Investopedia

ETFs are a type of investment fund, while robo-advisors are a type of digital financial advisor

Fact checked by Suzanne Kvilhaug
Reviewed by Katie Miller

ETFs vs. Robo-Advisors: An Overview

Robo-advisors provide automated, algorithm-driven financial planning and investment services without human supervision and help investors optimize their portfolios.

Exchange-traded funds (ETFs) are similar to mutual and index funds in that they hold shares of companies that meet a strategy or follow an index, and investors can purchase shares of the fund during market hours at real-time prices.

Key Takeaways

• Exchange-traded funds (ETFs) give investors flexibility and control to target specific sectors.
• Robo-advisors help automate decision-making and recommend investments that align with your goals and preferences.
• Robo-advisors might have higher fees than ETFs, but they usually remain lower than a human advisor’s.

ETF

Like mutual funds, exchange-traded funds (ETFs) are pooled investments of a basket of financial instruments. However, unlike mutual funds, ETFs trade on exchanges like individual stocks, fluctuating in value throughout the trading day. ETFs provide a cost-effective and liquid vehicle for investing in multiple underlying assets to target a specific sector or sectors.

When ETFs were introduced in the 1990s, they provided a low-cost, easy way to invest in a group of securities or a market index. ETFs have remained popular, with growth expected to double through 2027.

Investors can find ETFs focusing on stocks, commodities, and bonds, or choose a fund that tracks a broad market index like the iShares Russell 3000 Fund (IWV), which tracks the Russell 3000. Investors can choose a specific sector like energy and invest through an ETF like the Energy Select Sector SPDR Fund (XLE).

Note

In January 2024, the Securities and Exchange Commission (SEC) approved eleven spot bitcoin ETFs listed on the NYSE Arca, Cboe BZX, and Nasdaq exchanges. In May 2024, it effectively approved ether spot ETFs to trade on the same exchanges.

 

Advantages and Disadvantages

Pros

• Easy to trade

• Very flexible

• Low fees

• Huge array of ETFs available

Cons

• Can require a lot of legwork

• Need to monitor portfolio

• Expenses and transaction costs may eat into profits

ETFs provide an easy-to-trade and low-fee vehicle for investing in a basket of securities. The vast array of ETFs available—tracking everything from broad swaths of the market to specific industries and investment themes—opens the door to a seemingly infinite realm of possibilities.

However, investing in ETFs can require a lot of legwork and research. While ETF fees tend to be reasonable, paying for a fund’s administrative and operating expenses can eat into profits. To counter this and attract interest, many brokerage platforms offer commission-free ETF trading.

Robo-Advisor

As its name implies, a robo-advisor is an automated alternative to traditional financial advice. First launched in 2008, the digital platforms are designed to help investors build customized portfolios based on their financial goals.

A robo-advisor uses algorithms to deliver personalized investment planning services. Investors typically complete an online survey that assesses financial goals, time horizons, and risk tolerance. Then, the robo-advisor uses proprietary data to construct a portfolio to meet that investor’s needs.

Working with a robo-advisor allows investors to access professional investment management services at a lower price than a human advisor. Some robo-advisors can even automate other aspects of an individual’s strategy like tax-loss harvesting, or strategically selling assets at a loss to offset taxable gains on other investments.

Advantages and Disadvantages

Pros

• Low-cost alternative to human financial advisors

• Personalized portfolios

• Offer strategies like tax-loss harvesting and rebalancing

Cons

• Lack human touch

• Limited set of investments and strategies available

• May not be able to see the whole picture

Robo-advisors offer a significant cost advantage compared with traditional, human financial advisors. Most robo-advisors adopt Modern Portfolio Theory (MPT), aiming to maximize returns while sticking within the investor’s threshold for risk, and algorithmically developing a strategy tailored to an individual’s needs.

Some robo-advisors can help investors adjust their portfolios via rebalancing and tax-loss harvesting. However, they lack the human touch and cannot see the full picture when analyzing an individual’s financial situation.

Key Differences

The main distinction between an ETF and a robo-advisor revolves around the level of guidance it provides. ETFs allow you to focus your portfolio on certain sectors, but you must decide which funds to buy. A robo-advisor allows you to automate investment decisions by recommending a portfolio customized to help meet your investment goals.

Most ETFs are passively managed, designed to replicate the performance of an underlying index. The ETFs that operate with active management strategies typically have a higher expense ratio—the percentage that you pay in administrative and operating expenses and fees.

Robo-advisors typically use ETFs to construct a portfolio that aligns with their client’s goals and preferences. In other words, if you choose a robo-advisory service, you’ll likely be purchasing shares of ETFs, so choosing a robo-advisor doesn’t necessarily keep you out of ETFs.

Are Robo-Advisors Better than Trading?

Robo-advisors give guidance on investing and can automatically maintain a portfolio over time. Algorithmic trading is designed to conduct many trades when certain criteria are met or to take advantage of incremental price changes throughout a trading day using multiple trades.

Do Robo-Advisors Outperform the S&P 500?

Robo-advisors sometimes do and sometimes don’t outperform the S&P 500. It depends on the investing guidance they are given and market conditions, among many other factors.

What Is One of the Biggest Downfalls of Robo-Advisors?

Robo-advisors are programmed a certain way and take your input when choosing your investments. They may not be “aware” of conditions that affect the markets, where a human advisor would be aware of them.

The Bottom Line

ETFs and robo-advisors are tools for investing. ETFs provide low-cost, diversified exposure to a collection of assets, typically designed to replicate the performance of an underlying market index. Robo-advisors are digital platforms that can help investors tailor a portfolio that aligns with their goals and at a lower cost than working with a human advisor.

Bookkeeping can be daunting. There are various tasks to juggle, and getting it wrong could have serious implications.

Fortunately, established processes exist to help businesses and entrepreneurs accurately record and report financial activities. One of them is the accounting cycle. This eight-step repeatable guide is a basic checklist of what to do during each accounting period. All phases are covered, from identifying and recording transactions to checking for discrepancies, making adjustments, and creating financial statements. We take you through these important steps below.

Key Takeaways

• The accounting cycle is an eight-step repeatable process essential for accurate financial reporting.
• It starts with identifying transactions, creating a record, and then allocating each transaction to an account in the general ledger.
• At the end of the accounting period, any discrepancies need to be determined, including total debits not equaling total credits.
• Next, adjustment entries are made to correct any errors and account for accruals, deferrals, and estimates.
• Finally, the financial statements are generated and published, the books are closed, and the process starts again.

What Is the Accounting Cycle?

The accounting cycle is an eight-step guide to ensure the accuracy and conformity of financial statements. It walks companies and their accountants through each of the bookkeeping tasks that must be completed every accounting period to track transactions, starting with their identification and ending with creating financial statements and closing the books.

This guide breaks down the accounting process into easy-to-follow steps that are repeatable every time a new accounting period begins. They are standardized for use across all types of business. The accounting cycle is compatible with technology and can be implemented by companies using accrual or cash accounting and double or single-entry accounting. In the case of the latter, some steps can be ignored.

The length of each cycle depends on how often a company chooses to analyze its performance or is required to lay out its accounts. Some companies have monthly internal accounting periods. Others report quarterly or annually.

Once an accounting period ends, a new one begins, and the process starts over again.

Step 1: Identifying Transactions

The accounting cycle begins by identifying transactions. All transactions must be accounted for, whether they involve a sale, refund, inventory order, debt payoff, asset purchase, or other activity.

The necessary information includes transaction dates and monetary figures paid or received. Sales data is logged automatically for companies using point of sale (POS) technology.

Important

Automated software can streamline the accounting cycle.

Step 2: Recording Journal Entries

After a transaction is identified, a record of it needs to be created. This is done through a journal entry. The journal functions as a running record of a business’s financial transactions. It states the date of each transaction, how much money was involved, and the accounts affected.

The timing for recording transactions depends on whether the company uses accrual or cash accounting. With cash accounting, transactions are recorded when cash changes hands. With accrual accounting, journal entries are made when a good or service is provided rather than when it is paid for.

When recording transactions, remember to keep them in chronological order and, if using double-entry accounting, which most businesses do, make two entries each time. For every transaction, there must be a credit and a debit. A credit in one account offsets a debit in another, so all credits must equal the sum of all debits.

Step 3: Posting to the General Ledger

Once a transaction is recorded as a journal entry, it should be posted to an account in the general ledger, which is an old-fashioned term for a record-keeping system for a company’s financial data.

In the general ledger, all accounting activities are summarized and sorted into one of the following subcategories: assets, liabilities, owners’ equity, revenues, and expenses. This makes it easier to track finances and identify, for example, how much cash a company has or how much it’s spending or owes.

Step 4: Preparing a Trial Balance

After all transactions are logged in the general ledger, the next step is to make sure the entries balance out, meaning total debits equal total credits. This is done by building a trial balance.

A trial balance is a bookkeeping worksheet that compiles the balances of ledgers into debit and credit account columns. With the data laid out this way, it’s easy to see if the numbers match up. If they don’t and there are more debits than credits or vice versa, there’s an error.

The trial balance is usually created at the end of the accounting period, whether monthly, quarterly, or annually.

Step 5: Analyzing the Worksheet

In this phase, worksheets are investigated for any discrepancies.

If the debts and credits on the trial balance don’t match, the person keeping the books must get to the bottom of the error and adjust accordingly. That’s not the only analysis required. Even if the trial balance is balanced, there still may be errors, such as missing transactions or those classified incorrectly.

Step 6: Making Adjustments

If any discrepancies are spotted, adjustment entries must be made to remedy them. Companies using accrual accounting need to account for accruals, deferrals, and estimates, such as an allowance for doubtful accounts.

Accruals occur when payment is made after a good or service is delivered, while deferrals occur when the payment is executed before the good or service is delivered.

With cash accounting, the transaction is recorded when the payment is made. With accrual accounting, the log date is the date the service is provided, received, or earned.

Of course, not all goods or services are provided in a day. Often, an assignment or service can stretch over weeks or months. When a transaction starts in one accounting period and ends in another, an adjusting journal entry is required to ensure it is accounted for correctly.

Step 7: Generating Financial Statements

Once all the necessary entries and adjustments for the accounting period have been made, it’s time to generate financial statements. These formal records of a company’s financial activities must follow a specific template. In most cases, a company’s financials are communicated in the following three statements:

•  Balance sheet: This is where a company’s assets, liabilities, and shareholder equity are reported. The balance sheet says what a company owns and owes, as well as the amount invested by shareholders at a specific time.
• Income statement: This is where a company reports its revenue, income, and expenses over a set period. From this, it’s possible to determine whether it made a profit or a loss.
• Cash flow statement: This details how cash entered and left the business during the reporting period.

Step 8: Closing the Books

After the financial statements are completed, it’s time to close the books. This can be a good time to reflect and compare the firm’s performance with other periods and peers. Further analysis could reveal areas for improvement and highlight where the company has done well.

The closing of the books also marks the start of the next accounting period. The cycle is complete, and it’s time to begin the process again, starting with step one.

The Bottom Line

A business’s financial activities need to be accurately recorded and reported not only for internal use but also to meet legal and regulatory requirements. The accounting cycle, an eight-step guide on the various bookkeeping phases, helps make that daunting task more manageable.

The accounting cycle is adaptable to different accounting methods, such as accrual or cash accounting, and can be partially automated through software. It starts by identifying transactions and creating a proper record of them in the ledger, then shifts to checking for errors and making necessary adjustments before generating financial statements and closing the books.

How to secure business financing

Fact checked by Suzanne Kvilhaug
Reviewed by Andrew Schmidt

A business plan is a strategic document that outlines a company’s goals and details the strategies it will use to achieve them. It serves as a blueprint for the company, guiding a business through its marketing, financial, and operational decisions. Some business plans are more detailed than others, but they’re used by all types of businesses, from large, established companies to small startups.

You might consider using a traditional business plan format if you’re detail-oriented, require a comprehensive plan, or are seeking financing from conventional sources such as banks.

Your business plan can demonstrate your comprehensive understanding of your market and business model, and your realistic approach to achieving your goals. Although a business plan might not be mandatory for securing all types of loans, crafting one can significantly improve your chances of obtaining financing.

Key Takeaways

• Many lenders will require you to write a business plan to support your loan application.
• Though every business plan is different, there are a number of sections that appear in every business plan.
• A good business plan will define your company’s strategic priorities for the coming years and explain how you’ll try to achieve growth.
• Lenders will assess your plan against the “five Cs” of small business credit: character, capacity, capital, conditions, and collateral.

Why Do I Need a Business Plan?

There are many reasons why all businesses should have a business plan. It can improve the way that your company operates, but a well-written plan is also invaluable for attracting investment.

On an operational level, a well-written business plan has several advantages. A good plan will explain how a company is going to develop over time and will lay out the risks and contingencies that it may encounter along the way. It empowers you to tackle challenges and make crucial business decisions, including marketing and competitive analysis, customer and market evaluation, and logistics and operations plans.

A business plan serves as a crucial strategic guide, helping executives stay focused on their long-term goals despite daily operational challenges. It also provides a benchmark for measuring success, offering a clear direction for business progress.

Furthermore, business plans are valuable when it comes to dealing with external organizations. For example, banks and venture capital firms often require a viable business plan before considering whether they’ll provide capital to new businesses.

Important

Even with a proven track record and collateral, lenders often require a comprehensive business plan before offering financing. They aim to minimize their risk by ensuring that a business has a serious and viable plan to generate revenue and repay the loan, so supplement your business plan with profit and loss statements, cash flow budgets, and net worth statements to strengthen the case for financing.

Sections of a Business Plan

Every business is unique, and each business plan reflects that diversity. However, most business plans include several standard sections. Common sections include an executive summary, a company overview or description, products and services, market analysis, a marketing and sales plan, an operational plan, and details about the management team. When applying for a loan, it’s also crucial to include a section for funding requests along with financial statements.

Let’s look at each section in more detail.

Executive Summary

The executive summary is a summary of the information in the rest of your business plan, but it’s also where you can create interest in your business.

Provide a concise, detailed overview of your company, explaining the type of business and the reasons for its likely success. Include your mission statement, a description of your products or services, and key information about your leadership team, workforce, and location.

It’s also important to present essential financial data and outline your strategic plans for growth, especially if you’re seeking financing. This section should capture the essence of your business and its strategic direction to engage and inform potential investors or lenders.

Company Overview

Use this section to offer a comprehensive overview of your company. Delve into the specific problems your business addresses and outline the particular consumers, organizations, or businesses you aim to serve.

You can also highlight the competitive advantages that position your business for success. Mention any experts or key employees on your team, the strategic location of your operations, or any other strengths that may give your company an edge. This part of the business plan is your opportunity to showcase your company’s unique attributes and strengths.

Products and Services

In this section, describe the products or services your company provides. It’s not necessary to delve into technical details, but it’s important to highlight the appeal and value of your offerings. Explain how they benefit customers and outline their life cycle to illustrate their long-term viability and sustainability.

Also, you can discuss any measures to protect your intellectual property, such as copyrights or patents. This demonstrates the uniqueness and security of your products or services. If your company is involved in research and development, describe these efforts in detail to show your dedication to innovation and growth—key elements in attracting financial support.

Include details about how your products are made or how your services are provided—information that is valuable to lenders, especially if you’re seeking financing to expand your business. Understanding your production processes or service delivery methods helps lenders assess the efficiency and scalability of your operations.

Market Analysis

A market analysis is a core section of your business plan. Here, you need to demonstrate that you understand the market you’re operating in, and how you’re different from your competitors. If you can find statistics on your market, particularly on how it’s projected to grow over the next few years, include them in this section.

Marketing and Sales Plan

This section should detail your plans for attracting new customers and how you intend to engage with them. Outline your sales objectives and describe how they align with your planned marketing and advertising efforts.

If you aim to expand into new markets or target customers you haven’t reached previously, you should discuss both the risks and opportunities associated with these ventures. This analysis shows a comprehensive understanding of your market expansion strategy, which is crucial for lenders to evaluate your potential for business growth.

Operational Plan

This section explains the basic requirements of running your business on a day-to-day basis. Your exact requirements will vary depending on the type of business you run, but be as specific as possible.

If you need to rent office space, for example, you should include the cost in your operational plan. You should also include the cost of staff, equipment, and any raw materials required to run your business.

Management Team

The management team section is one of the most important sections in your business plan if you are applying for a loan. Your lender will want reassurance that you have a skilled, experienced, competent, and reliable senior management team in place.

Note

Even if you have a small team, you should explain what makes each person qualified for their position. If you have a large team, you should include an organizational chart to explain how your team is structured.

Funding Request

When applying for a loan, it’s crucial to include a detailed funding request. Specify how much money you need, whether you’re seeking debt or equity, the terms you desire, and the duration of the funding.

The most important part of the funding request section is to clearly outline how you’ll use the funds, whether to purchase equipment or materials, cover payroll, or manage specific bills until revenue improves, and therefore allow you to repay your loan.

Financial Statements

You can support your funding request with robust financial projections to demonstrate your business’s stability and potential for financial success. It’s best to include income statements, balance sheets, and cash flow statements for the past three to five years. Graphs and charts are often a useful addition to this section, because they allow your lender to understand your finances at a glance.

The overall goal of providing financial statements is to show that your business is profitable and stable. Include three to five years of income statements, cash flow statements, and balance sheets. It can also be useful to provide further analysis, as well as projections of how your business will grow in the coming years.

What Do Lenders Look for in a Business Plan?

Lenders want to see that your business is stable, that you understand the market you are operating in, and that you have realistic plans for growth.

Your lender will base their decision on what are known as the “five Cs.” These are:

• Character: You can stress your good character in your executive summary, company overview, and management team section.
• Capacity: This is, essentially, your ability to repay the loan. To assess this, your lender will look at your growth plans, funding request, and financial statements.
• Capital: This is the amount of money you already have in your business. The larger and more established your business is, the more likely you are to be approved for finance, so highlight your capital throughout your business plan.
• Conditions: Conditions refer to market conditions. In your market analysis, you should be able to prove that your business is well-positioned in relation to your target market and competitors.
• Collateral: Depending on your loan, you may be asked to provide collateral, so you should provide information on the assets you own in your operational plan.

How Long Does It Take to Write a Business Plan?

Writing a business plan can vary in duration depending on your specific business needs, but it’s crucial to dedicate enough time to ensure its accuracy and comprehensiveness. A business plan offers benefits beyond securing a loan; it serves as a strategic blueprint for guiding your business’s direction. According to a Harvard study, the optimal period for developing a business plan is about three months.

What Should You Avoid When Writing a Business Plan?

One common mistake business owners make when drafting a business plan is overestimating their growth potential. Lenders often recognize and are wary of overly optimistic projections. It’s crucial to provide honest financial forecasts, thorough market research, and realistic customer evaluations. These elements should reflect genuine market demand and competition, avoiding reliance on overly optimistic predictions.

Should I Hire Someone to Write a Business Plan for My Business?

While you can hire someone to write a business plan for your business, writing it yourself is often more advantageous. You likely have a deeper understanding of your business than an external consultant would. The U.S. Small Business Administration (SBA) provides a sample business plan template you can use for ideas on how to create a traditional business plan.

What’s New About Writing Business Plans in 2025?

Platforms and tools that use artificial intelligence (AI) are increasing in popularity to help write business plans. They can conduct market research, generate sales forecasts with greater accuracy, and streamline repetitive tasks (e.g., automating performance reports). However, although AI tools can improve efficiency, whatever they generate should still get a human review.

The Bottom Line

Writing a business plan can benefit your business, whether you are applying for a loan or not. A good business plan can help you develop strategic priorities and stick to them. It describes how you are going to grow your business, which can be valuable to lenders, who will want to see that you are able to repay a loan that you are applying for.

Fact checked by Vikki Velasquez
Reviewed by Samantha Silberstein

Search engine optimization (SEO) is the process of improving visibility on a search engine such as Google, Yahoo!, or Bing. SEO is an important aspect of any digital marketing strategy and online presence.

For small businesses, improving SEO is a relatively inexpensive and accessible tactic to make information about the business and its offerings easier to find online. This, in turn, can help improve its web traffic and drive more customers to the business.

In particular, optimizing for local SEO can be a powerful way to ensure a business reaches customers in the area, particularly for businesses with brick-and-mortar locations.

Key Takeaways

• SEO is a key part of improving a business’s online visibility and attracting organic web traffic to drive more visitors and potential customers.
• Google Analytics, Google Search Console, Google Keyword Planner, and Google Business Profile are all tools that can help optimize a small business’s SEO.
• Keyword research can help small business owners identify the most relevant search terms for their business and improve the SEO ranking of their online content.
• SEO tactics include optimizing on-page content such as page URLs, title and body tags, alt text, meta descriptions, and keywords.
• Local SEO strategies and link building can further improve a small business’s online presence.

SEO vs. Local SEO

SEO describes the general process of improving online searchability, while local SEO is focused on making search ranking improvements in a local geographical area.

Benefits of SEO for Small Businesses

For small businesses, optimizing SEO can have many positive impacts, including:

• Increased web traffic: This is especially important for ecommerce businesses, but it can also indirectly lead to increased foot traffic to brick-and-mortar locations.
• Better online visibility: A higher SEO ranking can improve the position in which a business’s website is listed on a search engine. Listings that appear closer to the top and on the first page of search engine results are more likely to be visited by users. Only 0.63% of Google Search users clicked on results from the second page of Google, according to a 2025 Backlinko report.
• Improved user experience: SEO rankings are based on how useful the algorithm deems a result to be, so many of the best practices associated with SEO are also good for organizing and describing information on the web more generally.

How to Improve SEO as a Small Business

Although taking advantage of SEO best practices is a multistage and long-term process, here are some steps that any small business can take to improve its SEO ranking fairly quickly.

1. Make a Quality Website

A website’s quality can be evaluated across different criteria, which will vary depending on the industry and nature of the business. However, most good websites will be clear, functional, and easy to use, and offer a true representation of the business’s brand. From an SEO perspective, a good website contains the information or solution that potential customers are looking for.

2. Set Up Google Analytics and Google Search Console

Once you have a website, follow these steps to set up a free Google Analytics account.

1. Create a Google Analytics account: This will include adjusting the settings for which data you decide to share with Google.
2. Add a property to the account: This is essentially a category for the business in question. At this stage, you’ll add your reporting time zone, currency, industry category, and business size, and select how you intend to use Google Analytics.
3. Add a data stream: This is your business’s website URL. Here, you can also enable or disable further data collection, referred to as “enhanced measurement.”
4. Add tags to set up data collection: There are direct and indirect ways to do this, depending on how your website is built or hosted.
5. Configure additional settings: Completing this extra step can help ensure that you collect the data you need to measure the results you seek. Google has a checklist of common configurations and their outcomes.

After setting up a Google Analytics account, signing up for Google Search Console can help you measure search traffic for your website, determine and fix issues, and improve your performance in Google Search results, free of charge.

Here’s how to do it.

1. Make a Google account.
2. Add your website to Search Console: You’ll also need to verify that you are the site’s owner, as it will display confidential information and allow you to make changes that impact how your site is displayed on Google.
3. Get familiar with Search Console and Google Search: Google offers a basic guide to Search Console usage and Google Search, both of which it recommends getting acquainted with to understand the reports and data that Search Console generates.
4. Check Search Console monthly and whenever your site content changes: Users will receive email alerts informing them of any unusual events occurring with their website (which may indicate hacking or other problems), so there’s no need to review data daily. However, Google recommends logging in to look at the Search Console dashboard every month as a health check of your website, as well as whenever new content is added to your site.

3. Set Up a Google Business Profile

A Google Business Profile is another free tool that business owners can use to help people find their business on Google Search and Google Maps.

Setting up a Google Business Profile is relatively easy and offers many useful pieces of information to potential customers. Here’s how to set one up.

1. Sign up for a Google Business Profile.
2. Verify your business on Google: Once you sign up, Google will ask you to verify your business through phone, text, email, and/or video. Often, it will also review verifications and will send a notification once the review is complete.
3. Ensure your information is complete and up to date. Providing correct and comprehensive information about your business helps customers find and understand your business.

4. Do Basic Keyword Research

Keyword research is the process of identifying keywords and phrases that are relevant to your business. These include words that people may use when searching for information about a business and its offerings online. Much of SEO is about optimizing for keywords, so ensuring that your website contains them will contribute to a more prominent online presence for your business.

Many tools are available that assist with keyword analysis and research, both free and paid. Google Keyword Planner is one free tool that is useful for researching, identifying, and targeting keywords that are relevant to your business. Whichever tool you use, a keyword-targeting strategy should balance the competitiveness of ranking for a certain keyword or phrase with the number of monthly searches it gets.

For example, certain keywords that are relevant to your business might have little competition associated with them, but a relatively good monthly search volume. These would be good candidates to include in your keyword strategy.

5. Optimize On-Page Elements

On-page elements are different components of your website, including content, site architecture elements, and HTML elements.

Here are some key on-page elements that every small business should strive to optimize for SEO.

• Page URLs: These should be simple and short, and contain relevant keywords.
• Page titles: Also referred to as title tags, these indicate to visitors and search engines what the page is about. The main keyword for each page should be included in the page title.
• Headers: Also called body tags, these help organize and structure a page’s content for readers and search engines. Headers should be relevant to the content and include keywords when possible.
• Alt text: Adding alt text to images helps search engines and those using screen reader software understand what your images are about.
• Meta descriptions: These appear underneath a title in search engine results. Meta descriptions should both accurately describe the page and entice users to click on it, and they are a good place to include relevant keywords.
• Content: SEO-optimized content includes keywords that are relevant to the business throughout text and alt text. Images, videos, and other visual content also contribute to SEO ranking, as they make the content more scannable and enhance the website’s visual appeal.

6. Create Relevant, High-Quality Content

Search engines use several other criteria to assess and rank websites: expertise, experience, authoritativeness, and trustworthiness (EEAT).

Examples of how high-quality, relevant content might incorporate and demonstrate these criteria include:

• Expertise: bios; credentials
• Experience: photos; real-life examples
• Authoritativeness: good-quality backlinks; regular posting of new information on a subject; bios; credentials
• Trustworthiness: transparent crediting and citing; accurate information; user reviews or testimonials on third-party sites; good site security

SEO-optimized content will also include relevant keywords in page URLs, page titles, headers, alt text, meta descriptions, and body paragraphs. It’s recommended to break up long sections of text with relevant headers as well as into sections and lists to make content easy to read, understand, and scan. It’s also good practice to avoid publishing duplicate content across different pages.

7. Incorporate a Link-Building Strategy

Link building is another tactic that can improve a small business’s search engine ranking. There are two types of link building:

• Internal link building means including links to pages within your own website. It offers a good experience to users and demonstrates to search engines that your website has hierarchy and structure.
• External link building is the practice of getting other websites to link to your website. Search engines evaluate backlinks as an indicator of credibility and authority, so it’s important to choose high-quality, trusted websites and avoid purchasing links, as using low-quality backlinks can negatively affect your SEO score.

There are many strategies for acquiring good-quality backlinks, some of which could be considered part of a wider digital public relations strategy. Some relatively easy ones include:

• Applying or asking for your website to be listed on a resources, directory, or business association members page
• Creating high-quality content, sharing it with people who might be interested in it, and asking for them to link to it
• Providing testimonials to other businesses and letting them know so they can link to your content
• Reaching out to suppliers that have a “retailers” or “dealers” page and asking for your business’s website to be listed there

8. Take Advantage of Local SEO

Local SEO is an important tool for any small business that wants to attract local customers. Google reports that 76% of those who searched on their smartphones for something nearby visited a business within a day, and 28% of searches for something nearby resulted in a purchase.

The most important techniques and tools when optimizing for local search include:

• A Google My Business profile
• Online reviews
• Comprehensive, consistent, and up-to-date business information in online directories
• Location pages on your website (for brick-and-mortar locations)
• Locally focused content
• A mobile-friendly website and content. Many people use their phones to look up business information such as reviews, location, and contact details.

9. Measure and Track SEO Performance

Although many SEO changes can be implemented quite quickly, it can take a while for these changes to pay off. Also, SEO rankings are not static, as new content is constantly being published online. As such, it’s important to monitor, measure, and track SEO performance and adjust your strategy and content accordingly; this ensures that your website is performing well, especially relative to those of your competitors.

Google Analytics and Google Search Console are two free tools that can generate reports and offer data on SEO performance. There are many other paid tools and agencies that specialize in SEO performance as well.

What Does SEO Stand for?

SEO stands for search engine optimization, and it refers to the strategies and tactics associated with helping your website and online content stand out and rank highly in search engine results.

Why Is Local SEO Important for Small Businesses?

Local SEO should be a major focus for small businesses, especially those that have a brick-and-mortar location, as it helps make businesses easy to find. Google reports that 28% of those who searched for something nearby ended up making a purchase, and 76% of those who used their smartphone to search for something nearby visited a business within a day.

Is SEO Worth It for a Small Business?

SEO is a valuable tool in any small business’s digital marketing tool kit. It’s a relatively inexpensive and accessible way to make your business easy to find online and your website easy to use.

What Tools Can Small Businesses Use to Measure and Track Their SEO Performance?

There are many free and paid tools available for tracking and measuring SEO performance. Google offers several useful free tools, including Google Analytics, Google Search Console, and Google My Business.

What Are the Key On-Page Elements to Optimize for SEO?

On-page elements that should be optimized include page URLs, page titles (also known as title tags), headers (also known as body tags), alt text, meta descriptions, and page content.

The Bottom Line

Small businesses that implement and dedicate time to an SEO strategy can see many benefits. The most recent reports available state that 53.3% of all website traffic came from organic searches, and that 90.55% of global traffic came from Google Search, Google Images, and Google Maps.

Taking advantage of SEO best practices involves a few steps, including setting up and optimizing a website, signing up for free tools to monitor and track performance, setting up free online business profiles, conducting keyword research, creating quality content, and creating a link-building strategy. However, these small investments can have a huge payoff for a small business through increased visibility and traffic, better online experience, new customers, and increased sales.

Retirement communities are increasingly popular among older adults seeking a comfortable, supportive lifestyle during their later years. They cater to individuals at different stages of aging by offering a range of living options and care, from independent living for those who are self-sufficient to assisted living and nursing homes for those requiring daily assistance with medical and personal needs.

However, deciding whether to move into a retirement community can come with significant costs, leaving many questioning whether these communities are worth the investment.

Key Takeaways

• Retirement communities offer various living options, each catering to different levels of care and lifestyle preferences.
• Consider the type of community, cost, location, amenities/services, and reputation when deciding if a retirement community is worth the investment.
• Costs associated with retirement communities may include entrance and monthly fees.

What to Consider When Moving Into a Retirement Community

Moving into a retirement community is a big decision that requires careful consideration of several factors, including the type of community you want, its cost, its location, and its amenities.

Start by researching your retirement community options, as each type of community varies in cost, amenities, activities, care options, and more.

• Active adult communities: Best for seniors 55 and up who want to maintain an independent and active lifestyle
• Independent living communities: Designed for seniors who do not require medical care or daily assistance
• Assisted living communities: Ideal for seniors who do not require full-time medical care but still need assistance with daily activities such as bathing and dressing
• Nursing homes: These provide 24/7 care for individuals who require medical attention and assistance with daily living activities.
• Continuing care retirement communities (CCRCs): These offer individuals a place to age in one location while transitioning to assisted living or nursing home options based on their medical needs.

Cost of a Community

The cost of living in a retirement community varies based on several factors, including:

Entrance Fees and Deposits

Entrance fees are one-time fees paid upon move-in and can vary depending on the community. For example, at a CCRC, entrance fees typically range from $9,000 (for the memory care segment) to more than $2 million (for a high-end CCRC), with an average initial payment of around $402,000.

Should the resident move out or pass away, a partial refund of the entrance fees may be granted to the individual or their estate. Carefully review your contract, refund policy, and conditions before moving in.

Monthly Fees

Monthly fees cover the cost of housekeeping, transportation, and other services and amenities. At CCRCs, monthly fees range from $2,500 to $6,000, but they can go up depending on the level of care needed.

Insurance can cover certain costs associated with living in retirement communities. Medicare, for example, can cover the cost of skilled nursing care, but it doesn’t cover custodial care or assistance with daily activities like dressing and bathing.

Medicaid and private long-term care insurance can provide additional coverage, depending on the individual’s circumstances and the insurance. Additionally, there’s potential to earn some savings during tax season, especially if medical expenses are paid out of pocket.

“Retirees should definitely consider the tax advantages of moving into a retirement community,” said Remy Dou, CFP and co-founder of Retirement Planning Center Advisory Group.

“For one, some of the costs related to living in the community, especially medical and long-term care expenses, might be deductible as medical expenses. On top of that, certain states offer property tax exemptions or reductions for seniors, which can ease the financial burden. It’s important to check out local tax breaks and see how they might apply to your situation to maximize savings.”

Own vs. Rent Your Housing

The cost can be influenced by whether you plan to rent or buy, as well as the floor plan and the size of the unit. So carefully weigh your needs vs. your options.

Type of Community

Consider how prices can vary based on the type of community. Independent living is typically more affordable than assisted living or nursing homes, which can cost from $64,000 to $117,000 annually.

“You’ll want to ensure that the costs fit comfortably within your financial plan, whether it’s monthly fees, entrance fees, or extra charges for things like healthcare. If you’re looking at a for-profit community, keep in mind that their contracts might change over time, which could impact your expenses,” said Dou.

Location Matters

Retirement communities are located nationwide, offering a wide range of options. The location of a retirement community impacts your lifestyle and overall quality of life as you age. It affects your access to family and friends, healthcare, recreational activities, and more.

Additionally, factors like climate and safety should play a part in your decision.

What Amenities or Services Do You Need?

The amenities and services available to retirement community residents are part of the allure. Offerings vary based on the community, but you’ll see a range of health and wellness, recreational, medical, and security options, including:

• Fitness centers
• Indoor and/or outdoor swimming pools
• Housekeeping
• Restaurants or cafes
• Games room
• Arts and crafts
• Security
• Maintenance
• Transportation
• Healthcare services
• Salons and/or barbershops
• Green spaces, such as patios and gardens

“It’s essential to make sure that the lifestyle you want matches the amenities and services offered by the retirement community. A good way to do this is by comparing the cost of services provided within the community versus what you would pay for them outside of it,” Dou recommended.

Research a Community’s Reputation

It’s important to consider the retirement community’s reputation, as this can give you insight into the quality of care and service and overall resident satisfaction. Google reviews and Trustpilot are great places to look if you want to know what people say before making big decisions. Search Google News for any negative reports about the facility.

If you can’t seem to get a clear picture from reviews and ratings, confirm whether or not the retirement community is accredited. This speaks to its quality and reliability. For example, CARF International ensures that accredited communities meet a high standard of care and that residents are provided with a safe, supportive environment.

“It’s also a good idea to research the community’s financial stability; after all, you want to avoid any situations, like bankruptcy, that could result in eviction or losing your entrance fee,” Dou told Investopedia.

Best Senior Living Facilities

Seniorly worked with Skypoint to mine and analyze customer and family reviews of senior living facilities to create a sentiment rating that includes staff ratings and overall resident satisfaction. They say their awards include only those communities with a sentiment rating in the top five percent and be free of serious licensing violations or recent negative media coverage. Their top 20 locations include:

1. Aegis Living Greenwood in Seattle, WA
2. Arbor Terrace Mount Laurel in Mount Laurel Township, NJ
3. Bardwell Residences in Aurora, IL
4. Creekside Village Retirement Residence in Beaverton, OR
5. Crofton Manor Inn in Long Beach, CA
6. Five Star Premier Residences of Dallas in Texas
7. Grossmont Gardens Senior Living in La Mesa, CA
8. Islan House in Mercer Island, WA
9. La Siena in Phoenix, AZ
10. Maravilla Scottsdale in Scottsdale, AZ
11. Merrill Gardens at Solivita Marketplace in Kissimmee, FL
12. MorningStar of Fountain Hills in Fountain Hills, AZ
13. Pacifica Senior Living Palm Springs in Palm Springs, CA
14. Summerfield Senior Living in Bradenton, FL
15. TerraBella Myrtle Beach in Myrtle Beach, SC
16. The El Dorado in Richardson, TX
17. The Hacienda at The Canyon in Tuscon, AZ
18. The Heritage Tradition in Sun City West, AZ
19. The Palms at Plantation in Plantation, FL
20. Truewood by Merrill, Cottonwood Heights in Cottonwood Heights, UT

The Bottom Line

A retirement community can be ideal for those who value convenience, community, and support. Since the options include communities that cater to various stages of aging, it’s possible to find a living arrangement that aligns with your changing needs, ensuring ongoing comfort. Take time to explore your options, comparing your needs and budget to what you’ll get in return.

Fact checked by Vikki Velasquez

People relocate for many reasons, personal and professional, but the latest report from the Tax Foundation on the most popular U.S. destination states suggests three big factors rule: lower cost of living, lower taxes, and plenty of sunshine.

Of the top ten destinations in the report, most but not all have comparatively low state taxes. Most have lower housing costs than the East Coast and West Coast states. Seven out of the ten states are located firmly in the Sun Belt.

The Tax Foundation report issued in January 2025 was based on U.S. Census Bureau data gathered from July 1, 2023, through June 30, 2024.

Key Takeaways

• The top destination, South Carolina, has a 6% state sales tax and a top state income tax rate of 6.2% but relatively modest home prices.
• Other states on the list of top destinations include Idaho, Delaware, North Carolina, Tennessee, Nevada, Alabama, Montana, Arizona, and Arkansas.
• Many of the top destination states are located in the Sun Belt, offering both sunshine and financial benefits.
• Alabama had the lowest housing costs on the list, with an average home price of $228,101 in 2024.

#1 South Carolina

South Carolina’s population grew by 1.26% from 2023 to 2024, according to U.S. Census data. United Van Lines listed this state at #3 in its 48^th Annual National Movers Study released in January 2025.

The Tax Foundation ranked South Carolina’s overall tax burden at #33 out of 50 in its 2025 State Tax Competitiveness Index, with #1 being the best state and #50 being the worst. South Carolina’s state sales tax rate is 6.00%. Its top marginal individual income tax rate is 6.2%.

The average house price in South Carolina was $297,794 in 2024, compared to an average house price of $773,362 in California and $394,728 in Florida, according to Norada, a real estate investors’ site.

#2 Idaho

Idaho is #2 on the Tax Foundation’s most moved-to list with a 0.83% growth rate. Realtor.com puts it at #5, however.

The median listing price for a home here is $579,900 as of January 2025 with an average monthly house payment of $3,040.

You’ll have to save some tax dollars to live comfortably here. Tax Foundation places Idaho’s overall tax burden at a fairly competitive #11.

Its state sales tax rate matches South Carolina’s at 6.00% but its top marginal individual income tax rate is a bit lower at 5.695%.

The average house price in Idaho was $454,300 in 2024, compared to an average house price of $773,362 in California and $394,728 in Florida, according to Norada, a real estate investors’ site.

#3 Delaware

Delaware saw a growth rate of 0.79% from 2023 to 2024, according to the Tax Foundation report. United Van Lines placed this state at #2 on its list noting that more than 50% of the newcomers were age 65 and older and 12% were arriving from New York.

Delaware’s top personal income tax rate is 6.60% on incomes over $60,000 although this drops to 5.55% on incomes under $60,000. The state has no state or local sales taxes.

The average house price in Delaware was $388,163 in 2024, compared to an average house price of $773,362 in California and $394,728 in Florida, according to Norada, a real estate investors’ site.

#4 North Carolina

South Carolina’s neighbor to the north comes in at #4 on the Tax Foundation migration list at 0.76%.

Realtor.com puts the median home listing price in North Carolina at $428,750 with an average monthly payment of $2,248. United Van Lines gives the state its #5 spot.

North Carolina is kind to its residents when it comes to taxes. It’s a flat tax state so the same rate applies to everyone regardless of income. The rate was 4.50% for tax year 2024 and that’s a reduced rate from the year before. The state’s sales tax rate is 4.75% but county rates can add to that.

The average house price in North Carolina was $330,819 in 2024, compared to an average house price of $773,362 in California and $394,728 in Florida, according to Norada, a real estate investors’ site.

#5 Tennessee

Tennessee saw an inbound rate of 0.68% according to the Tax Foundation report.

The state has no income tax. Its combined state and local sales tax rate is pretty significant at 9.55%. The state portion of that is a cringeworthy 7.0%.

Tennessee nonetheless comes in at #8 on the Tax Foundation 2025 State Tax Competitiveness Index thanks to its lack of an income tax.

The average house price in Tennessee was $321,434 in 2024, compared to an average house price of $773,362 in California and $394,728 in Florida, according to Norada, a real estate investors’ site.

#6 Nevada

Nevada is #6 on the Tax Foundation report. It’s another state that doesn’t impose an income tax. It’s #17 on its 2025 State Tax Competitiveness Index.

The state-level sales tax rate is 6.85% but local jurisdictions can add on their own.

The average house price in Nevada was $443,203 in 2024, compared to an average house price of $773,362 in California and $394,728 in Florida, according to Norada, a real estate investors’ site.

#7 Alabama

Alabama comes in at #7 on the Tax Foundation inward migration list. It’s #6 on the United Van Lines National Movers Study.

Alabama’s combined state and local sales tax rate is a walloping 9.29%. The state-level sales tax makes up just 4.0% of that total so where you buy can save you some money.

Alabama is known for its very low property tax rates. The highest income tax rate is 5% on taxable income of over $3,000 for single filers and $6,000 for married taxpayers who file joint returns.

The average house price in Alabama was $228,101 in 2024, compared to an average house price of $773,362 in California and $394,728 in Florida, according to Norada, a real estate investors’ site.

#8 Montana

Montana takes the #8 spot on the Tax Foundation Census data list.

They’re not going there for the income tax breaks. Fidelity Investments indicates that this state imposes some of the highest income tax rates in the country on personal income as of December 2024.

Nonetheless, Montana comes in at #5 on the Tax Foundation 2025 State Tax Competitiveness Index. The state’s top marginal individual income tax rate is 5.9% as of 2025. Montana doesn’t have a general-use sales tax, however, making it more tax-friendly overall.

The average house price in Montana was $468,194 in 2024, compared to an average house price of $773,362 in California and $394,728 in Florida, according to Norada, a real estate investors’ site.

#9 Arizona

Arizona is #9 on the Tax Foundation Census data list. The state comes in a spot lower at #10 on the United Van Lines 2024 National Movers Study.

Arizona offers a very friendly flat income tax rate of just 2.5%, a new development as of tax year 2024. The state sales tax rate is up there at 5.6%, and Arizona cities can level sales taxes as well.

The average house price in Arizona was $431,491 in 2024, compared to an average house price of $773,362 in California and $394,728 in Florida, according to Norada, a real estate investors’ site.

#10 Arkansas

Arkansas comes in at #10 on the Tax Foundation list.

Its combined state and local sales tax rate is 9.45%, with 6.5% of that going to the state.

This state has cut its top individual income tax rate to 3.9% from 4.4%, however.

Tip

Realtor.com indicates that the median listing price of Arkansas homes is $285,000 with an average monthly payment of about $1,494.

The average house price in Arkansas was $209,250 in 2024, compared to an average house price of $773,362 in California and $394,728 in Florida, according to Norada, a real estate investors’ site.

The Bottom Line

The migration to these states reflects a growing preference for affordable living, lower taxes, and favorable climates. By understanding state taxes, you can better decide what location best suits your financial needs.

A beginner’s guide to mutual fund investing

Fact checked by Vikki Velasquez
Reviewed by David Kindness

Mutual funds are a popular choice for first-time investors. These vehicles offer a simple, accessible, and diversified way to invest. Given the many changes in the U.S. economy, including the steep drop in the number of Americans with defined pension plans, mutual funds are frequently chosen for long-term investing, with a majority—56%—of American households with money in them as of 2024.

Key Takeaways

• Mutual funds are a convenient way for individuals to invest in a diversified portfolio of securities.
• Individuals should define their investment goals and understand their risk tolerance before investing.
• Different types of mutual funds include equity, bond, and balanced funds.

What Is a Mutual Fund?

Mutual funds pool money from many investors to purchase a diversified portfolio of securities, such as stocks and bonds. Established by 1940 legislation, these funds give individuals access to a broader range of assets and the safeguards of professional money management that otherwise would have been too costly to obtain on their own.

Mutual funds offer diversification, spreading investor money across many securities and sectors, reducing their portfolio’s overall risk. Gains in one asset can offset losses in another. Mutual funds also cater to various investment goals and risk tolerances. In 2023, investors chose from over 7,000 U.S. mutual funds.

Mutual funds differ from trading stocks. Stocks are traded throughout the day on stock exchanges, however, mutual fund shares are purchased and sold directly through the mutual fund company or a brokerage firm. Mutual fund orders are typically processed at the end of each trading day, with the price per share determined by the fund’s net asset value (NAV) at the close of the market. Many investors set money aside in mutual funds through their paychecks, some with matching funds from their employer for retirement.

Types of Funds

Equity Funds

Also known as stock funds, equity funds invest in publicly traded companies. Investors commonly evaluate equity funds based on market capitalization, individual investment style, and location of the fund.

• Market capitalization: Large-cap funds invest in companies with a market value exceeding $10 billion, which are ordinarily more established and less volatile. Midcap funds focus on companies worth $2 billion to $10 billion, offering a balance between growth and stability. Small-cap funds invest in companies with a market value below $2 billion, which may have higher growth potential and risk.
• Investment style: Growth funds invest in companies with high growth potential, prioritizing capital appreciation over income through dividends. Value funds seek undervalued stocks believed to be trading below their true worth, aiming to benefit from a potential price increase. Blend funds provide a more balanced approach between the two.
• Geography: Domestic funds focus on stocks of U.S. companies, while international funds invest in stocks outside the U.S. Some funds may also focus on a specific region, such as Europe or Asia. Overseas funds can be subject to additional risks, such as currency fluctuations and political instability.

Bond Funds

Bond funds invest primarily in fixed-income securities, such as corporate, government, and municipal bonds. They aim to provide regular income and add stability to a portfolio. Bond funds can be categorized based on the type of issuer or bonds in which they invest (e.g., government vs. corporate), the credit quality of the issuers (from investment-grade to junk), and the duration of the bonds (from short-term to long-term).

Balanced Funds

Also known as hybrid funds, balanced funds invest in a mix of stocks and bonds to offer a balance of growth and income. The allocation between stocks and bonds depends on the fund’s investment strategy and risk profile, such as 60% in stocks and 40% in bonds. These funds are suitable for investors seeking a single, diversified investment solution.

Money Market Funds

Money market funds invest in short-term, low-risk debt securities, such as Treasury bills, certificates of deposit (CDs), and commercial paper. They aim to maintain a stable value and provide a low-risk, liquid investment option. Money market funds are often used for short-term savings or as a temporary holding place for cash. They are more attractive when interest rates are high since they earn more interest.

Index Funds and Target-Date Funds

Index funds passively track the performance of a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. If that index performs well, so do the index funds. Target-date funds are designed for investors with a specific retirement date. Many 401(k) plans offer target-date funds that automatically adjust asset allocation, becoming more conservative as the target date approaches. This “set it and forget it” approach is great for investors who want a simple, long-term investment solution.

Specialty Funds

Specialty funds focus on specific investment strategies or asset classes beyond stocks and bonds such as:

• Sector funds invest in companies within a particular industry or sector, such as healthcare, energy, or technology.
• Socially responsible investment (SRI) funds, known as environmental, social, and governance (ESG) funds, invest in companies that meet specific criteria.
• Real estate funds invest in real estate investment trusts or buy their real estate holdings.
• Commodity funds invest in physical commodities like gold, oil, agricultural products, or commodity-linked derivatives.

Note

Mutual fund returns are calculated using total return, including capital appreciation (increase in the fund’s share price) and income distributions (such as dividends or interest). The total return is usually expressed as a percentage change over a specific period, such as one year or five years.

Getting Started

Set Investment Goals and Budget

• Investment objectives: Identify the reasons for investing, such as saving for retirement, buying a home, funding a child’s education, or building wealth.
• Time horizon: Investors must determine how long they plan to invest before they access their funds.
• Risk tolerance: Some investors are comfortable with the potential for higher returns despite increased volatility, while others prefer a more conservative approach.
• Financial situation: Investors should assess current income, expenses, and debts to determine how much they can realistically afford to invest without compromising their financial stability.

Evaluate Fund Choices

Investors can use their brokerage platform or reputable financial websites like Morningstar or Yahoo! Finance to compare funds and read expert analyses. Helpful tools like mutual fund “screeners” help narrow down choices.

• Fund type: Investors should choose funds that match their investment objectives, such as growth, income, or a combination of both.
• Investment style: Choose between actively managed funds that attempt to outperform the market or passively managed index funds that track market performance.
• Expense ratios: Look for funds with low expense ratios, as high annual management costs can eat into returns over time.
• Loads: Be aware of any extra fees with mutual funds. Some funds carry sales charges, known as loads, that can reduce investment returns. Front-end loads are charged when buying shares in the fund, while back-end loads are charged when shares are sold.
• Additional fees: Look for no-load funds to avoid these charges. Additionally, pay attention to other costs, such as redemption fees and 12b-1 fees, which are for marketing and distribution.
• Minimum investment: While some mutual funds do not have a minimum investment to start investing, some may have start costs of $100, $1,000, or more.
• Fund manager experience: To assess the fund manager’s track record, visit the mutual fund company’s website or review the fund’s prospectus.
• Fund size: The fund’s assets under management (AUM) can be found in the fund’s fact sheet or prospectus. A larger AUM suggests that the fund is well-established and has enough money to support the fund.
• Liquidity: Refers to how easily the fund can convert its investments into cash to meet redemption requests. Funds with higher liquidity can accommodate investors coming into and out of the fund.
• Tax implications: If investing in a taxable account, consider tax-efficient funds that minimize turnover and distribute fewer capital gains.

See Investopedia’s choices for Best Online Brokers and Trading Platforms.

Open an Investment Account

• Taxable brokerage accounts: Allow individuals to invest in securities, including mutual funds, stocks, and bonds. They can be held as an individual, as a joint account with a spouse or partner, or as a custodial account held on behalf of minor dependents.
• Retirement accounts: Roth IRAs are a tax-exempt retirement account option where you can put dividend-paying mutual funds without triggering taxable events. 401(k) plans and individual retirement accounts (IRAs) offer tax advantages and are designed for long-term investing.
• Education savings accounts: Accounts like 529 plans can help individuals save for future education expenses.

Place Orders and Make Contributions

Once an investment account is set up and funded, investors can start investing in mutual funds. Lump-sum investing involves investing money at once. Many investors allocate part of their paycheck to 401(k) retirement savings.

Another strategy is dollar-cost averaging by investing a fixed amount of money at intervals regardless of market conditions. This approach can help mitigate the impact of market volatility on investments, as investors buy more shares when prices are low and fewer when prices are high.

To order, individuals log into their investment account and select the mutual fund they wish to buy. Specify the amount to invest and submit an order. Mutual fund orders are typically processed at the end of each trading day. The process for selling mutual fund shares is similar. The order is executed at the next available NAV. The proceeds from the sale, minus any applicable fees or taxes, are then credited to an investor’s account.

Important

Mutual fund shares are valued at their net asset value (NAV), calculated by dividing the fund’s total assets minus liabilities by the number of outstanding shares.

Risks and Considerations for Investors

• Managing and Rebalancing: Investors should regularly review their investments’ performance and compare them to relevant benchmarks and peer funds. If a fund consistently underperforms, it may be time to consider selling it and investing in a better-performing alternative. Rebalancing involves selling investments that have become overweighted in your portfolio and buying investments that have become underweighted to bring a portfolio back in line with the target allocation.
• Market Risk: The possibility that the value of a mutual fund’s investments will decline because of factors affecting the overall financial markets. Market risk is inherent in all investments, including mutual funds. When the market experiences a downturn, the value of a mutual fund’s holdings may decrease, resulting in a lower NAV, potentially lowering your returns.
• Inflation: If a mutual fund’s returns do not keep pace with inflation, the real value of the investment may decline. For example, if a mutual fund generates an annual return of 5%, but the inflation rate is 3%, the real return (adjusted for inflation) would be about 2%.
• Cash Drag: The potential negative effect on a mutual fund’s performance because of holding cash or cash equivalents, such as money market instruments or short-term bonds. Mutual funds often keep part of their assets in cash, however, too much cash can drag performance, especially during bull markets, when stocks are appreciating.
• Fee drag: The negative impact of mutual fund fees and expenses on investor returns. If a fund has an expense ratio of 1% and generates a 10% return before fees, the investor’s actual return would be 9% after accounting for the expense ratio.
• Fund-Specific Risks: Mutual funds are subject to risks related to their investment strategies and holdings. Bond funds are exposed to credit risk when fixed-income issuers fail to make interest payments or repay principal when due. Some mutual funds invest in less liquid securities, such as small-cap stocks or emerging market bonds, which can be difficult to sell quickly. Sector or region-specific funds may be more vulnerable to events affecting those particular areas. International funds that invest in foreign securities are subject to currency risk, as fluctuations in exchange rates affect returns.

What Is the Difference Between an Actively-Managed and Passively-Managed Mutual Fund?

Actively managed mutual funds try to beat a benchmark index using professional managers to make investment decisions, typically leading to higher fees. Passively managed funds, like index funds, aim to match the performance of a market index by mirroring its composition and usually have lower fees.

What Is the Difference Between Mutual Funds and ETFs?

Mutual funds and exchange-traded funds (ETFs) are investment vehicles that pool money from many investors to buy a diversified portfolio of securities, such as stocks or bonds. The main difference is that mutual fund shares are bought and sold directly through the fund company at the end of each trading day, while ETF shares are traded on stock exchanges throughout the day like individual stocks.

What Does the Fund’s Prospectus Tell Investors?

Investors can examine the fund’s prospectus which provides detailed information about the fund’s investment objectives, strategies, risks, and fees. Pay close attention to the fund sponsor’s reputation, the managers’ profiles, and the fund’s historical performance—but remember that past performance doesn’t guarantee future results.

What Is Asset Allocation?

Asset allocation, or the distribution of a portfolio’s investments among stocks, bonds, real estate, cash, and other assets, is crucial in building a well-balanced portfolio.

The Bottom Line

Mutual funds are available to buy and sell through brokerage firms or directly from mutual fund companies. As with any investment, investors should understand the risks and considerations involved and make informed decisions based on their circumstances. Individuals can consult a financial advisor who can help develop a personalized investment plan, select suitable mutual funds, and provide ongoing guidance.

Few figures in modern business and technology have generated as much attention or controversy as Elon Musk. As CEO of multiple major companies, including Tesla, Inc. (TSLA), SpaceX, and X (formerly Twitter), Musk is one of the world’s wealthiest business people.

He is also now likely the world’s most powerful. In what the Financial Times has called “a hostile takeover of the U.S. government,” Musk leveraged over $280 million in campaign donations and vocal support for Donald Trump during the 2024 election into a significant position as (unofficial) head of the so-called Department of Government Efficiency (DOGE), where he now wields unprecedented sway over federal policy and spending.

Key Takeaways

• Musk leads multiple major companies including Tesla, SpaceX, and X.
• He has a net worth of about $400 billion in the first quarter of 2025.
• Tesla faces challenges including an annual sales decline in 2024 and the invalidation of Musk’s $56 billion compensation package.
• Recent controversies, including his political activities and management of X, have impacted his companies’ market positions.

Early Life and Education

Born in 1971 in Pretoria, South Africa, Elon Reeve Musk’s early years were marked by privilege and personal challenges. His father, Errol Musk, worked as an electromechanical engineer and property developer, while his mother, Maye Musk, was a model and dietitian. The family’s considerable wealth came primarily from Errol’s engineering consulting work and his stake in an emerald mine. After his parents divorced in 1980, Musk lived with his father, a decision he would later describe as a mistake.

As a child, Musk enjoyed reading science fiction and experimenting with computers. His first notable achievement was creating and selling a video game called “Blastar” for $500, an early hint of his entrepreneurial spirit.

Musk attended Pretoria Boys High School, but feelings of isolation and bullying marred his school years. He moved to Canada at 17 and enrolled at Queen’s University, Ontario, before transferring to the University of Pennsylvania, where he earned dual bachelor’s degrees in economics and physics.

Early Career

Musk co-founded his first significant venture, Zip2, with his brother Kimbal in the mid-1990s. Initially operating from a small rented office in Palo Alto, CA, Zip2 provided business directories and maps for newspapers during the early days of the Internet. In 1999, Compaq acquired Zip2 for about $307 million, making Musk a multimillionaire in his late 20s.

With this newfound capital, Musk was quick to launch X.com in 1999, an online financial portal. Within a year, X.com merged with its primary competitor, Confinity, which had developed the online payment system, PayPal. When eBay Inc. (EBAY) acquired PayPal in 2002 for $1.5 billion, Musk received about $160 million after taxes for his stake.

Major Ventures

SpaceX

SpaceX, founded by Musk in 2002, has built its $350 billion valuation largely through government contracts, receiving over $22 billion from NASA, the Department of Defense, and other federal agencies. While its early years were fraught with setbacks—its first three launches failed to reach space—the company has since achieved significant milestones in space exploration, becoming the first private company to send a spacecraft to the International Space Station.

Note

Did SpaceX begin with a spitting incident? That’s the claim of several around Musk when he formed the company. After a Russian rocket designer spat on his shoes in 2001, “this act so completely offended Elon that he decided on the flight home [from Russia] that he would start his own rocket company to compete with them,” former NASA deputy administrator Lori Garver has written.

The company has also expanded into commercial satellite services through its Starlink constellation, which provides global broadband connectivity. 

Tesla

No company is more closely associated with Elon Musk than Tesla. Although he was not one of the original founders, Musk was an early investor and quickly assumed a leadership role. Under his guidance, Tesla has shown that electric vehicles could be both high-performance and desirable.

Today, Tesla not only produces popular models like the Model S, 3, X, and Y, but is also a major producer of battery storage and solar systems since its 2016 acquisition of SolarCity. In 2024, the company launched its Cybertruck, starting at $82,000, though sales remain underwhelming at 9,000 to 12,000 units per quarter. While Tesla has revamped the Model Y for 2025, it notably scrapped plans for a more affordable $25,000 vehicle (Model 2).

Despite numerous challenges, including production delays, regulatory scrutiny, and periodic financial pressures Tesla has been remarkably successful. The company’s market capitalization frequently exceeds that of all other major automotive manufacturers combined, reflecting investor confidence about its long-term vision, particularly in autonomous driving technology.

X (formerly Twitter)

In 2022, Musk acquired Twitter (now X) for $44 billion after a contentious legal battle after which he immediately implemented sweeping changes to the platform’s operations, leadership, and content moderation policies—essentially eviscerating moderation that had kept the worst elements of the internet at bay. In 2023, he rebranded the platform as “X,” signaling his wish to transform the social media company into an “everything app” that would incorporate financial services, communication tools, AI, and other capabilities.

Other Ventures

• Neuralink: Focused on developing brain-computer interfaces, Neuralink aims to help treat neurological disorders and eventually enable a symbiosis between humans and artificial intelligence.
• The Boring Company:  Builds tunnels for transportation, utilities, and freight.
• xAI: In 2023, Musk launched xAI, focused on developing what he describes as “maximum truth-seeking AI.” The company released its first model, Grok, in late 2023.

Note

While it’s given him a significant public platform, X has been a financial calamity, losing about three-quarters of its value since he took over.

Political and Legal Entanglements

Musk’s growing business empire and government role have generated significant regulatory scrutiny and legal challenges. In 2018, his tweet about taking Tesla private with “funding secured” led to U.S. Securities and Exchange Commission (SEC) enforcement action, resulting in a $20 million fine and his removal as Tesla’s chair for three years. The Delaware Court of Chancery later invalidated his $56 billion Tesla compensation package in 2023 (and again in 2024 after appeals), calling it an “unfathomable sum” and finding the board’s approval process fundamentally flawed.

His $44 billion acquisition of Twitter (now X) in 2022 sparked multiple lawsuits, first when he attempted to withdraw from the purchase agreement and later from employees following mass layoffs. The platform’s value has since declined significantly.

Meanwhile, his companies face ongoing regulatory challenges beyond these high-profile cases. Tesla has settled cases and faces still more stemming from allegations of racial discrimination and hostile work conditions. SpaceX has been under significant regulatory scrutiny by multiple agencies (many of which DOGE now has power over) regarding launch approvals and environmental impacts. The SEC has also filed a 2025 lawsuit alleging Musk failed to properly disclose his initial Twitter stock purchases before the acquisition.

DOGE

Publicly, Musk draws headlines most now for his involvement with DOGE. While the White House officially describes him as a “senior adviser to the president” rather than a DOGE administrator—the White House added that he has “no actual authority to make government decisions himself”—Musk has been the public face of the initiative and Trump himself has credited his leadership of it. He’s also used X to champion aggressive cost-cutting, including reducing USAID’s workforce from 10,000 to about 600 staff, as well as the gutting of many other agencies.

The role has sparked multiple legal challenges, with federal courts restricting DOGE’s access to Treasury systems, experts worried about the security and maintenance of the country’s most important computer systems, and Democratic states suing over what they call his “virtually unchecked power.”

Personal Life

Musk has been outspoken about what he calls a looming “population collapse,” arguing that declining birth rates pose a greater risk to civilization than climate change. This stance has drawn even more attention to his own family life: he has 13 children with multiple partners, including three with musician Grimes and three with Neuralink executive Shivon Zilis.

Musk’s relationship with his children has also attracted media attention. In recent years, his penchant for giving his kids eccentric names and public statements about family, including remarks about his estranged child’s gender transition—he claimed she’s now “dead”—have added to the controversies that surround him.

Note

During his May 8, 2021, appearance on the TV show Saturday Night Live, Musk said that he has Asperger’s syndrome, an autism spectrum disorder.

The Bottom Line

As Elon Musk’s influence continues to expand across business, technology, and government, his impact grows increasingly complex. While his companies push ahead technologically and his role in DOGE aims to help reshape federal policy, mounting legal challenges and controversies have begun to affect his enterprises’ market positions.

A step-by-step guide for lenders and borrowers

A personal loan agreement is a legally binding contract between a lender and borrower that specifies the terms of a loan. While a personal loan agreement sets repayment terms between a financial institution and borrowers, this type of agreement can also occur between family members and friends. 

The main advantage of a personal loan agreement is that it protects borrowers and lenders to avoid any misunderstanding as it clarifies repayment and other terms.

Key Takeaways

• A personal loan agreement outlines repayment terms between the lender and the borrower.
• Information included on personal loan agreements include the names of both parties, the date of the agreement, the principal loan amount, the interest rate, and repayment terms.
• Personal loan agreements can be used as evidence in court if you fail to make payments.

What Is a Personal Loan Agreement?

A personal loan agreement provides protection for both the lender and borrower by stating their rights and responsibilities. The purpose is to ensure both parties understand their obligations and provide legal recourse in case of disputes.

This document, also called a personal loan contract, can also indicate whether the loan is unsecured or secured. If a borrower fails to pay back the loan, this document can be brought to court as evidence. Though not required, a notary may be used to certify the authenticity of the agreement. 

Note

A personal secured loan is a type of loan where the borrower pledges an asset as security for a loan. In contrast, an unsecured loan is one without any collateral tied to it. 

What’s in a Personal Loan Agreement?

While some personal loan agreements that involve a small amount of money only require a master promissory note, more complicated contracts may include elements such as:

• Identifications: The contract will need to list the names of all those involved and their addresses.
• Dates: There will need to be dates for when the contract goes into effect and any other important dates.
• Loan amount: This is the principal amount the borrower agrees to take out.
• Collateral: If relevant, this is the asset being used to secure the loan.
• Interest rate: The personal loan agreement outlines the cost of borrowing money. The interest rate may be fixed or variable. If there are any fees, such as origination fees, the agreement may include these as an annual percentage rate (APR), which incorporates both interest and fees.
• Repayment schedule: This plan can outline when and how much the borrower needs to repay the loan.
• Penalties: Personal loan agreements may outline the consequence of not paying your loans on time, including what happens when you default.
• Jurisdiction: This refers to the area where the court’s decision can apply. 
• Severability clause: This clause ensures that even if one portion of the agreement is illegal, invalid, or unenforceable, the rest of the contract will be legal. 
• Entire agreement clause: Also known as merger or integration clause, the entire agreement clause section defines the scope of the agreement. It essentially states that what’s included in this clause is final and nothing outside the contract applies.
• Signature: Both the lender and borrower must sign the personal loan agreement to seal the deal. 

Other Clauses You May Find in Business Loans

Even though personal loan agreements may seem fairly simple, if the agreements are related to business loans, you may see an added layer of complexity. Here are a few additional terms you may see in a business loan agreement:

• Successors and Assigns: This section defines what happens after one of the parties changes, such as if someone passes away before the contract terms are fulfilled.
• Lender’s general provisions: This part of the loan agreement includes the lender’s ability to bid on the collateral if payments aren’t met, release the borrower from the loan agreements, or tweak the terms of the collateral, among other details. 
• Lender’s rights if there’s a default: This portion of the loan agreement allows the lender to seize the remaining portion of the loan, take possession of any collateral, file a suit and obtain judgement against the borrower. It also allows lenders to sell or lease the collateral without public advertisement. 

Example of a Personal Loan Agreement

While you can write a personal loan agreement yourself, you may consider many available templates online with the necessary clauses. You may consider having your loan reviewed or drafted by a reputable lawyer for more complicated loan agreements. 

Here’s an example from the Securities and Exchange Commission (SEC) of what you may see in a personal loan agreement.

1. Parties. This LOAN AGREEMENT AND PROMISSORY NOTE (the “Note”) is made on this [Insert (date) of (month), (year), by and among [lender’s name] (hereinafter, known as “LENDER”) and [borrower], a Corporation organized under the laws of the State of Nevada (hereinafter, known as “BORROWER”). BORROWER and LENDER shall collectively be known herein as “the Parties.” In determining the rights and duties of the Parties under this Loan Agreement, the entire document must be read as whole.

PROMISSORY NOTE

FOR VALUE RECEIVED, BORROWER promises to repay to the order of LENDER, the sum of [Insert amount here $X] dollars together with interest thereon at a rate of [Insert Interest rate] percent (%) per annum.

ADDITIONAL LOAN TERMS

The BORROWER and LENDER, hereby further set forth their rights and obligations to one another under this Loan Agreement and Promissory Note and agree to be legal bound as follows:

A. Principal Loan Amount [Insert Principal Loan Amount]

B. Loan Repayment Terms.

BORROWER will make payment(s) to LENDER in three (3) separate payments according to the following schedule:

1. [Insert first installment amount] on or before [Insert month, date, year]
2. [Insert second installment amount] on or before [Insert month, date, year]
3. [Insert third installment amount] on or before [Insert month, date, year]
4. [Insert fourth installment amount] on or before [Insert month, date, year]
5. [Insert fifth installment amount] on or before [Insert month, date, year]

Final interest payment to be calculated as of final payment and due immediately thereto.  

C. Collateral.

As collateral for repayment of Loan Amount, BORROWER agrees to put forth a total of 250,000 Sanguine Corp (SGUI) common shares.  Lender understands that these shares are restricted under Rule 144 of the Securities Act of 1933.  Upon default of any of the payments as defined in paragraph “A” above, LENDER may demand release of all “Collateral Shares” to satisfy Note.

D. Method of Loan Payment.

The BORROWER shall make all payments called for under this loan agreement by sending check or other negotiable instrument made payable to the following individual or entity at the address indicated:

[Name of Lender]

[Address and Street Name]

[City, State, ZIP Code]

If LENDER gives written notice to BORROWER that a different address shall be used for making payments under this loan agreement, BORROWER shall use the new address so given by LENDER.

E. Default.

The occurrence of any of the following events shall constitute a Default by the BORROWER of the terms of this loan agreement and promissory note:

1)

BORROWER’S failure to pay any amount due as principal or interest on the date required under this loan agreement.

2)

BORROWER seeks an order of relief under the Federal Bankruptcy laws.

3)

A federal tax lien is filed against the assets of BORROWER.

F. Additional Provisions Regarding Default.

1)

Addressee and Address to which LENDER is to give BORROWER written notice of default:

N/A

If BORROWER gives written notice to LENDER that a different address shall be used, LENDER shall use that address for giving notice of default (or any other notice called for herein) to BORROWER.

2)

Cure of Default.  Upon default, LENDER shall give BORROWER written notice of default.  Mailing of written notice by LENDER to BORROWER via U.S. Postal Service Certified Mail shall constitute prima facie evidence of delivery.  BORROWER shall have [X] days after receipt of written notice of default from LENDER to cure said default.  In the case of default due solely to BORROWER’S failure to make timely payment as called for in this loan agreement, BORROWER may cure the default by either:  (i) making full payment of any principal and accrued interest (including interest on these amounts) whose payment to LENDER is overdue under the loan agreement and, also, the late-payment penalty described below; or (ii) release collateral to LENDER as described in paragraph B “Collateral”, above.  

3)

Penalty for Late Payment.  There shall also be imposed upon BORROWER a X% penalty for any late payment computed upon the amount of any principal and accrued interest whose payment to

LENDER is overdue under this loan agreement and for which LENDER has delivered a notice of default to BORROWER

4)

Indemnification of Attorneys Fees and Out-of-Pocket Costs.  Should any party materially breach this agreement, the non-breaching party shall be indemnified by the breaching party for its reasonable attorneys fees and out-of-pocket costs which in any way relate to, or were precipitated by, the breach of this agreement.  The term “out-of-pocket costs”, as used herein, shall not include lost profits.  A default by BORROWER which is not cured within X days after receiving a written notice of default from LENDER constitutes a material breach of this agreement by BORROWER.

G. Parties That Are Not Individuals.

If any Party to this agreement is other than an individual (i.e., a corporation, a Limited Liability Company, a Partnership, or a Trust), said Party, and the individual signing on behalf of said Party, hereby represents and warrants that all steps and actions have been taken under the entity’s governing instruments to authorize the entry into this Loan Agreement.  Breach of any representation contained in this paragraph is considered a material breach of the Loan Agreement.

H. Integration.

This Agreement, including the attachments mentioned in the body as incorporated by reference, sets forth the entire agreement between the Parties with regard to the subject matter hereof.  All prior agreements, representations and warranties, express or implied, oral or written, with respect to the subject matter hereof, are superseded by this agreement.  This is an integrated agreement.

I. Severability.

In the event any provision of this Agreement is deemed to be void, invalid, or unenforceable, that provision shall be severed from the remainder of this Agreement so as not to cause the invalidity or unenforceability of the remainder of this Agreement.  All remaining provisions of this Agreement shall then continue in full force and effect.  If any provision shall be deemed invalid due to its scope or breadth, such provision shall be deemed valid to the extent of the scope and breadth permitted by law.

J. Modification.

Except as otherwise provided in this document, this agreement may be modified, superseded, or voided only upon the written and signed agreement of the Parties.  Further, the physical destruction or loss of this document shall not be construed as a modification or termination of the agreement contained herein.  

K. Exclusive Jurisdiction for Suit in Case of Breach.

The Parties, by entering into this agreement, submit to jurisdiction in the State of [Insert State Name] for adjudication of any disputes and/or claims between the Parties under this agreement.  Furthermore, the Parties hereby agree that the courts of State of [Insert State Name] shall have exclusive jurisdiction over any disputes between the parties relative to this agreement, whether said disputes sound in contract, tort, or other areas of the law.

L. State Law.

This Agreement shall be interpreted under, and governed by, the laws of the [Insert state name].

IN WITNESS WHEREOF and acknowledging acceptance and agreement of the foregoing, BORROWER and LENDER affix their signatures hereto.

BORROWER:  

LENDER

_/s/[Insert Name]____________

  /s/[Insert Name]___________

[Borrower Name]                                                      [Lender Name]

Dated: Month, Date, Year

Dated: Month, Date, Year

The Bottom Line

If you borrow or lend money to someone, consider writing a personal loan agreement to protect everyone involved. Even if you’re exchanging money between family and friends, a personal loan agreement ensures everyone knows what the expectations of paying back the loan are upfront. This way, there will be little to no room for misunderstanding. If you feel uncertain about the process, consider getting help from an attorney to help draft or review your agreement before all parties sign.

Fact checked by Betsy Petrick

There are many types of mortgage lenders and choosing the right type can feel overwhelming. The main types of mortgage lenders include traditional banks, credit unions, mortgage brokers, and hard money lenders. Different lenders offer different types of loans, rates, and benefits. Understanding your options can help you choose the best loan.

Key Takeaways

• Different mortgage lenders offer different loan options, interest rates, and terms.
• Some types of mortgage lenders are involved in the entire mortgage process.
• Mortgage loans are commonly sold to investors or other loan servicers.

What Is a Mortgage Lender?

A mortgage lender is a financial institution that provides loans for buying or refinancing a home. Mortgage loans are secured by the property being purchased. 

Mortgage lenders review your finances to determine how much they will lend you and at what terms. After the mortgage loan is closed, mortgage lenders may retain loan ownership or sell to another bank or investor.

Types of Mortgage Lenders

Lender Type	How They Work
Mortgage Brokers	Works with multiple lenders to find the best terms for borrowers
Mortgage Bankers	Originates loans and often sells to investors after closing
Retail Lenders	Lends directly to borrowers; usually offers other banking services
Direct Lenders	Lends directly to borrowers
Portfolio Lenders	Keeps the loans they originate instead of selling them
Wholesale Lenders	Works with mortgage brokers to offer loan programs to their clients
Correspondent Lenders	Fund loans and sell them to larger lenders or investors
Warehouse Lenders	Provide short-term funding to mortgage banks for loan origination
Hard Money Lenders	Focuses on home value over borrower creditworthiness, offering fast financing with high interest rates

Mortgage Brokers

Mortgage brokers don’t lend money directly to borrowers. Instead, they work with multiple lenders—including banks, credit unions, and other financial institutions—to help you find the best rates and loan terms. In exchange for their help with paperwork and shopping around for a mortgage, you’ll pay a fee for the broker’s services.

Pros

• Can help you find lower rates

• Saves you time by comparing multiple lenders

Cons

• May charge broker fees

• You won’t have access to the lender

Note

While mortgage brokers can help you find competitive rates, it’s important to determine whether their fees outweigh the savings.

Mortgage Bankers

A mortgage banker originates mortgage loans, either with their own funds or funds borrowed from a warehouse lender. Mortgage bankers often sell loans to investors shortly after closing. This provides them with capital for new loans. They may continue servicing loans or they may transfer servicing rights to another company.

Pros

• Faster loan approval

• Quicker closing

• Competitive interest rates

Cons

• Limited loan options

• Terms may not be as flexible

• Not ideal for buyers without good credit

Retail Lenders

Retail lenders are financial institutions that offer mortgage loans directly to borrowers. These can include banks, credit unions, and mortgage companies that provide home loans to consumers. These banks offer a variety of other banking products and services like bank accounts, credit cards, and wealth management to meet a range of consumer needs. 

In the mortgage lending process, retail lenders handle everything from application to approval and often service loans after closing. 

Pros

• Simplified loan process

• No intermediaries involved

• Existing banking relationship may be beneficial

Cons

• Limited loan options

• May have strict credit and income requirements

Direct Lenders

Direct lenders provide home loans directly to borrowers without involving a middleman. These can be banks, credit unions, or online lenders. Since they handle the entire loan process in-house, the loan process can be faster.

Pros

• May offer faster loan approval and processing

• Direct communication with the lender

Cons

• Limited loan options

• You must shop around on your own

Portfolio Lenders

Portfolio lenders originate and keep the mortgages they approve rather than sell them to secondary market investors. Since portfolio loans don’t have to meet investor requirements, lenders can set their own lending rules. They may offer more flexible loan options.

Pros

• More flexible qualification requirements

• Can offer customized loan terms

• Can cater to borrowers with unconventional finances

Cons

• May charge higher interest rates

• Fewer loan options compared to large lenders

Wholesale Lenders

Wholesale lenders work with mortgage brokers and other lenders rather than directly with borrowers. These lenders offer competitive rates, but you must work with a broker to access them. Wholesale lenders underwrite, approve, and fund mortgages but typically sell loans and servicing on the secondary market.

Pros

• More loan options

• May offer better rates than large banks

Cons

• You must work with a broker

• Broker fees apply

Correspondent Lenders

Correspondent lenders work on behalf of other lenders. They work directly with borrowers, but often sell loans to larger lenders or investors after closing. Correspondent lenders have access to various loan programs, which helps borrowers qualify. Borrowing guidelines are set based on investor criteria.

Pros

• Flexible loan terms

• Fast loan processing

Cons

• Loan servicing may change after closing

• May have higher fees

Warehouse Lenders

A warehouse lender doesn’t work directly with borrowers. Instead, they provide short-term funding to individual mortgage banks who can then originate and close loans before selling them to investors on the secondary market.

Pros

• Competitive loan options

• Access to lower fees and rates

Cons

• No direct access for borrowers

• Potential for closing delays

• Smaller lenders are affected by market conditions

Hard Money Lenders

Hard money lenders are an option for buyers who don’t qualify for traditional loans. However, terms are shorter, and interest rates and origination fees are higher. 

Because of their quick financing, hard money lenders are an attractive option for real estate investors. Lenders focus more on the property value than on the borrower’s credit history.

Pros

• Quick approval and funding

• More flexible requirements

Cons

• High interest rates and fees

• Short repayment periods

Warning

Because of the high cost and short repayment period, hard money lenders are best for experienced investors, not first-time homebuyers.

How to Pick the Right Mortgage Lender for You

With so many options, choosing the right mortgage lender can feel overwhelming. Breaking down the process into simple steps can help.

1. Understand the kind of mortgage you need. Decide if you need a conventional, FHA, VA, USDA, or another type of loan. Compare 15-year and 30-year mortgages. Your down payment and credit score will also be a factor.
2. Compare lenders. Different lenders specialize in different loans and borrowing situations. For instance, a mortgage broker can shop around for the best terms, while direct lenders may offer more flexibility.
3. Compare interest rates and loan terms. Compare rates from several lenders to find the lowest APR, which includes fees and interest rates.
4. Understand fees and closing costs. Lender fees can increase the overall cost of your loan. These may include origination fees, application fees, and prepayment penalties. Be sure to ask about these costs upfront.
5. Get preapproved. This will help you understand how much you qualify for and often allow you to lock in an interest rate. A preapproval will also show sellers that you’re a serious buyer.
6. Consider special programs. First-time homebuyers, veterans, and low-income borrowers may qualify for special programs with lower down payments or interest rates.

The Bottom Line

Each type of lender has advantages and drawbacks so it’s important to compare options. By understanding what each lender offers, you can find a mortgage lender that fits your needs and budget.