Reviewed by Michael J Boyle
Fact checked by Timothy Li

In a purely economic sense, inflation refers to a general increase in price levels due to an increase in the quantity of money; the growth of the money stock increases faster than the level of productivity in the economy. The exact nature of price increases is the subject of much economic debate, but the word inflation narrowly refers to a monetary phenomenon in this context.

Using these specific parameters, the word deflation is used to describe productivity increasing faster than the money stock. This leads to a general decrease in prices and the cost of living, which many economists paradoxically interpret to be harmful. The arguments against deflation trace back to John Maynard Keynes’ paradox of thrift. Due to this belief, most central banks pursue a slightly inflationary monetary policy to safeguard against deflation.

Key Takeaways

• Central banks today primarily use inflation targeting in order to keep economic growth steady and prices stable.
• With a 2%–3% inflation target, when prices in an economy deviate, the central bank can enact monetary policy to try and restore that target.
• If inflation heats up, raising interest rates or restricting the money supply are both contractionary monetary policies designed to lower inflation.

Inflation Targeting

Most modern central banks target the rate of inflation in a country as their primary metric for monetary policy. If prices rise faster than their target, central banks tighten monetary policy by increasing interest rates or other hawkish policies. Higher interest rates make borrowing more expensive, curtailing both consumption and investment, both of which rely heavily on credit.

Likewise, if inflation falls and economic output declines, the central bank will lower interest rates and make borrowing cheaper, along with several other possible expansionary policy tools.

As a strategy, inflation targeting views the primary goal of the central bank as maintaining price stability. All of the tools of monetary policy that a central bank has, including open market operations and discount lending, can be employed in a general strategy of inflation targeting. Inflation targeting can be contrasted with strategies of central banks aimed at other measures of economic performance as their primary goals, such as targeting currency exchange rates, the unemployment rate, or the rate of nominal gross domestic product (GDP) growth.

How Central Banks Influence the Money Supply

Contemporary governments and central banks rarely ever print and distribute physical money to influence the money supply, instead relying on other controls such as interest rates for interbank lending. There are several reasons for this, but the two largest are:

1. New financial instruments, electronic account balances, and other changes in the way individuals hold money make basic monetary controls less predictable.
2. History has produced more than a handful of money-printing disasters that have led to hyperinflation and mass recession.

The U.S. Federal Reserve switched from controlling actual monetary aggregates, or the number of bills in circulation, to implementing changes in key interest rates, which has sometimes been called the “price of money.” Interest rate adjustments impact the levels of borrowing, saving, and spending in an economy.

When interest rates rise, for example, savers can earn more on their demand deposit accounts and are more likely to delay present consumption for future consumption. Conversely, it is more expensive to borrow money, which discourages lending. Since lending in a modern fractional reserve banking system actually creates “new” money, discouraging lending slows the rate of monetary growth and inflation. The opposite is true if interest rates are lowered; saving is less attractive, borrowing is cheaper, and spending is likely to increase, etc.

Increasing and Decreasing Demand

In short, central banks manipulate interest rates to either increase or decrease the present demand for goods and services, the levels of economic productivity, the impact of the banking money multiplier, and inflation. However, many of the impacts of monetary policy are delayed and difficult to evaluate. Additionally, economic participants are becoming increasingly sensitive to monetary policy signals and their expectations about the future.

There are some ways in which the Federal Reserve controls the money stock; it participates in what is called open market operations, by which federal banks purchase and sell government bonds. Buying bonds injects new dollars into the economy, while selling bonds drains dollars out of circulation. So-called quantitative easing (QE) measures are extensions of these operations. Additionally, the Fed can change the reserve requirements at other banks, limiting or expanding the impact of money multipliers.

What Is Monetary Policy?

Monetary policy is a set of actions by a nation’s central bank to control the overall money supply and achieve economic growth. Strategies include revising interest rates and changing bank reserve requirements.

In the United States, the Federal Reserve Bank implements monetary policy through a dual mandate to achieve maximum employment while keeping inflation in check.

What Is Inflation?

Inflation is a gradual loss of purchasing power that is reflected in a broad rise in prices for goods and services over time. The inflation rate is calculated as the average price increase of a basket of selected goods and services over one year.

In the U.S., the Federal Reserve targets an annual average inflation rate of 2% by setting a range of its benchmark federal funds rate, which is the interbank rate on overnight deposits.

What Is a Central Bank?

A central bank is a financial institution responsible for forming monetary policy and regulating member banks. It typically has privileged control over the production and distribution of money and credit for a nation or a group of nations.

The U.S. central bank is the Federal Reserve System. Often called the Fed, it was created in 1913 and is arguably the world’s most influential financial institution.

How Does a Central Bank Affect Monetary Policy and Inflation?

Most nations’ central banks target the inflation rate in their respective countries as their primary metric for monetary policy. A central bank affects monetary policy by adjusting the money supply in the economy. A central bank affects inflation by manipulating interest rates through monetary policy, either raising rates to cool the economy when inflation is high or lowering rates to stimulate economic growth when inflation is low.

The Bottom Line

Arguments for monetary policy are that it controls inflation through a target interest rate; is quick and easy to implement; can be undertaken by independent and politically neutral central banks without fear of political repercussions; and can actually boost exports if the nation’s currency is weaker on world markets.

Arguments against monetary policy are that it takes months or even years to have effects on an economy; can lead to a liquidity trap when interest rates are kept very low for prolonged periods of time; affects an entire economy or country when only some sectors or regions might need the stimulus; and creates a risk of hyperinflation.

Economists continue to debate the usefulness of monetary policy, but it remains the most direct tool of central banks to combat or create inflation.

Reviewed by Somer Anderson

Mexico has the 15th largest nominal gross domestic product (GDP) in the world and its economic improvement has been linked primarily to its involvement with the North American Free Trade Agreement (NAFTA) that was established in 1994.

NAFTA is a trade agreement that allows for free trade between the United States, Canada, and Mexico. Most exports are traded among the three countries with no tariffs through NAFTA, eliminating trade barriers for goods and services.

A revised version of NAFTA was negotiated by President Donald Trump during his first term. It’s the United States-Mexico-Canada Agreement (USMCA) and it was entered into enforcement on July 1, 2020.

Key Takeaways

• Income levels and living standards in Mexico have been rising steadily since the 1994 passage of the NAFTA free trade agreement.
• Electronics and auto manufacturing are key industries.
• Poverty has fallen dramatically in Mexico, falling from 36% to 21% over the course of a decade.

Mexico’s Middle Class

The income levels and living standards for the Mexican middle class have been up and down since the NAFTA agreement was signed and then effectively replaced by the USMCA. The number of people earning less than $6.80 per day fell from 36% in 2012 to just over 21% a decade later. Poverty is expected to fall steadily through 2026, as real GDP per capita is expected to increase.

Mexico’s middle class is expected to continue growing, with 3.8 million more households expected to move up to the middle range by 2030.

Policy Changes Helped

Improved financial stability in the country and increased support from the government have been helping income equality substantially in Mexico. The middle class benefited from increased levels of production in electronics and automobiles because NAFTA’s provisions allowed for these goods to be traded tariff-free.

Electronics and automobiles have long been a leading manufacturing focus in the country. Middle-class workers are seeing more job opportunities at better wages with increased production levels.

Electronics and Auto Manufacturing

Both the electronics and automobile industries have grown significantly in Mexico since 1994 with free trade as the catalyst.

Mexico has the sixth-largest electronics industry in the world and is the second-largest exporter of electronics to the U.S. Leading electronic products manufactured in the industry include televisions, display monitors, circuit boards, semiconductors, and computers.

The country is a leading supplier of communications equipment including mobile phones. It’s also one of the world’s top producers of electronic appliances.

Important

Economists expect Mexico to be the world’s fifth-largest economy by 2050.

Mexico is the biggest manufacturer of automobiles in North America. Most of the industry in Mexico is represented by General Motors Company, Ford Motors, and Fiat Chrysler Automobiles. Other leading automobile manufacturers with plants in Mexico include Volkswagen, Nissan, Kia Motors, Mercedes-Benz, and Audi.

More manufacturers are adding or moving their operations to Mexico as the economy and consumer dynamics of the country continue to improve. This trend is expected to continue with the country likely to see an increasing number of manufacturers, specifically in the electronics and automobile industries.

Mexico’s Energy Sector

The energy sector is a highly influential factor in Mexico’s economy. Its land is rich in natural resources that are ripe for commodities mining, exploration, and refining.

Pemex is one of the world’s largest energy companies with a focus on upstream and downstream natural gas and oil operations. It provides a wide range of jobs for the country’s population.

Rising Income Levels

Mexico’s economic growth has been linked simultaneously with the added economic advantages of free trade. The country has benefited from an increased government focus on income equality reform at the same time.

Income levels in Mexico overall have been growing since the mid-1990s but they remain low by U.S. standards.

Future Growth

Economists forecast that Mexico’s economy will grow to the fifth-largest in the world by 2050 primarily as a result of growth in its manufacturing and energy sectors. This growth is expected to add to the rising income levels and purchasing power of Mexico’s middle-class consumers.

Studies show that middle-class Mexican consumers are optimistic about the future economy yet they spend conservatively. More companies in the consumer-packaged goods and retail industries are opening operations there to capitalize on this optimistic yet conservative demand.

AT&T is one example. The telecommunications provider has expanded its high-speed internet service in Mexico with about 21 million subscribers as of 2023.

What Is the Average Daily Wage in Mexico?

The daily minimum wage rose to 278.80 Mexican pesos or $13.76 U.S. effective Jan. 1, 2025.

How Do Tariffs Affect Workers?

Tariffs can affect manufacturing because they must be incorporated into the costs of production. This leaves less money for wages and can result in pay cuts and even the loss of jobs.

What Is Mexico’s Top Export Overall?

Motor vehicles continued to be Mexico’s top export in 2024. In the first half of the year, Mexico exported $29 billion of passenger cars, and another $20.7 billion in vehicle parts and $20.6 billion of trucks. With total exports for that six-month period valued at just under $300 billion, the auto industry accounted for around 24% of the country’s exports.

The Bottom Line

Mexico is the world’s fifteenth-largest economy, thanks in part to free trade arrangements with its neighbors and other trading partners overseas. With a vigorous export economy, the middle class is growing and the level of poverty has fallen dramatically, but it’s not clear how changing trade relationships will affect the country’s development.

Fact checked by Suzanne Kvilhaug
Reviewed by Cierra Murry

Gold ETFs offer exposure to the gold market without requiring investors to buy physical gold, with some equity-based gold ETFs providing dividends from gold-related companies. These dividend-paying ETFs can help mitigate risk by generating cash flow, even during market downturns. Let’s take a look at some gold miner ETFs that pay dividends.

Key Takeaways

• Gold ETFs provide investors with exposure to the gold market without having to purchase physical gold or specific gold stocks.
• Sprott Gold Miners ETF only holds 33 different companies.
• The VanEck Vectors Gold Miners ETF holds 57 different companies with the top 10 holdings representing 64% of the fund.
• The iShares MSCI Global Gold Miners ETF offers biannual distributions.
• The VanEck Vectors Junior Gold Miners ETF tracks the performance of small- and mid-cap companies.

Understanding Gold Miner ETFs

Investors are often attracted to the low costs and ease of trading of exchange-traded funds (ETFs). These funds represent a basket of securities that track an underlying index, giving investors exposure to many different companies with specific characteristics. These companies are commonly related by asset class, company size, or industry.

As such, gold ETFs provide investors with exposure to the gold market without the need to purchase the physical metal or stocks of various gold companies. Only a handful of the available gold ETFs offers the bonus of paying dividends. Dividends are only available with equity-based gold ETFs that invest in the stocks of companies engaged in the gold industry.

Here’s a look at four of the ETF names that track gold and pay dividends. All information is current as of February 2025.

1. Sprott Gold Miners ETF (SGDM)

The Sprott Gold Miners ETF (SGDM) was launched in 2014. The ETF’s goal is to “track the performance of larger-sized gold companies whose stocks are listed on Canadian and major U.S. exchanges”.

The market capitalization of the fund is $287 million. The ETF is strategically designed to mirror the performance of the Solactive Gold Miners Custom Factors Index TR. The benchmark index is also made up of 35 different precious metals companies.

The fund’s operating expenses is 0.52%, though 0.02% of this is waived by the investment advisor of the fund resulting in a net fund fee (total expense ratio) of 0.50%. It has paid a dividend every year since 2018. The ETF last paid a dividend of $0.29 per share to investors on December 19, 2024.

2. VanEck Vectors Gold Miners ETF (GDX)

The VanEck Vectors Gold Miners ETF (GDX), launched by Van Eck in 2006, has approximately $14.1 bllion in net assets under management, making it one of the largest and most widely traded gold ETFs. It trades on the NYSE Arca Exchange.

The ETF’s portfolio is made up of 57 holdings, many of which are some of the world’s largest gold companies. The top 10 holdings comprise 64.65% of the portfolio’s weight. Companies are chosen based on market cap with a minimum of $750 million. Holdings include Newmont, Barrick Gold, and Franco-Nevada. The fund tracks the NYSE Arca Gold Miners Index.

The fund carries an expense ratio of 0.51%, and GDX pays distributions annually. On December 24, 2024, GDX distributed a dividend of $0.4025 per share. The fund has issued a dividend every year since its 2006 inception except for 2008.

Important

Gold ETFs that hold the physical precious metal or that hold gold futures contracts do not offer dividend yields.

3. iShares MSCI Global Gold Miners ETF (RING)

The iShares MSCI Global Gold Miners ETF (RING) was launched in 2012 by BlackRock. With just over $1 billion in net assets, this ETF tracks the MSCI ACWI Select Gold Miners Investable Market Index. As such, it follows the performance of companies in both developed and emerging market economies whose primary revenue source is gold mining.

A total of 38 companies make up its portfolio including notable companies such as Newmont, Barrick Gold, and Agnico Eagle Mines Ltd.

The fund awards semi-annual distributions. On December 20, 2024, the fund distributed $0.216 per share; on June 17, 2024, the fund distributed $0.186 per share.

4. VanEck Vectors Junior Gold Miners ETF (GDXJ)

The VanEck Vectors Junior Gold Miners ETF (GDXJ) was launched by Van Eck in 2009 and has approximately $4.87 billion in net assets. This complementary offering to Van Eck’s larger GDX ETF offers exposure to gold mining firms with lower market cap values.

The fund aims to mirror the Market Vectors Global Junior Gold Miners Index, which was designed to reflect the performance of small- and mid-cap companies that derive the majority of their revenue from gold and silver mining. The fund has 87 holdings.

Major portfolio holdings include Pan-American Silver and Evolution Mining. Unlike the larger funds, the concentration of the portfolio is much more diversified, with the top 10 holdings only making up less than 44% of the portfolio’s assets.

The expense ratio for the fund is 0.52%, and the 12-month yield is 2.12%. On December 24, 2042, GDXJ issued a dividend, distributing $1.1144 per share. The fund has issued a distribution in all but 2 of the 13 years since the fund’s inception.

Do Gold ETFs Pay Dividends?

Some Gold ETFs pay dividends, such as the ones listed in this article. It is important to note dividend yields often change over time. In addition, companies and ETFs may elect to not distribute any dividends for a given distribution period, often a result of poor financial performance.

What ETF Pays the Highest Dividends?

The gold mining ETF that pays the highest dividend in this article is the iShares MSCI Global Gold Miners ETF (RING).

Does Vanguard Have a Gold ETF?

Vanguard does not current offer a gold mining ETF.

Which Gold ETF Is the Safest?

The gold ETF that is the safest will depend on individual risk tolerance and investing style. ETFs are generally safer than individual stocks due to their diversified nature. However, ETFs are also highly centralized within a specific industry or asset class. The risk level across all gold ETFs will be fairly similar.

The Bottom Line

There’s a diverse offering of gold ETFs that range in assets under management size, number of companies held, and fund management expense. These funds also differ in their timing of distributions and dividend yields.

Fact checked by Vikki Velasquez
Reviewed by Samantha Silberstein

As the value of the U.S. dollar rises globally, the U.S. stock indexes tend to rise along with it.

Over the last 20 years, the rise in the value of the U.S. dollar has had a slight positive correlation to the movement of the S&P 500 Index. That is, about 40% of the time, the S&P 500 goes up when the dollar’s value rises.

Clearly, the trend doesn’t hold true all of the time, or not for all stocks. It’s important to determine how and why the stocks you choose can be affected by the rise or fall of the U.S. dollar.

Key Takeaways

• Companies that rely on imports thrive when the U.S. dollar is strong. It lowers their costs.
• Companies that sell their products globally thrive when the dollar is weak. It makes their products more competitive abroad.
• Philip Morris International and Coca-Cola are two companies that can get hit by a strong dollar because they rely on international sales. They sell more when the dollar is weak.

How U.S. Dollar Value Moves Stock Prices

The U.S. dollar, or any currency, can become more valuable in relation to other currencies in two ways. It grows in value when global demand for the currency increases. And, it grows in value when the nation’s central bank reduces the amount of the currency that is available.

It’s practically inevitable that an increase in the U.S. dollar’s value will raise the value of American stock indexes since U.S. dollars are needed to purchase American stocks.

But, the effect of a significant change in the value of the U.S. dollar on a U.S. investor’s portfolio is very much a function of the portfolio’s contents. Your portfolio might be worth less than before, more than before, or about the same as before. It depends on what kinds of stocks are in your portfolio.

U.S. Dollar Stock Correlation Scenarios

The following examples illustrate the potential effects of a declining dollar on an investor’s portfolio, from worst case to best case.

The Worst-Case Scenario

Your portfolio is made up of shares in companies that rely heavily on imported raw materials, energy, or commodities to make money.

Much of the manufacturing sector depends on imported raw materials to create finished goods. When the U.S. dollar declines in value, the purchasing power of the U.S. dollar declines. It will cost manufacturers more to buy their materials, which puts pressure on their profit margins and, ultimately, their bottom lines.

Companies in your portfolio that don’t properly hedge against their reliance on the price of imported goods or the effects of a declining dollar can expose you to foreign exchange risk.

For example, a company that makes baseball bats using imported wood will need to pay more U.S dollars for the wood. The company will have to decide whether it will keep its prices the same and make less money per unit sold or raise its prices and risk losing customers.

The Likely Scenario

Your portfolio is made up of a diverse collection of companies and is not overweight in any one economic sector. You have also diversified internationally and hold stock in companies that operate around the world, selling to many markets.

In this situation, a declining dollar will have both positive and negative effects on your portfolio.

The extent to which the companies you own depend on a high or low U.S. dollar to make money will be a factor in their stock performance, which is why diversification is crucial.

The positive and negative effects of the change in the dollar should balance out.

The Best-Case Scenario

Your portfolio is made up of companies that export U.S. manufactured goods around the world.

Companies that rely substantially on foreign revenue and international exports stand to do very well if the U.S. dollar depreciates in value because they get more U.S. dollars when they convert the foreign cash their products bring in.

A lower dollar also makes high-quality American goods more competitive in international markets. Consumers abroad will choose its products over the domestic competition.

What Companies Do Better When the US Dollar Is Weak?

Philip Morris International and Coca-Cola are cited by Barrons as two examples of stocks that were hit by the strong dollar in early 2025. Both companies rely heavily on international sales for their growth. Their products fare better against local competitors when the dollar is relatively weak.

Why Is the U.S. Dollar Called the World’s Currency?

The U.S. dollar’s unofficial status as the world’s currency stems from its relative stability compared to other currencies. It is considered the world’s reserve currency for the same reason. Some countries have adopted the U.S. dollar as their official domestic currency. Others accept the dollar in addition to their own currencies. Their currency values are pegged to the dollar to keep them stable.

Do I Want a Weak Dollar or a Strong Dollar When I Travel Abroad?

You definitely want a strong dollar when you travel abroad. It means you’ll get more pounds, euros, or yen when you exchange your U.S. dollars.

The Bottom Line

The values of American stocks, especially those that are included in market indexes, tend to increase along with the demand for U.S. dollars. In other words, they have a positive correlation.

One explanation for this relationship is foreign investment in the U.S. markets. As more investors place their money in U.S. equities, they are required to buy U.S. dollars to purchase American stocks, causing the indexes to increase in value.

However, the critical factor is the makeup of your personal portfolio. If your choices are diversified, your money will be protected from the gyrations of the currency exchange.

Learn about capital gains, cost basis, qualified dividends, and more

Reviewed by Julius Mansa
Fact checked by Vikki Velasquez

Many investors have questions about the best way to calculate their taxes on mutual funds. The way your mutual fund is treated for tax purposes has a lot to do with the type of investments within the fund’s portfolio.

In general, most distributions you receive from a mutual fund must be declared as investment income on your yearly taxes. However, the type of distribution received, the duration of the investment holding, and the type of investment are all important factors in determining how much income tax you pay on each dollar of a distribution.

In some cases, distributions are subject to your ordinary income tax rate, which is the highest rate. In other cases, you may be eligible to pay the lower capital gains tax rate. Other distributions may be completely tax-free.

Key Takeaways

• Mutual funds that create a lot of short-term capital gains—and are taxed at ordinary income (not capital gains) rates—can cost you.
• When it comes to distributions, the difference between ordinary income and capital gains is based on how long that fund has held an individual investment within its portfolio.
• If you receive a distribution from a fund that results from the sale of a security the fund held for only six months, that distribution is taxed at your ordinary income tax rate.
• If the fund held the security for several years, however, then those funds are subject to the capital gains tax instead.

Ordinary Income vs. Capital Gains

The difference between ordinary income and capital gains income can make a huge difference to your tax bill. In short, only investment income you derive from investments held for more than a year is considered capital gains.

This concept is pretty straightforward when it comes to investing in individual stocks. The world of mutual funds, however, is a little more complicated.

Mutual funds are investment companies that invest the collective contributions of their thousands of shareholders in numerous securities called portfolios. When it comes to distributions, the difference between ordinary income and capital gains has nothing to do with how long you have owned shares in a mutual fund but rather how long that fund has held an investment within its portfolio.

If you receive a distribution from a fund that results from the sale of a security the fund held for less than a year, that distribution is taxed at your ordinary income tax rate. If the fund held the security for 12 months or more, however, then those funds are subject to the capital gains tax instead.

When a mutual fund distributes long-term capital gains, it reports the gains on Form 1099-DIV, Dividends, and Distributions, and issues the form to you before the annual tax filing date.

Why Is This Important?

The difference between your ordinary income tax rate and your corresponding long-term capital gains tax rate can be quite large. This is why it is important to keep track of which income is subject to the lower rate. Ordinary income is taxed at either 10%, 12%, 22%, 24%, 32%, 35%, or 37% depending on filing status and income.

The capital gains tax rates are 0%, 15%, and 20%, and will depend on your filing status and income. Below are the tax rates and income brackets for capital gains for 2024 and 2025. Note that if you earn above the 15% maximum amount, your capital gains tax will be 20%.

Figuring Your Gains and Losses

If you sell your shares in a mutual fund, any amount of the proceeds that is a return on your original investment is not taxable since you already paid income taxes on those dollars when you earned them. Therefore, it is important to know how to calculate the amount of your distribution attributed to gains rather than investments.

To determine how much of your investment income is gain or loss, you must first know how much you paid for the shares that were liquidated. This is called the basis. Because mutual fund shares are often bought at various times, in various amounts, and at various prices, it is sometimes difficult to determine how much you paid for a given share.

Important

Mutual fund investors can face unexpected tax bills even when a fund’s value declines, as taxable distributions may still occur when the fund manager sells appreciated assets.

Cost Basis and Average Basis

There are two ways the Internal Revenue Service (IRS) allows taxpayers to determine the basis of their investment income: cost basis and average basis.

If you know the price you paid for the shares you sold, then you can use the specific share identification cost basis method. However, if you own many shares that have been purchased at different times, this method may be very time-consuming. Alternatively, you can use the first-in, first-out cost basis method, in which you use the price of the first share purchased as the basis for the first share sold and so forth.

If you cannot determine the price you paid for specific shares, you may choose to use the average basis method, where you can use the aggregate cost of all your shares as the cost basis for each share sold. However, all your mutual fund shares must be identical to employ this method, meaning you cannot use the average basis method to figure your gains if some of your shares are part of a dividend reinvestment plan (DRIP) and some are not.

Like income from the sale of any other investment, if you have owned the mutual fund shares for a year or more, any profit or loss generated by the sale of those shares is taxed as long-term capital gains. Otherwise, it is considered ordinary income.

Dividend Distributions

In addition to distributing income generated by the sale of assets, mutual funds also make dividend distributions when underlying assets pay earnings or interest. Mutual funds are pass-through investments, which means any income they receive must be distributed to shareholders.

This most often occurs when a fund holds dividend-bearing stocks or bonds, which typically pay a regular amount of interest annually, called a coupon.

When a company declares a dividend, it also announces the ex-dividend date and date of record. The date of record is the date on which the company reviews its list of shareholders who will receive the dividend payment. Because there is a time delay when trading stocks, any sale of shares that occurs fewer than three days before the date of record is not registered, and the list of shareholders still includes the name of the selling investor. The date before the date of the record is the ex-dividend date.

How Are Dividend Distributions Taxed?

In general, dividend income is taxed as ordinary income. If your mutual fund buys and sells dividend stocks often, more than likely any dividends you receive are taxed as ordinary income. For example, assume you receive $1,000 in dividend payments from your actively managed fund. If you are in the 24% income tax bracket, you pay $240 at tax time.

However, there are two very important exceptions: qualified dividends and tax-free interest.

Qualified Dividends

Dividend distributions received from your mutual fund may be subject to the capital gains tax if they are considered qualified dividends by the IRS. To be qualified, the dividend must be paid by a stock issued by a U.S. or qualified foreign corporation. Also, your mutual fund must have held the stock for more than 60 days within the 121-day period beginning 60 days before the ex-dividend date.

The ex-dividend date is the date after which the owners of newly purchased stock are ineligible for the dividend payment. If the ex-dividend date is April 12, for example, any investors who purchase stock on or after this date do not receive the impending dividend.

This may sound confusing, but essentially it means the fund must own the stock for either 60 days before the ex-dividend date or a combination of days before and afterward, adding up to at least 60 days. This complicated requirement is meant to discourage investors from purchasing funds with dividend-bearing stocks right before payments and then selling them off again, just to get the dividend. If your fund distributes qualified dividends, these dividends are reported to you on Form 1099-DIV.

Tax-Free Interest

The other way to minimize your income tax bill is to invest in so-called tax-free mutual funds. These funds invest in government and municipal bonds, also called “munis,” that pay tax-free interest. Money market mutual funds, for example, invest primarily in short-term government bonds and are widely considered stable and safe investments.

However, while municipal bonds pay interest that is exempt from federal income tax, they may not be exempt from your state income tax or local income taxes. In some cases, interest paid on bonds issued by governments in your state of residence may be triple-tax-free, meaning the bonds are exempt from all income tax. To avoid being caught off guard by unexpected taxation, verify with your fund which bonds within its portfolio are tax-free and to what degree.

How Are Distributions From Mutual Funds Taxed?

Most mutual fund distributions are considered taxable investment income. The tax rate depends on factors like the holding duration of the investment within the fund and the nature of the distribution, which could be ordinary income, capital gains, or sometimes tax-free.

What’s the Difference Between Ordinary Income and Capital Gains?

Ordinary income typically includes short-term capital gains (from assets held under a year) and is taxed at standard income tax rates. Long-term capital gains, from assets held over a year, are generally taxed at lower rates (0%, 15%, or 20%), which depend on your income bracket.

How Can I Reduce Taxes on Mutual Fund Distributions?

Investing in tax-advantaged accounts, like IRAs, choosing funds that focus on tax-free municipal bonds, or opting for tax-efficient funds can help lower tax burdens. Additionally, qualified dividends and long-term capital gains rates may offer tax savings if distributions are eligible.

The Bottom Line

Calculating the taxes you owe on mutual fund income and distributions can be extremely complex, even for the most seasoned investor. The IRS’s Publication 550, Investment Income and Expenses (Including Capital Gains and Losses) can be some help in informing you about these issues. But unless you own just a handful of shares and keep careful records, you may benefit from consulting a tax professional to ensure you are properly reporting all your investment income.

Fact checked by Kirsten Rohrs Schmitt
Reviewed by Margaret James

What makes the best entrepreneurs successful? For some, it’s patience and a reliance on feedback from close partners. For others, it’s superior knowledge and perseverance. For almost all, it’s being bold, taking risks, and trying things that have never been done.

In this article, we’ll look at 10 entrepreneurs who not only succeeded at what they did but built vast business empires that often spanned several industries.

Key Takeaways

• Early entrepreneurs who built business empires include John D. Rockefeller of Standard Oil and steel magnate Andrew Carnegie.
• Thomas Edison founded General Electric (GE), while Henry Ford revolutionized manufacturing, bringing cars to the masses.
• Oprah Winfrey and John Johnson pioneered broad entrepreneurial portfolios and spanned industries, mediums, and customer bases.
• Tom Love, Charles Schwab, and Steve Jobs scaled enterprises that are commonly seen and used across the country.

Who Are the 10 Greatest Entrepreneurs?

These businesspeople changed their industries and culture, built vast wealth, and created innovations that continue to influence our lives today.

1. John D. Rockefeller

Buried in Cleveland, Ohio, John D. Rockefeller was the richest man by most measures in his time. He made his fortune by squeezing out efficiencies through horizontal and vertical integrations that made Standard Oil synonymous with monopoly, and the price of fuel dropped drastically for the everyday consumer. The government broke up Standard Oil for good in 1911.

Rockefeller’s hand can still be seen in companies like Exxon and Conoco, which profited from the R&D and infrastructure they received as their piece of the breakup.

Rockefeller retired at the turn of the century and devoted the rest of his life to philanthropy. More than 80 years after his death, Rockefeller remains one of the great figures of Wall Street.

2. Andrew Carnegie

Andrew Carnegie loved efficiency—his mills were always on the leading edge of technology. Carnegie combined his superior processes with an excellent sense of timing, snapping up steel assets in every market downturn.

Like Rockefeller, Carnegie spent his later years giving away the fortune he spent most of his life building.

3. Thomas Edison

There is no doubt that Thomas Edison was brilliant, as both an inventor and a businessman. Edison took innovation and made it the process now known as research and development. He sold his services to many other companies before striking out on his own to create most of the electrical power infrastructure of the United States.

Edison is one of the founders of General Electric (GE)—the original company was Edison General Electric.

4. Henry Ford

Henry Ford did not invent the automobile. He was one of a group working on motorcars and was arguably not even the best of them. However, these competitors were selling their cars for a price that made the car a luxury of the rich.

Ford put America—not just the rich—on wheels and unleashed the power of mass production. His Ford Model T was the first car to cater to most Americans.

Ford’s progressive labor policies and his constant drive to make each car better, faster, and cheaper made certain that his workers and everyday Americans would think of a Ford when they shopped for a car.

Note

Though Charles Richard Patterson and Frederick Douglas Patterson didn’t make this top 10 list, these two men founded C.R. Patterson & Sons Co., which was the first (and only) Black-owned and operated automobile company in the United States. It lasted 74 years and closed in 1939. These successful businessmen undoubtedly helped shape today’s automotive industry, fueling the demand for innovation, customer service, and creative thinking when the car was created.

5. Oprah Winfrey

One of the richest and most influential women, Oprah Winfrey started her career as a news anchor and blossomed into a full-blown entrepreneur. Her show, “The Oprah Winfrey Show,” was syndicated nationally in 1986. It became the highest-rated U.S. talk show and earned Winfrey several Emmy Awards. She has also starred in films, including leading roles and as a voice actress in several animated films.

Winfrey is a pioneer in entrepreneurial endeavors, breaking into an on-air book club in 1996 and launching O, the Oprah Magazine in 2000. She co-founded Oxygen Media, a cable television network for women, and debuted a channel on satellite radio in 2006. Most notably, she created Oprah’s Angel Network, sponsoring charitable endeavors around the world. Not only has Winfrey paved the way for many businesswomen, she consistently demonstrates how to use entrepreneurial power for good.

6. Sam Walton

Sam Walton picked a market no one wanted and then instituted a distribution system no one had tried in retail. By building warehouses between several of his Walmart stores, Walton was able to save on shipping and deliver goods to busy stores much faster. By adding a state-of-the-art inventory control system, Walton lowered his cost margins well below those of his direct competitors. Then, rather than booking all of the savings as profits, Walton passed them onto the consumer.

By offering consistently low prices, Walton attracted more and more business wherever he set up shop. Eventually, Walton took Walmart to the big city to match margins with his competitors—and the beast of Bentonville has never looked back.

Important

Some question Walmart’s methods. Human Rights Watch found that while many American companies attempt to stop workers from organizing, Walmart stands out for the sheer magnitude and aggressiveness of its anti-union apparatus.

7. Charles Schwab

Charles Schwab, usually known as “Chuck,” took Merrill’s love of the little guy and belief in volume over price into the Internet Age. When May Day opened the doors for negotiated fees—all broker trades had previously been the same price—Schwab was among the first to offer a discount brokerage for the individual investor.

To do this, he trimmed the research staff, analysts, and advisors and expected investors to empower themselves when making an order.

From a bare-bones base, Schwab added services that mattered to his customers, like 24-hour service and more branch locations.

Merrill brought the individual investors back to the market, but Schwab made it cheap enough for them to stay.

8. Tom Love

If you’ve driven along an American highway, chances are you saw one of the over 600 Love’s Travel Stops & Country Stores scattered across 42 U.S. states. Known for its 24-hour access, restaurant offerings, and travel items, Tom Love built an empire with over 38,000 employees working in convenience stores across the country. In addition, Love employs workers at their corporate office in Oklahoma City.

A member of the Chickasaw Nation, Love and his wife Judy leased their first gas station in Watonga, Oklahoma, in the 1960s. In 2019, Love was inducted into the tribe’s hall of fame, noting that “the same love and qualities that define Love’s Travel Stops define the Chickasaw Nation.”

9. John Johnson

Born in Arkansas in 1918, John Johnson is regarded as one of the most influential African American publishers in American history. After finding success with his 1942 launch of Negro Digest, Johnson published Ebony, the most popular African American magazine in the world since its launch in 1945. Six years later, Johnson launched the largest weekly African American news magazine, Jet.

Johnson didn’t stop at publishing, though. He eventually owned Fashion Fair Cosmetics, the largest Black-owned cosmetics company in the world. He eventually became chairman and CEO of Supreme Life Insurance, as well. In 1996, former President Bill Clinton awarded Johnson with the Presidential Medal of Freedom, the highest civilian award in the nation.

10. Steve Jobs

Steve Jobs co-founded Apple, one of the only tech companies to offer a significant challenge to Microsoft’s dominance. In contrast to Gates’ methodical expansion, Jobs’ influence on Apple was one of creative bursts. Apple was a failing computer company when Jobs returned to it and made it into one of the top tech companies in the world.

The iPod, the iPhone, and the iPad are the engines of growth that propelled Apple toward the once unassailable Microsoft.

What Are Some Examples of Entrepreneurs in Healthcare?

The healthcare industry is full of bright and talented entrepreneurs, such as physicians running their own practices, independent traveling clinicians, and other professionals who assume risks to create new business opportunities or new ways of doing business.

For example, Ara Chackerian is Managing Director of ASC Capital Holdings, which invests in start-up healthcare companies. Abhilash Patel is an entrepreneur and strategist who co-founded Recovery Brands, which help people struggling with addiction find the treatment they need.

Who Is the Number One Entrepreneur in the World?

Depending on when this question is asked, the top entrepreneur in the world is often the world’s richest person. This title has been bestowed on several individuals over the years.

What Are Five Characteristics of Entrepreneurs?

There is no prescription for being an entrepreneur. However, there are traits most often shared by successful entrepreneurs. Here are five characteristics entrepreneurs should have:

• Take risks to pursue new opportunities
• Work hard and be persistent
• Know your target market and understand the one in which you will compete
• Continue learning
• Consider failures as new opportunities

The Bottom Line

These 10 entrepreneurs succeeded by giving customers something better, faster, and cheaper than others. Because entrepreneurship is so diverse, and everyone’s beginnings are different, entrepreneurs can take many different avenues to succeed.

Fact checked by Katrina Munichiello
Reviewed by Somer Anderson

Indeed vs. LinkedIn: An Overview

There are many employment websites to choose from. However, some operate differently, adding complexities to the job search.

Two of the most popular resources for job seekers are LinkedIn (LNKD) and Indeed.com. These sites offer a variety of employment opportunities; however, LinkedIn and Indeed.com are very different. LinkedIn is built as an employment-related social network, while Indeed.com is a metasearch engine for job listings.

Key Takeaways

• Indeed.com is a job board that aggregates postings from many sources, allowing users to search for specific positions.
• Indeed earns money through pay-per-click or cost per application models, and web advertising.
• LinkedIn is a social network for professionals and job seekers that offers a variety of services and makes money through premium subscriptions and enterprise solutions.

Indeed.com

Austin, Texas-based Indeed.com was founded in November 2004. It was created as a job listing board to compete with growing job boards, such as Monster.com and HotJobs. In 2010, Indeed.com overtook its competitors to become the most visited jobs website in the U.S. As of 2024 it boasted over 600 million unique visitors each month. It also lists jobs in over 60 countries and 28 languages.

A metasearch engine aggregates job postings from thousands of websites and employment firms, including company career web pages and recruiting firms. Prior to 2011, Indeed.com directed users to external job listings, but now the site allows job seekers to apply directly for jobs from within Indeed.com. Because of its ability to pull job listings from many diverse sources, the site offers a comprehensive listing of available job openings, which can be searched for by keyword, job title, industry, or level of experience. 

Indeed.com has also added services like resume storage, salary comparisons, employment-related news and trends, and user forums.

Indeed.com earns a profit using either the pay per click model or the pay per applicant system. With the pay per click model, employers pay a small fee each time a job seeker views a posting. With the pay per application model, employers pay for each applicant that meets minimum criteria. The company also earns money through advertising.

68%

The number of employers who use online jobs boards for all or most of their hiring in 2024, according to a survey by iHire.

LinkedIn

LinkedIn does have a job board as part of its suite of services, but it is first and foremost a professional- and business-related social networking site. It was founded in December 2002 and became a public company on May 11, 2011. In 2016, Microsoft acquired LinkedIn for $26.2 billion. The company served over one billion members in more than 200 countries and territories as of 2024. Prior to its acquisition, it succeeded in growing through a series of acquisitions that bolstered and expanded its core business.

In addition to a job board, LinkedIn gives users the ability to find friends and colleagues and build a social network geared towards professional networking and information sharing. Users can search for professionals outside of their network and then ask to be introduced by a common connection. The main profile page for a user is designed to appear like a resume or CV with employment history, education, skills, and professional interests prominently displayed. Forums and groups are available for networking and discussing specific topics.

LinkedIn generates revenue across four main product lines: Talent Solutions, Marketing Solutions, Sales Solutions, and Learning Solutions, in addition to collecting Premium Subscriptions. All four product lines are sold through two channels: an offline field sales force, which engages with both large and small business customers, as well as an online, self-serve channel—where it generates revenue from both enterprise customers and individual members purchasing subscriptions.

Individual users may use the website and many of its services free of charge under a basic plan but can upgrade to a premium subscription for a monthly fee. There are four premium options to choose from depending on how the user wishes to take advantage of the site: one for job seekers; one for professional networking and business promotion; one for generating sales leads and finding potential new customers; and one for employers or recruiters to post jobs and find talent.

How Do I Make My LinkedIn Profile Better?

Experts say that a strong LinkedIn profile should appear professional and highlight the unique skills and value that a candidate brings to professional employers. Use a high-quality, professional-looking headshot and use the headline statement to highlight the specific skills or areas of expertise associated with each role. In addition, you should use the featured content section to highlight your work and showcase your achievements. Finally, posting regularly can emphasize that you are thoughtful and professionally engaged with your industry.

What’s the Best Way to Improve My Resume?

Since many employers use algorithms to screen applicants, recruiters recommend using your resume to highlight keywords associated with the position. Look for keywords in the job description, or keywords specific to your industry, and use them in your resume. In addition, make sure your resume uses active language and emphasizes your achievements in each position.

What’s the Best Job Search Site?

While LinkedIn remains the most popular site for social networking, there are many other job sites to choose from, including Indeed, ZipRecruiter, CareerBuilder, and others. In addition, some industries have their own jobs boards for specific qualifications. Ultimately, an effective job search strategy will combine professional social networking with regular searches on jobs boards associated with your desired career.

The Bottom Line

Indeed and LinkedIn are both among the most popular sites for job seeking and career development. The difference is that while they both have job boards, LinkedIn is primarily a social network where professionals can post and connect with their peers and potential employers.

Reviewed by Andy Smith

A junior mining company is an exploration company in search of new deposits of gold, silver, uranium, or other precious metals. A junior gold miner is a junior company that exclusively mines gold. Most of these companies are in the development and exploration phase and are on the lookout for land with a higher chance for uncovering large mineral deposits.

As an investor, it is important to be able to tell the difference between a legitimate company ready to strike it rich and fly-by-night operations. If you are able to invest in a company before it hits the mother lode, you could be rewarded handsomely. Junior miners are often considered growth stocks. Many junior miners are penny stocks. These companies usually do not pay dividends, as they need to reinvest earnings to mine for gold.

Key Takeaways

• A junior gold miner is an exploration company in search of new deposits of gold.
• Investors need to be able to tell the difference between a junior gold miner ready to strike it rich and fly-by-night operations.
• Criteria that classify a company as a junior gold miner include not being listed on the Philadelphia Gold and Silver Sector Index or the NYSE Arca Gold BUGS Index (also known as the HUI Gold Index), and its resources, proximity to gold production, and quantity of gold uncovered in recent years.
• Other criteria of junior gold miners are being listed on the Toronto Stock Exchange or the TSX Venture Exchange, and a market capitalization that is typically small.
• Investing in junior gold miners is usually high-risk, as the companies have limited capital and are often very sensitive to the price of gold.

Unclear Criteria

There is much debate surrounding the criteria that classify a company as a junior gold miner. There is no universal definition of a junior gold mining company. Some financial analysts consider gold mining companies not listed on the Philadelphia Gold and Silver Sector Index (XAU) or the NYSE Arca Gold BUGS Index, better known as the HUI Gold Index (^HUI or HUI), as junior gold miners. Other criteria used to determine if a company is junior include its company’s resources, its proximity to gold production, and the quantity of gold it has uncovered in recent years.

Unlike a full-fledged gold mining operation, a junior gold miner typically does not have its own mining operation. A junior miner is a venture capital firm; it mainly relies on venture capital to secure its financing to undertake mining operations. There is some gray area in the definition of junior miner. Some financial analysts consider mid-tier mining operations junior if they recently decided to go into the development and exploration phase. There are publications available that list up-and-coming junior miners for a subscription fee.

Toronto and Market Cap

Another source of junior gold miners is the Toronto Stock Exchange (TSX). The Toronto Stock Exchange and the TSX Venture Exchange (TSXV) have hundreds of mining companies listed. The TSXV is your best source for junior miners. This stock exchange has mining companies conveniently broken down into categories.

Just like any other industry, market capitalization is a criterion commonly used to determine junior miner companies. On the TSXV, you can typically find small-cap companies. Small-cap miners are those in the early stages of development with market caps of $1 million to $5 million.

Invest at Your Own Risk

Junior gold miner operations are typically high-risk. A company only has a limited amount of capital to strike it rich. If it fails to discover gold mines before its debt comes due, it may have no choice but to file for bankruptcy.

Junior gold miners are typically very sensitive to the price of gold. If the price of gold suddenly drops, it may no longer be financially feasible to operate.

What Are Some Junior Gold Mining Stocks?

Examples of junior gold mining stocks include Adyton Resources (ADY on the TSXV), Montage Gold (MAU on the TSXV), and Zodiac Gold (ZAU on the TSXV).

Is There Another Way to Invest in Junior Gold Miners?

Yes. You could invest in an exchange-traded fund (ETF) that focuses on junior gold mining firms. The rationale for carving out specific ETFs for them is that they have more upside potential, but this comes with the downside of more risk.

Examples of junior gold miners ETFs include the VanEck Junior Gold Miners ETF (GDXJ), the Direxion Daily Junior Gold Miners Index Bull 2× Shares (JNUG), and the Sprott Junior Gold Miners ETF (SGDJ).

Where Can I Learn More About Junior Gold Miners?

A good resource is the Junior Mining Network website. Its features include free access to junior mining company lists, an advanced drill hole calculator, a junior mining stocks screener, a free morning newsletter, and more.

The Bottom Line

Junior gold miners are smaller companies that are exploring or in early production, working to identify and prove gold deposits. As gold prices rise, they may see greater growth as they produce new reserves. However, they are also less diversified in their operations, often with weaker balance sheets and higher failure rates.

Reviewed by Chip Stapleton
Fact checked by Timothy Li

An analyst who gives a stock an overweight rating expects the stock’s price to outperform its industry in the future. The rating may be based on a combination of positive news, good earnings, and raised guidance from the company.

Financial analysts give their opinions on the future performance of a stock using a standard formula: they may rate the stock underweight, market perform, or overweight. Some analysts add more tiers or use slightly different terms, such as avoid, hold, buy, and strong buy.

Most online brokers display ratings from several sources on their stock quote pages.

Key Takeaways

• An overweight rating means the stock appears likely to outperform its benchmark industry, in the opinion of the analyst. 
• An underweight rating implies the stock could underperform its benchmark industry.
• A market-perform rating suggests the stock should match the return of its benchmark.

Understanding Stock Ratings

Stock analysts are employed by investment firms to evaluate the financial performance of companies and forecast their future performance for the firm’s clients.

The investment analyst is making a recommendation for the stock, which is typically a buy, sell, or hold recommendation. However, the ratings that stock analysts provide are more involved than simply a buy or sell rating.

Below are the three most common ratings provided by stock analysts.

Overweight

An overweight rating on a stock means that an analyst believes the company’s stock price should perform better in the future. 

That said, the context is important. The analyst is making the recommendation based on an opinion of the stock’s likely performance in comparison with a certain benchmark.  

An overweight rating might be issued based on a benchmark index, such as the S&P 500, which is an index containing 500 of the largest publicly traded companies in the U.S. In this case, an overweight rating on the stock means that it deserves a higher weighting than the benchmark’s current weighting for that stock, in the analyst’s opinion.

For example, Apple Inc. has a weighting in the S&P 500 Index of about 7.1% as of early 2025. That means Apple comprises 7.1% of the total value of the index. An overweight rating on Apple would indicate that the equity analyst believes that Apple should have a higher weighting in the S&P 500.

Underweight

A stock that has an underweight rating means that an equity analyst believes the company’s stock price will not perform as well as the benchmark index being used for comparison. That would mean that the stock deserves a lower weighting than the benchmark’s current weighting for that stock. 

To an investor, the underweight rating is a signal that the stock could generate a below-average return compared to the benchmark.

Equal Weight

A stock that has an equal weight rating means that an equity analyst believes the company’s stock price will perform in line with or similar to the benchmark index being used for comparison.

Overweight and Price Targets

An overweight rating is generally interpreted by market participants as a sign that the company is doing well and its stock price should move higher.

Analysts usually include a price target for the stock, along with a time frame for its price to reach that target.

For example, say a pharmaceutical company’s stock is trading at $100 per share. Then the company announces it has received Food and Drug Administration approval for one of its drugs. The stock price quickly rises 25%. Soon after, an analyst may issue an opinion rating the stock as overweight with a price target of $175 in the next 12 months.

Criticisms of Overweight Ratings

An overweight rating may be one valuable piece of information, among others, that an investor can use to make a buy decision on a stock. It is an informed opinion, no more and no less.

An overweight rating cannot, however, suggest how many or how few shares to buy. An overreaction could tilt the investor’s portfolio out of balance, leaving the investor vulnerable to an unexpected turn of events in the company or the industry it is a part of.

If a stock or its industry currently has a large position within a portfolio and an investor buys more shares based on the overweight rating, the portfolio might no longer be diversified.

An investor whose portfolio is heavy with technology stocks should avoid purchasing an additional technology stock based on an overweight rating. The investor might consider selling another technology holding to make room for an overweight stock.

Special Considerations

An overweight rating might be a short-term trade. Some short-term investors respond to analyst upgrades, forcing a stock higher, at least briefly.

In any case, the investor’s time horizon, including the investor’s age will help determine how long a stock might be held. A retiree might hold a stock for only a few months or years because it may need to be converted to cash at some point. A millennial will have a much longer outlook.

The analyst’s rating needs to be taken into context with the investor’s time horizon, risk tolerance, and how soon the money will be needed.

Example of an Overweight Rating

Analysts may give a stock an overweight rating due to positive earnings and raised guidance.

For example, assume DEF, a technology company, releases its quarterly earnings results and beats its earnings per share and revenue estimates. In addition, the company raises its full-year earnings per share and revenue guidance by 25%.

The stock price rises by 10% after its earnings release, from $80 to $88 per share.

Meanwhile, the technology sector has been underperforming the market and declines by 20% while company DEF’s stock price has increased over the same period.

Since the stock is appreciating while the sector is depreciating, analysts give the stock an overweight and outperform rating with a price target of $150 in the expectation that DEF will outperform the industry.

What Qualifications Do Stock Analysts Have?

Stock analysts usually have an academic background in business, and often have CFA, CPA, or JD designations indicating further study. In recent years, analysts with specialized backgrounds in healthcare, engineering, or technology have been in demand.

Can I Be My Own Stock Analyst?

You can be your own stock analyst if you’re prepared for a deep dive into the intricacies of fundamental analysis or technical analysis. Fundamental analysis relies on a study of the financial numbers available from public companies. Technical analysis involves studying the price movements of a stock over time to identify patterns. Both attempt to predict the direction of the stock’s price in the future.

Do Stock Analysts’ Ratings Move the Market?

Yes. A respected analyst’s decision to rate a stock underweight or overweight can have an impact on a stock’s movement, at least in the short term. It’s yet another of the many variables that determine a stock’s price from moment to moment.

The Bottom Line

An overweight rating on a stock means that a stock analyst has concluded that it is likely to outperform its industry over the coming months. It may be based on a combination of positive news, upbeat comments from company insiders, and research into the current market for the company’s products.

Just remember, it’s a prediction, no more and no less.

Reviewed by JeFreda R. Brown

The last thing those living in co-ops want to hear at their annual shareholders’ meeting is that their co-op is in danger of defaulting. But for many people, this is a reality. Every year, co-ops are going bankrupt and leaving their “owners” in the cold.

Key Takeaways

• Co-ops can go bankrupt and leave their “owners” scrambling.
• Co-op defaults involve two commonly known types: technical defaults and mortgage defaults.
• Foreclosure—a lawsuit started by the lender to obtain legal title to the building—is the worst-case scenario when a co-op files for bankruptcy.
• The best advice for shareholders is to make educated decisions when shopping around and investigate the co-op before buying.

Types of Default

There are two commonly known types of default that involve co-ops: technical defaults and mortgage defaults.

1. Technical defaults are not terribly serious. Adam Leitman Bailey, Esq., a New York and New Jersey real estate lawyer and head of the New York City residential and commercial real estate firm Adam Leitman Bailey, P.C., says this type of default “consists of the failure to make repairs in violation of the mortgage agreement even though all monetary payments have been paid on time.” Usually, these types of defaults can be solved by arranging for the repairs to be completed or, at least, paid for.
2. Mortgage defaults are much more serious because the lender is not receiving payments for the building, as per the original agreement. This is a frustrating situation for shareholders who have diligently paid the monthly maintenance without missing payments. This is often the fastest route toward filing bankruptcy for co-ops. In this situation, the lender sends a notice of default to the building’s management, and if the mortgage default is not resolved, the foreclosure process begins.

Worst-Case Scenario: Foreclosure

Foreclosure is the worst thing that can happen when a co-op files for bankruptcy. A foreclosure is a lawsuit started by the lender to obtain legal title to the building. Stuart M. Saft, a partner at Dewey & LeBoeuf LLP, says that in New York, a foreclosure can take several years, but in the end, unless the co-op has a legitimate defense, a referee will hold an auction to sell the building, and the shareholders will revert back to being rental tenants and no longer “own” their apartments.

In the event that a co-op files for bankruptcy as a result of defaulting on its mortgage, the lender has the power to foreclose on the building and evict the shareholders. Bailey adds, “The lender of the underlying mortgage cannot go after each apartment shareholder because the building’s mortgage is not a personal guarantee by shareholders.” In a bankruptcy, the co-op’s bank will get paid before the shareholders.

So, any proceeds from the foreclosure sale of a bankruptcy will go to pay the bank. Shareholders who have obtained personal mortgages will be responsible for those payments even if they’ve lost ownership of the apartment shares.

In this scenario, shareholders don’t have many options. If the co-op chooses to file a Chapter 11 (a reorganization), the co-op mortgagee can move to convert it to a Chapter 7, which is liquidation, where the building is sold immediately.

In bankruptcy or foreclosure, the co-op shareholders remain as tenants if they are living there, but their proprietary lease is canceled. If they owe any mortgage on their apartment and don’t pay, “they may have adverse income tax consequences,” Saft confirms.

Co-operatives that may be in trouble of defaulting can try and catch up with payments by borrowing additional funds, raising the monthly maintenance fee, or adding an assessment. An assessment is a temporary increase in the monthly maintenance fee. This increase is designated for repairs or other expenses that the co-op needs covered.

What Can Shareholders Do?

Unfortunately for shareholders, there is not much that can be done if they’ve already purchased the co-op apartment. If they have purchased shares in a troubled co-op, they should seek advice from a qualified lawyer for guidance. The key is to make educated decisions when shopping around and investigate the co-op before buying.

Bailey says that when he represents a purchaser, he makes sure the building is stable by analyzing the building’s financials for the last two years. He compares the financial statement with any major structural improvements or needed repairs and looks for whether the building has solid cash reserves. Buildings that cannot afford to make mortgage payments or meet expenses are definite red flags.

Co-op apartment hunters can avoid falling into a “bad” co-op by asking for the financials themselves. Looking over a two-year history can provide a good glimpse of how well (or poorly) the building is doing. A low cash reserve, for example, could indicate the co-op will not have enough funds to cover emergency repairs. In this case, the co-op would need to acquire the funds from either the bank in the form of another loan or from shareholders.

Shareholders need to ask key questions when researching an apartment. For example, ask if the co-op has been making monthly mortgage payments. If they have missed payments, ask why. Ask if there are any other types of debt pending other than the mortgage, and if there are any upcoming major repairs—and if so, how the co-op is planning to pay for them.

Saft suggests some tips: “Look at the last financial statement to see if the accountant issued a clean audit letter; have your lawyer see if there are any liens filed against the building or the real estate taxes have not been paid. Try to find out from the managing agent if many shareholders are failing to pay their maintenance. Have your lawyer read the co-op’s minutes to see if there are any problems.”

What Is a Co-op?

Co-ops are housing arrangements where residents own a share of the legal entity, called a corporation. These shareholders receive a proprietary lease, or right, that allows them to live in one of the apartments or units.

Technically, the owner only owns shares in this corporation, not the real estate itself. The corporation owns the real estate. The owner of the shares pays a monthly maintenance cost that is used to cover building management expenses such as cleaning, heat, water, employee salaries, garbage removal, repair costs, taxes, insurance, and the building’s underlying mortgage.

How Many Housing Co-ops Are There in the United States?

A 2025 figure for U.S. housing co-ops is not readily available, but according to the Urban Homesteading Assistance Board, a national census conducted in 2015–16 with the support of the Ford Foundation found over 3,000 housing co-ops representing about 300,000 units of housing. Of these, 166,000 units were limited-equity, making them affordable for future generations.

According to the National Association of Housing Cooperatives, more than 1.2 million families live in U.S. housing co-ops, which are primarily located in urban areas such as Atlanta, Chicago, New York City, San Francisco, and Washington, D.C.

Are Co-op Bankruptcies Common?

Co-op bankruptcies are a rare occurrence. Saft says, “As far as we know, less than 10 co-ops have been foreclosed in NYC since World War II, so it is unlikely to occur now. However, it pays to be vigilant.” A technical default could lead to bankruptcy if all monies in the note become due as a result of a technical default, but this is unlikely.

The Bottom Line

The co-op board has a right to ask you, as a prospective buyer, about your financial history. It wants to make sure you will be able to meet the responsibility of monthly maintenance, in addition to your own personal mortgage payment. However, as a buyer, you also have the right to make sure the living space you will end up in is economically stable. Make sure you ask about every detail.

It’s your future, so exercise your rights.