temporary financial assistance for unemployed workers. The taxable benefits usually last around 26 weeks, but a state may extend them when unemployment is high.

Important

Federal and state laws in the U.S. do not mandate severance pay. According to the U.S. Department of Labor, “severance pay is a matter of agreement between an employer and an employee.”

Prepare and Negotiate

Employees facing a layoff often have a termination meeting with a manager or company representative to discuss and sign the severance agreement and are allowed time to review the information. They should create a list of benefits they’d like to receive and, if necessary, negotiate. Employees may even research to find out what former colleagues have received. Some negotiation strategies include:

• Hire a Lawyer: Employees may consult an attorney if there is evidence of discrimination, if the language in the package is too complicated or broad, or if the agreement is extensive. The lawyer can validate state laws governing severance agreements and if there are specific stipulations regarding timing and payment amounts.
• Negotiate Payment: Employees may talk to the local placement and recruitment agencies to determine how long it may take them to get a new job at the same level and salary. The right severance package can ease a laid-off worker’s transition to a new job, relieve stress, and provide some financial cushion.
• Negotiate Benefits: Employees can ask if the company can cover life insurance and disability income insurance premiums if they were offered during employment after the layoff. Although employees will have access to COBRA, they can negotiate with the employer for covered health care premiums after the layoff.
• Perks: Employees may be able to keep or buy used company equipment, such as a laptop. Have the employer acknowledge this in writing. Some other perks to consider negotiating include extending an employee’s use of the company car or a company-sponsored health club membership.

Warning

When rumors of layoffs are circulating, employees may be tempted to quit. Quitting prevents employees from claiming unemployment insurance and receiving a severance package.

Retirement Plans After a Layoff

What happens to an employee’s retirement plan or pension plan varies by employer. The outcome of a 401(k) depends on how much money the employee had in the account and if the employee was vested when the layoff occurred. A vested balance is a combination of an employee’s contributions plus the contributions of the employer that cannot be taken back when the employee leaves.

Employees can cash out their balances, leave the money in the account without further contributions, or roll over the money into an Individual Retirement Account (IRA) that the employee controls.

In a defined pension plan scenario, an employer may end the pension agreement and offer the employee an annuity from an insurance company or issue a lump-sum payment for the entire benefit.

What Laws Regulate Severance Packages?

Severance packages are usually calculated based on an employee’s length of service with the company. Employers are not required by law to offer severance packages to laid-off workers.

What Happens When a Lay Off Includes Multiple Workers?

Employees facing a group reduction-in-force may or may not have more opportunities to negotiate the terms within the agreement. A standardized package may be offered in a mass layoff, and an employer is less likely to deviate from this contract. Still, numbers carry weight, and employees can band together to ask for a revision in terms.

Why Should Employees Negotiate a Severance Package?

Employees should attempt to negotiate a severance package. This may help increase the severance pay, alleviate health care costs after the layoff, or extend the employee’s termination date.

The Bottom Line

A severance package offers compensation and other benefits to laid-off employees. Individuals should research company policies to maximize their severance pay and benefits. An employment law attorney may be able to advise employees or help decipher lengthy paperwork.

Reviewed by Anthony Battle

The Thrift Savings Plan (TSP) offered to all U.S. government employees is one of the simplest and most efficient retirement plans in use today. But while thousands of civilian and military employees defer a portion of their earnings into the plan each year, many participants do not understand the actual fund options available or are unsure which funds are appropriate for them.

This article breaks down the five core investment funds available in the TSP along with the Lifecycle funds and their proper use.

Key Takeaways

• Thrift Savings Plans (TSPs) are direct-contribution retirement plans offered to U.S. government employees.
• Similar to the 401(k) plans offered by private-sector employers, TSPs offer five core mutual funds to invest in, four of which are diversified index funds.
• Each index fund specializes in a different asset class or market segment, such as U.S. equities, international equities, and corporate bonds.
• The fifth core fund, the G Fund, invests in very low-risk, low-yield government bonds and guarantees principal protection to investors. The G Fund is intended for very conservative investors.
• A Lifecycle (L) Fund serves as the default fund for new plan participants who don’t specify a contribution allocation when they make their contribution.

Core TSP Funds

The five core funds offered in the Thrift Savings Plan loosely cover the basic range of publicly traded debt and equity securities. All five funds are managed by Blackrock Capital Advisers and State Street Global Advisors and are available only to TSP participants. None of them trade on any public exchange, although Blackrock does offer publicly traded equivalents of some TSP funds through iShares, its subsidiary company, which offers a comprehensive range of ETFs.

Four of the five funds are index funds, which hold securities exactly matching a broad market index. The money participants place in the F and C Funds is invested in separate accounts, while the S and I Fund monies are invested in trust funds commingled with other tax-exempt pension and endowment funds.

All of the funds, except for the G Fund, are 100% invested in their respective indexes, and they do not take into account the current or overall performance of either the specific index or the economy as a whole. Each TSP fund’s share price is calculated daily and reflects investment returns minus administrative and trading costs. The five funds are broken down below.

Government Securities Investment Fund (G Fund)

This is the only core fund that does not invest in an index. The G Fund invests in a special non-marketable treasury security issued specifically for the TSP by the U.S. government. This fund is the only one in the TSP that guarantees the return of the investor’s principal.

This fund thus has the lowest risk of the five funds, and, until Sept. 15, 2015, money contributed into the TSP by new plan participants was placed into this fund by default unless the participant specified otherwise (as of that date, the default investment fund changed to the Lifecycle (L) Fund most appropriate for the participant’s age). It pays an interest rate based on nonmarketable short-term treasury securities with a maturity of 4 years or more.

The G Fund has historically provided the lowest rate of return of any of the core funds.

Fixed-Income Investment Index Fund (F Fund)

This fund represents the next step up the risk/reward ladder in the TSP. This index invests in a wide range of debt instruments, including publicly traded treasury and government agency securities, corporate and non-corporate bonds, and asset-backed securities (ABS).

This fund also pays monthly interest typically exceeding that paid by the G Fund. However, it does not guarantee the return of the investor’s principal. The BlackRock iShares equivalent ETF is the iShares Core U.S. Aggregate Bond Market ETF (AGG).

Common Stock Index Investment Fund (C Fund)

This fund is the most conservative of the three stock funds available in the TSP. The C Fund invests in the 500 large and mid-cap companies that comprise the Standard and Poor’s 500 Index. This fund has experienced greater volatility than either the G or F Funds and has posted commensurately higher returns over time. The BlackRock iShares equivalent ETF is the iShares Core S&P 500 (IVV).

Small-Capitalization Stock Index Fund (S Fund)

The S Fund holds the same securities as the Dow Jones U.S. Completion Total Stock Market Index. This index is composed of almost 4,000 companies and “designed to measure all U.S. equities with readily available prices.”

As the fund name indicates, these companies are smaller and less established than the S&P 500 companies and have greater potential for growth than those in the C Fund. The S Fund is considered one of two funds with the greatest risk in the TSP. It has outperformed the C Fund with proportionately greater volatility over time.

The BlackRock iShares has no exact S Fund equivalents. Those who wish to duplicate this fund outside the TSP could use the following four funds to cover many of the companies in the S Fund (and some that are not):

• iShares Russell Midcap ETF (IWR)
• iShares Russell 2000 Index ETF (small caps only) (IWM)
• iShares Core S&P Total U.S. Stock Market ETF (ITOT)
• iShares Russell 3000 ETF (IWV)

International Stock Index Investment Fund (I Fund)

This fund invests in securities mirroring the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index. This is one of the broader international indexes investing in larger, more established companies located in 21 developed countries around the world. It is regarded as the other high-risk fund in the TSP and has historically posted a higher average annual return than the C Fund.

This fund is the only one in the TSP that invests in companies outside the U.S. The BlackRock iShares equivalent ETF is the iShares MSCI EAFE ETF (EFA).

Important

New plan participants who don’t feel qualified or neglect to designate an asset allocation for their contributions can feel confident that the default Lifecycle (L) Fund that they’re assigned will invest their money in an allocation that’s appropriate for their age and years until retirement.

Lifecycle Funds (L Funds)

The Lifecycle funds are composite funds that invest in a combination of the five core funds and act like target-date funds by nature. They function as “automatic pilot” funds for participants who do not wish to make their own asset allocations. They invest primarily in the stock funds when they are issued and are then slowly reallocated by the fund managers into the two bond funds every 90 days until they mature.

The L Income fund’s asset allocations include 77% invested in the bond funds, and the remaining 23% divided between the three stock funds.

Participants should take care to match the maturity date of the L Fund they choose with the time they actually begin receiving distributions, instead of when they merely separate from government service. Each is designed to provide income for those who will begin taking distributions within five years of the maturity date.

They also offer the best possible mix of growth versus reward during both the growth and income phases of each fund. The L Income Fund can be used by those who have already retired and need a conservative stream of income at the present time.

Role as Default Fund

Since Sept. 15, 2015, an age-appropriate L Fund has been the default fund for new civilian TSP participants as well as the spouse beneficiaries of civilian participants who have passed away. An age-appropriate default L Fund is assigned unless the new participant/beneficiary specifies an allocation when they make their contribution to the plan. The retirement age of 63 is used to determine which L Fund is selected for a participant.

TSP Investment Programs

Although the L Funds provide one avenue of professional portfolio management for TSP participants, some privately managed TSP investment programs may provide additional clout for aggressive investors. Tsptalk.com offers several levels of market-timing strategies, and TSPCenter.com provides additional commentary and ideas. 

Those who seek higher returns and are willing to take on additional risk can search online for other proprietary market-timing strategies that may beat the indexes over time. Of course, many of these programs charge a quarterly or annual fee for their services, and they cannot guarantee their results.

The Bottom Line

The Thrift Savings Plan offers participants the options of growth, income, and capital preservation. The annual investment expenses in this plan are among the lowest in the industry, and all of the funds are fully transparent. There are no hidden fees in this plan, and participants should think carefully before rolling their plan assets elsewhere when they retire.

These are the top AI stocks based on best value, fastest growth, and most momentum.

March saw a slew of major developments in the artificial intelligence (AI) space. OpenAI projected its revenue will reach $12.7 billion in 2025 and exceed $125 billion by 2029. However, the private company cautioned that it does not expect to be cash-flow positive for the next four years. While OpenAI remained bullish on the industry’s prospects, Microsoft (MSFT) took a more cautious stance, canceling two gigawatts of data center projects in the U.S. and Europe due to lower demand projections. The move came just ahead of the initial public offering (IPO) of CoreWeave, a leading high-performance computing and AI infrastructure firm, which cut the size of its IPO by 25%, signaling waning investor enthusiasm.

All data are current as of March 27, 2025.

Best-Value AI Stocks

Value investing is about finding stocks trading below their true worth, with the expectation that the market will eventually correct the mispricing and the stock price will rise. Investors often use price-to-earnings (P/E) ratio to find stocks that are undervalued, as a lower P/E ratio can indicate that a company is valued at less than its fundamental value.

However, it may take multiple quarters or years before a turnaround materializes.  Some stocks may also remain cheap for a reason, falling into a “value trap,” continuing to underperform despite appearing undervalued. Moreover, the P/E ratio should not be viewed in isolation. Investors should ask why a stock is trading at a discount to its peers and whether that gap is likely to close due to a business recovery, or the market recognizing the value opportunity.

Best-Value AI Stocks
	Price ($)	Market Capitalization ($B)	12-Month Trailing P/E Ratio
Yiren Digital Ltd. (YRD)	7.39	0.6	3.0
Hut 8 Corp. (HUT)	12.32	1.3	3.8
Consensus Cloud Solutions, Inc. (CCSI)	23.56	0.5	5.1

• Yiren Digital Ltd: An AI-powered fintech company based in China, Yiren Digital offers payment processing, loan services, insurance, and ecommerce products. On March 27, Yiren announced it had formed a strategic joint venture to deliver AI-powered financial services in Indonesia.
• Hut 8 Corp: Hut 8 is a digital infrastructure company focused on high-performance computing hosting and Bitcoin mining. As of March 6, the company owns over 1 gigawatt of energy infrastructure across Canada and the U.S., with 3 megawatts dedicated to high-performance computing and AI.
• Consensus Cloud Solutions, Inc. Consensus Cloud Solutions provides a secure, cloud-based fax service that helps businesses, especially in health care, exchange and manage documents digitally. Consensus’s Clarity platform can extract critical information from unstructured data using natural language processing (NLP), with use cases in patient record keeping for health care customers.

Fastest-Growing AI Stocks

Growth investors look for companies with increasing revenue and earnings per share (EPS), believing these metrics signal strong business fundamentals and potential for value appreciation. However, relying on just one of these indicators can present an incomplete picture, as factors like tax law changes, mergers, or one-time gains can distort the numbers.

For a more balanced assessment, we screen AI growth stocks by looking at the most recent year-over-year percentage growth for both revenue and EPS, giving each equal weighting. We also excluded companies with growth rates in either category of 1,000% or more on the grounds that these are likely outliers.

Fastest-Growing AI Stocks
	Price ($)	Market Cap ($B)	EPS Growth (%)	Revenue Growth (%)
InterDigital, Inc. (IDCC)	215.79	5.5	189	140
Innodata Inc. (INOD)	40.09	1.3	493	127
SoundHound AI, Inc (SOUN)	8.88	3.5	101	53

• InterDigital, Inc: InterDigital is a research and development company specializing in wireless, video, and AI technologies for smartphones, consumer electronics, vehicles, and cloud services. In early March, the company signed a new multi-year licensing deal with a major Chinese smartphone vendor, increasing its annualized recurring revenue outlook by $40 million.
• Innodata, Inc: Innodata Inc. is a data engineering company specializing in delivering high-quality training data for use in generative AI models. Recently the company reported record Q4 and full-year 2024 results, with Q4 revenue up 127% year-over-year to $59.2 million and full-year revenue nearly doubling to $170.5 million.
• SoundHound AI, Inc: SoundHound’s proprietary technology offers fast, accurate voice recognition across various industries, including automotive, TV, Internet of Things (IoT), and customer service. On Feb. 27, SoundHound announced 2024 revenue of $84.7 million, up 85% year-over-year, as the company expanded across major sectors including automotive, restaurants, health care, and telecom.

AI Stocks With the Most Momentum

Momentum investing is a strategy that seeks to capitalize on existing market trends by investing in stocks that have recently outperformed their peers or the broader market. The core idea is that stocks on an upward trajectory are likely to continue rising as long as the fundamental drivers
behind their growth remain intact.

The momentum strategy has become synonymous with AI, owing to the fast growth of this sector. AI names can generate returns that far outpace established tech names, driven mostly by investor sentiment. While it’s a viable strategy for those with a higher risk tolerance, investors should also focus on the company’s underlying financials to ensure the anticipated growth prospects will materialize.

Here are the AI stocks with the highest total return in the last 12 months.

	Price ($)	Market Cap ($B)	12-Month Trailing Total Return (%)
Quantum Computing, Inc. (QUBT)	7.87	1.1	622
Innodata, Inc. (INOD)	40.09	1.3	562
VNET Group, Inc. (VNET)	9.01	2.4	453

• Quantum Computing, Inc: Quantum Computing is an integrated photonics and quantum technology company focused on developing accessible and affordable quantum computing solutions. Despite skepticism surrounding the near-term viability of quantum computing, the company has partnered with agencies such as NASA.
• Innodata, Inc: Innodata is a data engineering company specializing in delivering high-quality training data for use in generative AI models. Recently the company reported record fourth-quarter and full-year 2024 results, with fourth-quarter revenue up 127% year-over-year to $59.2 million and full-year revenue nearly doubling to $170.5 million.
• VNET Group, Inc: VNET operates high-performance internet data centers across China, providing server hosting, cloud computing, and secure virtual private network (VPN) services. The company wrapped up a successful 2024 with revenues increasing 11% year-over-year to $1.13 billion with 468 megawatts of total data center capacity.

Advantages of AI Stocks

Mass Disruption

AI is a rapidly evolving sector with applications across nearly every industry, from health care to finance and cybersecurity. As adoption accelerates, AI companies have significant room for revenue expansion and market dominance. Furthermore, ongoing advancements in research and development are enhancing AI models’ reasoning and adaptability, unlocking even greater disruptive potential.

Innovation

AI-driven automation enhances efficiency, leading to reduced costs for businesses. Companies leading in AI development can secure long-term competitive advantages, making them attractive investments in both the short and long term.

Investor Enthusiasm

AI stocks often experience strong investor enthusiasm, driving rapid price appreciation. With ongoing advancements in machine learning, automation, and generative AI, market sentiment remains highly bullish, fueling momentum-driven gains.

Disadvantages of AI Stocks

High Valuations and Market Speculation

Many AI stocks trade at high valuations due to investor enthusiasm and growth expectations. While the AI sector has strong long-term potential, some companies may be overvalued, leading to the risk of significant price corrections. Speculative investments, particularly in early-stage AI companies, can result in inflated valuations that may not be supported by actual revenue or profitability.

Regulatory Risks

AI technology is increasingly facing scrutiny from governments and regulatory bodies worldwide. Concerns over data privacy, algorithmic bias, job displacement, and national security risks could lead to stricter regulations that impact operations and growth prospects. The legal landscape around AI is still in its early stages, and new laws around transparency, intellectual property rights, and ethical AI development are being fleshed out.

Stiff Competition

The AI industry is highly competitive, with major players such as Alphabet (GOOGL), Microsoft (MSFT), Nvidia (NVDA), and OpenAI continuously advancing their technologies. This rapid pace of innovation means that companies that fail to stay ahead may become obsolete. Additionally, emerging AI startups such as DeepSeek can disrupt established players seemingly overnight, making it difficult for investors to predict long-term trends.

The Bottom Line

AI stocks offer significant growth potential, fueled by rapid technological advancements and strong investor enthusiasm. However, high valuations, regulatory uncertainties, and intense competition pose risks that investors must carefully navigate. While AI remains a compelling long-term investment, careful scrutiny of a company’s financials and thorough risk management are essential to avoid speculative bubbles and hype.

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As of the date this article was written, the author does not own any of the above securities.