money

Reviewed by Samantha Silberstein
Fact checked by Amanda Jackson

What Is Short Selling?

Short selling is a strategy that makes money when a stock falls in price. It is also called “going short” or “shorting.” This is an advanced strategy that only experienced traders should try. An investor borrows a stock, sells it, and then buys the stock back to return it to the lender.

Short sellers hope that the stock they’re shorting will drop, so they can buy it back at a lower price and return it to the lender. The profit is the difference in price between when the investor borrowed the stock and when they returned it.

Key Takeaways

• Short sellers are wagering that a stock will drop in price.
• Short selling is riskier than going long because there’s no limit to the amount you could lose.
• Speculators short-sell to capitalize on a decline. Hedgers go short to protect gains or to minimize losses.
• Short selling can net the investor a decent profit in the short term when it’s successful since stocks tend to lose value faster than they appreciate.
• Inexperienced investors may quickly find that short selling isn’t to their advantage.

Example of a Short Sale

Suppose you think that Company X is overvalued at $200 per share and that its price is due to go down.

You “borrow” 10 shares of Company X from a broker and then sell the shares for the market price of $200. Let’s say all goes as planned, and later, you buy back the 10 shares at $125 after the stock price has gone down and return the borrowed shares to the broker. You would net $750 ($2,000 – $1,250), minus any commissions and the cost of borrowing the 10 shares.

Let’s suppose, instead, that Company X’s price increases to $250 a share: you would lose $500 ($2,000 – $2,500).

Short-Selling Risks

Short selling amplifies risk. If investors buy a stock or “go long,” they stand to lose only the money they’ve put in. Based on the example above, if investors bought Company X at $200, the maximum they could lose is $200 for each share because the lowest any stock can go is $0.

However, there’s no such limit when investors short sell because a stock’s price can keep rising without limit.

For example, you would lose $175 per share if you had a short position in Company X (having borrowed the stock at $200 per share), and the price rose to $375 before you got out. Since there is no limit to how high Company X’s stock price can rise, there’s no limit to the losses for the short sellers involved.

Short Squeeze

Another risk of shorting is a short squeeze, which can happen if many investors short the same stock. If the shorted stock gains value, short sellers race to buy the stock back to cut their losses. This buying activity then drives the stock price up still further.

This typically happens with stocks that have high short interest, meaning a large portion of the stock’s available shares are sold short.

The most-publicized contemporary example of a short squeeze occurred when followers of WallStreetBets, a popular Reddit page, came together in January 2021.

The traders observed high short interest in the video game retailer GameStop Corp. (GME), and predicted that a short squeeze could result. Retail traders began buying GameStop shares and options, helping drive the price higher. These purchases caused the company’s share price to soar 17-fold in January alone, squeezing major hedge funds that shorted the stock.

Warning

Unlike long positions, a short trade has finite profits and potentially infinite losses.

Margin Call Risk

Short selling can only be undertaken through a margin account, which brokerages use to lend funds to investors trading securities. Short sellers need to monitor their margin accounts closely to ensure it has enough value to maintain their short positions.

If the stock that was sold short suddenly spikes in price, the trader will have to pump more funds quickly into the margin account. This might happen if the company whose stock has been shorted announces earnings that exceed expectations.

If the investor fails to make interest payments, or losses are mounting quickly, the brokerage might forcibly close out the short position and deduct the losses from the trader’s account.

Why Do Investors Go Short?

Short selling can be used for speculation or hedging. Speculators use short selling to capitalize on a potential decline in a specific security or the market as a whole. Hedgers use the strategy to protect gains or mitigate losses in a security or portfolio, using it as a form of insurance.

Speculation Example

This is similar to our examples of short selling thus far. For example, a speculator believes that Company X, trading at $200 per share, is overvalued and will likely see its stock price decline in the coming months.

The speculator borrows shares of Company X and sells them at the current market price of $200. A few months later, as anticipated, the stock falls to $125 per share. The speculator then buys back the same number of shares at this lower price to return them to the lender, profiting from the difference of $75 per share.

Hedging Example

This time, the investor holds a significant number of Company X shares. Say the company has been performing well and currently trades at $200 per share. The investor expects short-term market volatility that might cause a temporary drop in Company X’s stock price but does not want to sell the shares as part of a long-term strategy.

To protect the portfolio, the investor short-sells shares of Company X as a hedge. If its price drops, the loss in the investor’s long position will be offset by gains in the short position, thus reducing the overall loss in its portfolio. When the market stabilizes, the investor can close the short position by buying back the shares while maintaining their long-term position in Company X.

Experienced investors frequently engage in short selling for both purposes simultaneously. Hedge funds are among the most active short sellers and often use shorts in select stocks or sectors to hedge their long positions in other stocks.

When Does Short Selling Make Sense?

Buying stocks is less risky than short selling for the typical investor with a long-term investment horizon. Short selling isn’t a strategy used in most trades because stocks are expected to follow past performance and rise over time. Nevertheless, economic history has been punctuated by bear markets when stocks tumble significantly.

Short selling makes sense for investors convinced that a stock’s price will decline. There could be many reasons for that view—anticipated negative company news, like the expectation that a drug company’s main medication won’t pass its medical trials; overvaluation based on fundamental analysis; broader market or sector downturns; or simply the consideration that a much-hyped stock or sector can only fly high for so long.

However, short selling carries a high risk since losses can be unlimited. Short sellers can’t just invest and forget their positions, as long-term investors can.

They have to monitor their positions closely and be prepared for a short squeeze, which can lead to rapid losses. Only advanced investors with a high risk tolerance and an understanding of the risks associated with short selling should attempt it.

Restrictions on Short Selling

Short selling has always faced detractors who chafe at the idea of people profiting from the misery or losses of others. Shorting has also been blamed for market crashes since it can increase volatility. The U.S. regulates short selling to ensure market integrity and protect investors. Here are some of the key rules:

The Alternative Uptick Rule

In 1938, the Securities and Exchange Commission (SEC) enacted its uptick rule, designed to promote market stability and answer to charges that shorting helped bring about the market crash almost a decade earlier. This rule allowed short selling of a stock only on an uptick, meaning the sale price had to be higher than the last. Simply put, you could only short stocks going up in price.

However, the SEC removed the uptick rule in 2007 and introduced its alternative uptick rule in 2010, after the 2007-2008 financial crisis.

The alternative goes into effect when the price of a security has dropped by 10% or more from the previous day’s closing price. Short selling is permitted at this point only if the price is above the current best bid. The alternative uptick rule generally applies to all securities and stays in effect for the rest of the day and the following trading session.

Regulation SHO

The key regulation overseeing short selling in the U.S. is Regulation SHO, which requires brokers to have reasonable confidence a security can be borrowed before approving a short sale—a provision called the “locate” requirement.

The regulation was implemented in 2005 over concerns that failures to deliver (FTDs) stocks in short sales were increasing. This is believed to occur more often when there is naked short selling in the market.

Regulation SHO also formally bans naked short selling, the practice of selling shares you haven’t borrowed and haven’t confirmed can be made available.

Threshold Securities List

Another regulation connected to Regulation SHO is the threshold securities list. This is a publicly available list of securities with FTDs for five or more consecutive trading days and is used by regulators to identify potential cases of market manipulation.

Reporting Requirements

In 2023, the SEC introduced new rules requiring investors to report their short positions and the brokers that lend out securities to report all activity to the Financial Industry Regulatory Authority (FINRA).

Bringing greater transparency to short sales became a priority following the 2021 “meme stock” phenomenon. Retail investors significantly drove up the price of GameStop, a stock heavily shorted by hedge funds, leading to questions about the opaque nature of short selling and the potential for manipulating markets through shorting transactions.

A Short-Selling Alternative With Less Risk

An alternative to short selling is to buy a put option on the same stock. This limits the trader’s downside exposure. Holding a put option gives the right but not the obligation to sell the underlying stock at a specific strike price.

If the stock price rises rather than falls, your loss would be limited to the amount paid for the put option. You would then be responsible for this amount, called the option premium, plus any commissions.

Example of the Put Option Alternative to Shorting

Say Company X was trading at about $200 on March 4. A put option with a strike price of $200 that expired March 18 costs about $13 per share (the option premium plus commissions). If the price of Company X rose above $200, the investor’s loss would be limited to $13 per share plus commissions.

Note

The option premium varies based on the strike price and the expiration date of the put option. The higher the strike price and the longer the time until the expiration date, the higher the option premium.

Costs of Short Selling

Trading commissions aren’t the only expenses for short selling. Here are other costs:

• Margin interest: Short selling can only be done through a margin account, and the short seller pays interest on the borrowed securities and funds.
• Stock-borrowing costs: The shares of some companies are difficult to borrow because of high short interest or limited share float, or its availability for trading. In this case, the trader usually pays a hard-to-borrow fee based on an annualized rate that can become quite costly.
• Dividends and other payments: A short seller is also on the hook to make dividend payments on the shorted stock, as well as payments from other events, such as stock splits and spinoffs.

Explain Like I’m Five

Short selling, or just shorting, is a strategy where a trader bets that an asset will go down in price. To execute a short strategy, the trader borrows a stock and sells it at a high price. When the price drops, the trader buys it back at a lower price and returns it to the lender.

Short selling is a risky strategy because the potential losses are infinite. Short positions are also expensive—the trader has to pay a fee to borrow the stock, and they must also keep their brokerage balance at a certain level. It’s easy for a short seller to go bankrupt waiting for a stock to fall.

What Is the Maximum Profit You Can Make From Short Selling a Stock?

The maximum profit you can make from short-selling a stock is 100% because the lowest price a stock can trade at is $0. In practice, the maximum profit is less than 100% because of the costs of borrowing stock and margin interest.

Can You Really Lose More Than You’ve Invested in a Short Sale?

The losses from short selling can theoretically be infinite, since there is no limit to a stock’s possible price increases. This is the reverse of a conventional long strategy, where the maximum profit is theoretically infinite, but the most you can lose is the amount invested. For example, an investor with a short position of 100 shares in GameStop on Dec. 31, 2020, would have faced a loss of $306.16 per share or $30,616 if the short position had still been open on Jan. 29, 2021. The stock soared from $18.84 to $325.00 that month, so the investor’s return would have been -1,625%.

Is Short Selling Bad for the Economy?

Short selling has a negative reputation because some unscrupulous short sellers have used unethical tactics to drive down stock prices. However, when done legally, short selling facilitates the smooth functioning of financial markets because it provides market liquidity. Shorting also acts as a reality check for investors’ unrealistic expectations and reduces the risk of market bubbles.

What Is a Margin Call?

You trade on margin when using a security or capital borrowed from your broker, along with your own money. A margin call occurs when the value of the margin account falls below a specific level. This can occur if you’re short-selling and there’s a short squeeze, or if your collateral loses value. At this point, you have to deposit more funds or securities into the margin account. Your broker may require you to sell securities at market price to meet the margin call if you don’t deposit the necessary funds.

The Bottom Line

You can make a healthy profit by short-selling a stock that later loses value, but you can also rack up significant losses if the stock price goes up instead.

Short selling also leaves you at risk of a short squeeze when a rising stock price forces short sellers to buy shares to cover their position. This causes prices to spiral even higher. Short selling is not a good strategy for inexperienced investors who are unaware of the risks.

Reviewed by Margaret James
Fact checked by Jared Ecker

E-Books vs. Print Books: An Overview

E-books have become a mainstay of the publishing industry. However, predictions of the demise of printed books as a result of the introduction of e-books has not materialized thus far.

At the end of 2024, the industry was up 6.5% for the year, with total revenues from all categories at $14.2 billion. Revenues from ebooks were down 11.8% in December 2024 compared to December 2023. Let’s take a deeper look at both options and the publishing industry in general.

Key Takeaways

• Print books have the feel of a book that many readers love. You can hold it, turn the pages, and feel the paper.
• Illustrations on paper are generally higher quality than even high-end e-readers can reproduce.
• E-books come with font style and size flexibility.
• E-readers can store thousands of books on a single device.
• The publishing industry experienced a 6.5% increase in revenue in 2024.

Recent History of Print Books and E-Books

According to the Association of American Publishers, e-book sales in the U.S. were down 1.5% during the first quarter of 2024 compared to the first three months of 2023, for a total of $255.6 million in revenue. They currently make up 12% of total consumer book sales. Their share of the market has been inching up over time, but hardcover and paperback books still rule the market, with approximately $3.5 billion and $3.2 billion in sales in 2024, respectively.

The 2020 COVID-19 pandemic was a boon to print publishing. Sales rose 8.2% year over year to a total of 751 million copies, according to Printing Impressions, a publishing industry journal. More leisure time and a need to educate children at home were cited as reasons for the book-buying spree.

2022 brought about several unique trends. First, paperback and hardback revenue both decreased, with hardback coming in 13.6% lower than the year before. E-books also declined, falling 6.5%. It’s interesting to note that digital audio revenue grew 71.7% from 2021 to 2022.

Print Books

Print books have the feel of a book that many readers love. You can hold it, turn the pages, and feel the paper. People who love to read spend a lifetime acquiring books. They may find it wrenching to abandon their shelves of books for a single slab of plastic.

Readers may also compare the quality of illustrations between the two formats and find the print versions superior. The New Annotated Sherlock Holmes can be bought in either hardcover or Kindle versions but readers may find the Kindle version lacking due to the shrunken size of the illustrations and the relative clumsiness of toggling between story text and annotations.

Some readers also experience eye strain using an electronic device instead of a printed book.

E-Books

Books on paper are difficult to carry around, especially hardcovers. If you’re an avid reader and you’re going on a trip, or if you’re just stepping out to a coffee shop, an e-reader or iPad is a far lighter burden than a book or a stack of them.

Important

An e-book might be priced about the same or differently than a printed book. Because of the difference in format, there is an entirely different economic consideration for the good.

There’s also the satisfaction of having an entire library at your fingertips, not to mention an infinite supply just a click away, ready to download instantly.

In addition, e-book buyers have the advantage that the internet gives consumers of any products: No space constraints. Just about everything ever published is available, all the time.

There are some drawbacks. You must recharge an e-reader or any other electronic device. Some screens are not easily readable in sunlight. And, if you are one of the millions who spend the entire workday in front of a computer, reading your favorite author on a computer screen in the evening may not appeal.

Beyond Amazon

Avid e-book readers can stray beyond Amazon or Barnes and Noble and read for free.

The nonprofit Project Gutenberg offers 70,000 free downloadable books, most of them classics well beyond their copyright protection expiration dates. The site Free Classic Books offers just that, in an alphabetized list from Alcott, Louisa M., to Wodehouse, P.G.

Google Books also brags that it has more than 10 million books available to download for free, including textbooks and government documents as well as literary classics.

Special Considerations: The Publishing Business

E-books may omit some of the traditional costs of publishing, but it imposes other costs. Added technology costs involve formatting the e-book so that various electronic devices and browsers can properly download and store the book.

Whether it’s printed or downloaded, a percentage of the e-book price must be paid to online sellers such as Amazon and Barnes & Noble. This can be anywhere from 30% to 70% of the sale price.

The Independent Route

Smaller publishers and independent authors have more leeway with pricing, but they still have many of the same costs. They must give a percentage of their e-book sales to the online distributor, and unless they are graphic designers, they must hire an illustrator to create their cover art.

Most independent authors have to hire someone to convert their books into e-book format. Plus, they still have the marketing and promotional costs that are required to get their books noticed. However, e-books are overall lower in cost to produce, and that is typically reflected in their lower prices compared to print editions.

Print Books, E-Books, and Personal Finance

With the overview of the industry behind us, let’s talk about the finances of owning books. There’s a handful of personal finance considerations to make about which to buy.

Upfront Cost

Purchasing an e-reader may involve a higher initial investment than buying a single printed book. However, the economic advantage lies in the long-term savings as e-books may be priced lower than their physical counterparts (as they may cost less to produce). The upfront cost of an e-reader can be considered a one-time expense, and PCMag often recommends e-readers that cost less than $100.

Subscription Costs

Subscription services like Kindle Unlimited or Audible offer a cost-effective way to access a vast library of e-books. From an economic standpoint, these services can significantly reduce the per-book cost for avid readers, making it a financially smart move as opposed to buying individual books. However, you will not retain ownership during this subscription period, and you won’t keep books like you otherwise would a print book. Also, there are no subscription costs for print books that you can check out of a public library with a free library card.

Book Resale Value

The resale value of physical books adds an economic dimension to owning a print collection. Used bookstores, online platforms, and book swaps provide avenues for recovering some of the initial investment in printed books. E-books, unfortunately, lack a resale market, making them less financially flexible in this regard.

Storage Costs

Physical books incur storage costs in terms of space requirements and furniture like bookshelves. And consider how much it may cost to move those physical books if you need to relocate homes. The economic advantage of e-books is that they eliminate the need for physical storage or moving expenses, meaning readers can amass a vast collection without incurring additional costs.

Environmental Cost

From an economic perspective, the environmental impact of printed books, including production and disposal costs, contributes to their overall expense. E-books, unfortunately, may not be as sustainable as you might think. The continual need for electricity and the use of fossil fuels to generate it mean that e-books still contribute to environmental costs, just in a different way than printed books do.

Production and Distribution Costs

The cost of producing and distributing physical books encompasses expenses related to paper, printing, transportation, and warehousing. E-books sidestep these costs, offering a potentially more economically efficient model for publishers and authors. Though the costs may vary based on each book and genre, the total cost to self-publish a book are unofficially estimated to be several thousand dollars.

Accessibility

The economic advantage of e-books in terms of accessibility is evident for readers with visual impairments. Digital formats allow for features like adjustable text size and screen-reading technology, enhancing the reading experience for a broader audience.

52%

Percentage of U.S. adults who have ever listened to an audiobook. Thirty-eight percent have listened to one in the past year.

Change in Preference

Changes in reading habits have implications for e-books and printed book owners. Think of someone who’s preference may shift from one genre to another very quickly. If this sounds like you, the greater flexibility that electronic media offers may make more financial sense.

Which Is More Cost-Effective in the Long Run: Buying E-books or Printed Books?

The long-term cost-effectiveness of buying e-books versus printed books depends on factors such as individual reading habits, the frequency of book purchases, and the availability of discounts. While e-books often have a higher upfront cost with the purchase of an e-reader, the generally lower prices of digital copies may result in greater savings over time, especially for avid readers who buy books regularly.

Is There a Significant Difference in the Resale Value of E-books and Printed Books?

Printed books often have a resale market, allowing readers to recoup some of their initial investment. In contrast, e-books lack a formal resale market due to licensing restrictions.

What Is the Impact of E-books on Local Bookstores From an Economic Standpoint?

The rise of e-books has had a notable impact on local bookstores, with potential economic challenges such as decreased foot traffic and competition from online retailers. However, many small independent bookstores are partnering with affiliate partners to allow patrons to buy e-books.

The Bottom Line

E-books offer a potentially cost-effective solution for avid readers. The absence of physical production costs, reduced storage needs, and frequent digital promotions may make a digital library more cost effective. On the other hand, printed books may have resale value, no subscription cost, and greater sentimental appeal to old-fashioned readers. There are many factors to consider when choosing between e-books and printed books from a financial perspective.

Reviewed by Robert C. Kelly
Fact checked by Yarilet Perez

A country with a strong economy will attract investment from around the world. Investors will perceive safety and the ability to achieve an acceptable rate of return on investment. Since investors seek out the highest yield, an increase in investment, particularly from abroad, creates a strong capital account and a high demand for U.S. dollars.

Key Takeaways

• The U.S. dollar has been a reserve currency for international trade and finance.
• Like any other fiat currency, the dollar’s value depends on the economic activity and outlook of the United States.
• In addition to supply and demand and market factors, sentiment influences the dollar’s value on the global market.

What Affects the Dollar’s Value?

American consumption through imports of goods and services from other countries causes dollars to flow out of the country. If U.S. imports are higher than exports, the country will have a deficit in its current account.

With a strong economy, a country can attract foreign capital to offset the trade deficit. That allows the U.S. to continue its role as the consumption engine that fuels world economies, even though it’s a debtor nation that borrows this money to consume. This also allows other countries to export to the U.S. and keep their economies growing.

When the dollar is traded, three factors can drive its value, including supply and demand, market sentiment, and technical market data.

1. Supply vs. Demand

When the U.S. exports products or services, it creates a demand for dollars because customers need to pay for goods and services in dollars. Global consumers convert local currency into dollars by selling their currency to buy dollars to make the payment.

When the government or American corporations issue bonds to raise capital and bonds are purchased by foreign investors, those payments are made in dollars. This also applies to the purchase of U.S. corporate stocks from non-U.S. investors, requiring foreign investors to sell their currency to buy dollars to purchase those stocks.

Safe Haven

A safe haven is an investment expected to retain or increase value during market turbulence. The U.S. dollar is considered a haven during times of global economic uncertainty, so the demand for dollars often persists despite fluctuations in the performance of the U.S. economy.

2. Sentiment

When foreign investors buy back their local currency due to market turbulence, it dampens the dollar. Increasing unemployment may weaken the U.S. economy, and consumption may slow. The U.S. may face a dollar sell-off, where global investors return the cash from the sale of bonds or stocks to return to their local currency.

Investment banks and asset management firms analyze trends and often determine the general economic sentiment. Sentiment will often drive the market rather than the economic fundamentals of supply and demand.

3. Market Indicators

Traders gauge whether the supply of dollars will be greater or less than the demand. To help us determine this, they pay attention to news or events that may impact the dollar’s value. This includes various government statistics, such as payroll data, GDP data, and other economic information.

Traders also review historical patterns generated by seasonal factors such as support and resistance levels and technical indicators. Many traders believe that these patterns are cyclical and can be used to predict future price movements.

What Causes the U.S. Dollar to Rise?

When demand for the dollar increases then so does its value. Conversely, if the demand decreases, so does the value. The demand for the dollar increases when international parties, such as foreign citizens, foreign central banks, or foreign financial institutions demand more dollars. Other factors that influence whether or not the dollar rises in value in comparison to another currency include inflation rates, trade deficits, and political stability.

What Factors Influence the Exchange Rate?

Factors that influence the exchange rate between currencies include currency reserve status, inflation, political stability, interest rates, speculation, trade deficits and surpluses, and public debt.

Can the U.S. Government Determine the Value of the Dollar?

The U.S. Treasury and the Federal Reserve cannot dictate the value of the U.S. dollar. The value is determined in foreign exchange markets. However, as the value shifts on the exchange, the movements help the Fed determine monetary policy.

The Bottom Line

Traders can follow the Dollar Index chart to see how the dollar fares against other currencies. A trader can develop a sense of the flow of dollars and form an insight on how best to select profitable trading positions by watching the patterns on the chart and listening to the major fundamental factors that affect supply and demand.

Investment funds cast nearly 9 million proxy votes annually on behalf of American investors, effectively serving as corporate America’s hidden hand. Once a tedious formality at annual meetings, corporate governance has become contentious.

Fund managers traditionally vote on many issues on behalf of investors, but that’s changing.

Key Takeaways

• When investing in index funds, you delegate your shareholder voting rights to fund managers who vote on critical corporate issues.
• The biggest fund managers now offer ways for many investors to direct how they would vote on major corporate governance issues.

The Rise of the Big 3’s Proxy Voting Power

Passive index mutual and exchange-traded funds (ETFs) now hold over half of U.S. fund assets and about one-third of all U.S. equities. The “Big Three” asset managers—BlackRock Inc. (BLK), Vanguard, and State Street Corp. (STT)—control the most shares in nearly 90% of S&P 500 companies, wielding enormous proxy voting influence.

Once reliable supporters of management, the Big Three have been the focus of grassroots campaigns like those of GLAAD and other progressive groups. “Just as GLAAD works to get out the LGBTQ vote in political elections, we are activating the LGBTQ community to get educated and vote during proxy season,” Sarah Kate Ellis, president and CEO of GLAAD, the media advocacy organization for accelerating LGBTQ acceptance, told Investopedia.

Conservatives targeted these funds after environmental, social, and governance (ESG)-friendly votes in the early 2020s. Their critics, like James Copland of the Manhattan Institute, call their power “peculiar” and hope that Congress or the U.S. Securities and Exchange Commission (SEC) will curtail the Big Three’s ability to flex their “voting muscle over all of corporate America.” They argue that since funds are mere conduits for investors avoiding investing decisions (they automatically get whatever is in specific indexes), they shouldn’t get to impose their values through proxy votes.

However, many trading strategies—from technical trading to quant models—would seem at least as disconnected from governance concerns—so where to draw the line? The fund giants argue, too, that index investors often have the most at stake, saying that as permanent shareholders unable to sell specific index holdings (as others who disagree with a company’s policies can), they must exercise their governance rights. BlackRock CEO Larry Fink calls index investors “the ultimate long-term investors,” while Vanguard argues their position requires “the highest standards of stewardship.”

Note

In 2025, Costco Wholesale Corp. (COST), Apple, Walt Disney Co. (DIS), and Goldman Sachs (GS), among others, fought off anti-DEI proposals with shareholder support over 95%.

New Ways To Make Your Voice Heard

Facing political pressure, fund giants now offer investors more control over proxy votes:

BlackRock

According to a company spokesperson, BlackRock’s Voting Choice program enables over 3 million eligible shareholders in the iShares Core S&P 500 ETF (IVV), representing about $275 billion of the fund’s total assets of $585 billion, to participate. Investors can choose among seven third-party voting policies or continue letting BlackRock’s team vote on their behalf. As of December 2024, $3.1 trillion of BlackRock’s $6.3 trillion in index equity assets are eligible, with clients representing $679 billion exercising this choice. Fink has said these programs “can enhance corporate governance by injecting important new voices into shareholder democracy.”

State Street

State Street offers 10 proxy voting choices across $1.7 trillion in assets, including all U.S.-based index funds investing in American equities—covering 81% of eligible index equity assets.

Vanguard

Vanguard’s program covers eight funds (excluding those tracking the (S&P 500 Index), representing 4 million investors and $250 billion in shares. It offers five options: Vanguard-managed voting, management alignment, ESG priorities, profit focus, or abstention.

What This Means For Your Investments

Fund investors wondering how their money influences corporate America can do the following:

• Review voting records via SEC’s Form N-PX filings on the SEC’s EDGAR database.
• Explore the Big Three’s voting choice programs.
• Compare fund families’ voting patterns on ESG proposals.

The Bottom Line

Proxy voting has become a major battleground in American capitalism. By investing in funds, you delegate your corporate voting rights to managers with potentially different priorities. Regardless of your stance on ESG initiatives, your investment dollars are helping shape corporate America’s future.

Fact checked by Suzanne Kvilhaug

A wave of restructuring at the Social Security Administration is starting to impact retirees, disabled Americans, and low-income seniors. The changes are being driven by the Department of Government Efficiency (DOGE), a White House initiative led unofficially by billionaire Elon Musk with the support of President Donald Trump.

DOGE has slashed staff, shuttered offices, and imposed a larger withholding for overpaid benefits—moves that critics say could hit vulnerable Americans the hardest.

Key Takeaways

• Social Security services are slowing down after DOGE-driven cuts, especially for vulnerable groups like disabled Americans and low-income seniors.
• While long-term benefits are likely secure, navigating the system is getting harder with fewer resources to process claims.
• A new 50% withholding rule for benefit overpayments—up from 10% under President Joe Biden—has raised alarms, with experts warning it punishes vulnerable retirees for mistakes they didn’t make.

Why Cuts Hit Some Harder Than Others

Social Security has long been a lifeline for older Americans and those living with disabilities. But the current staff reductions and field office closures are already having noticeable effects.

Monique Morrissey, an economist at Economic Policy Institute, a left-leaning think tank, says that the people most impacted by DOGE are those disabilities and low-income seniors. These groups rely more heavily on in-person support, which is harder to come by with fewer staff and closed offices.

“People trying to access retirement benefits will also face delays,” she said. “Some people eligible for disability income and Supplemental Security Income (SSI) will lose out permanently from service delays and disruptions in accessing these benefits.”

She also warns that website crashes are becoming more frequent. And when people try to apply online without help, they may miss out on benefits they’re entitled to due to the lack of resources available.

Elon Musk & DOGE

After three months heading up DOGE’s cost-cutting efforts, Musk said in late April he would be “allocating far more” of his time to his job as Tesla CEO, though he stopped short of saying he would completely cut down on government work. “I’ll continue to spend a day or two per week on government matters for as long as the president would like me to,” he said on Tesla’s first-quarter earnings call.

Withholdings for Overpayment

Occasionally, the Social Security Administration (SSA) will pay people more than their monthly benefits are worth. This typically occurs when SSA has the incorrect or incomplete information on file.

When this occurred in the past, the SSA would withhold 10% of the beneficiary’s monthly benefit until the overpaid amount was fully paid back.However, in March, the Trump administration proposed a rule requiring full, or 100%, repayment of any overpaid benefits, which immediately drew sharp criticism.

“It’s retribution without actual wrongdoing,” said Morrissey. “Except in rare cases, these overpayments are accidental, including mistakes by the Social Security Administration—and not attempted fraud.”

While the Trump Administration walked back the proposal just months later in April, saying it would instead default to withholding 50% of benefits, experts still worry the current rule will hit the most vulnerable hardest, like recipients who live on fixed incomes and those who aren’t even aware they’ve been overpaid.

50%

If you receive an overpayment, the Social Security Administration can withhold up to 50% of your monthly payments to recoup it.

What Should You Do?

If you’re already receiving benefits, the system is still working, at least for now.

However, if you want to make changes to your information, like your direct deposit information, it may not be the ideal time, Morrissey warns.

Recently, the SSA imposed new rules regarding identity verification, too. Now, those who want to change their direct deposit information will have to visit a Social Security office in-person to confirm their identity if they’re unable to do so online.

And if you’re considering retiring early to lock in benefits now, Morrissey urges people to weigh that decision carefully, as collecting retirement benefits early results in permanently reduced monthly benefits.

The most important message? Apply for benefits when you’re ready, especially if you think you qualify for disability benefits. “You can apply for SSDI retroactively even if you’re already receiving reduced early retirement benefits,” said Morrissey.

The Bottom Line

Cutbacks at the Social Security Administration have disrupted service delivery and created new hurdles for many Americans. Monthly payments are still being paid, but may be more challenging to apply for benefits or navigate any issues, especially for those without tech access. Staying informed, seeking help when needed, and applying early for complex benefits like disability could make a big difference.

If you’re looking to invest $20,000, financial advisors recommend starting with proven strategies like index funds. Chad Olivier, CEO of the Louisiana-based Olivier Group, told Investopedia that this approach allows you to build a broad portfolio with exposure to hundreds of stocks.

This gives you more stability and less risk because you’re spreading your investment across many companies and sectors. 

Whether you’re a seasoned investor or a beginner, understanding how to allocate your funds effectively—and avoiding emotional market buying or selling—is key to long-term financial success.

Key Takeaways

• Before investing, consider potentially better alternatives, like paying off high-interest debt or maximizing employer-matched retirement contributions.
• Diversified index funds like the SPDR S&P 500 ETF Trust (SPY) offer broad market exposure—reducing risk while delivering strong long-term returns.
• Use strategies like dollar-cost averaging to avoid emotional decision-making and maintain discipline during market volatility.

Should You Invest, Save, or Pay Down Debt?

Before deciding to invest, take stock of your finances and consider alternatives. For example, if you’re saddled with credit card debt, you may want to pay it down and avoid paying more in monthly interest than you’ll likely make on an investment. 

Contributing to your 401(k) or retirement plan can also be a smart move, especially if your employer offers matching contributions, which effectively provide an immediate return on your investment.

How To Invest $20,000

If you can invest $20,000, you might start with the SPDR S&P 500 ETF Trust, which tracks the S&P 500. If you had done so 10 years ago, you’d have about $63,851 in May 2025, yielding a total return (with dividends reinvested) of about 163%.

If you invested the same amount in the Invesco QQQ Trust (QQQ), which tracks the tech-heavy Nasdaq, you’d have almost $97,558 in May 2025—a total return (with dividends reinvested) of 388%.

Once you’ve built a well-diversified portfolio, Olivier suggests researching and investing in individual stocks, which carry more risk than an index ETF but offer potentially higher returns in the long run. In particular, Olivier recommends investing in well-run companies that have strong cash positions and are at the cutting edge of technology. 

“I always say that with a little bit of a concentrated position in some great, great companies, you’ll do really well in the long run,” Olivier said. Firms that have delivered outsized returns over the past decade include big-tech names like Apple Inc. (AAPL), NVIDIA Corp. (NVDA), and Amazon.com Inc. (AMZN), which as of May 2025, have annualized returns of 21%, 70%, and 24%, respectively, over the past decade.

An Alternative: Build Over Time

You may also want to incorporate a regimented investment strategy to help reduce the overall impact of price volatility. Dollar-cost averaging, for example, involves investing a set amount of money on a regular schedule, no matter how the price of the investment changes. Strategies like this help investors avoid the emotional pitfalls of trying to time the market. Plus, you’ll be making regular investments over time.

“No matter what the markets are doing, this strategy helps you stay consistent,” Olivier said. “And if you stay consistent, you’ll do really well over time.”

What about bear markets and periods of intense volatility? Olivier’s advice is simple. “It’s the Warren Buffett way of investing: Know your positions, and stick to them,” he said. “When everybody else is running for the hills, he’s holding—or even buying.”

The Bottom Line

Investing $20,000 wisely involves balancing risk, staying disciplined, and focusing on long-term growth. Diversified strategies like index funds and regular investing can help you build wealth steadily over time.

To put it in Buffett’s words, “Just keep buying,” the legendary investor said in 2023 about investing in S&P 500 index funds and weathering tough times. “American business is going to do fine over time, so you know the investment universe is going to do very well.”

Fact checked by Suzanne Kvilhaug

More young people are stepping off the career treadmill—temporarily. Whether they call it a micro-retirement, an adult gap year, or a one-year sabbatical, the goal is the same: a purposeful break from full-time work without derailing long-term financial goals.

One key to making that happen? Funding it through a brokerage account—and not your 401(k). Here’s what you need to know about using a brokerage account to fund your micro-retirement.

Key Takeaways

• A brokerage account offers flexible access to your money without penalties, but smart planning is necessary to help avoid tax surprises and long-term savings setbacks.
• Plan at least five to seven years ahead of your micro-retirement if possible, and shift to safer investments as your break approaches.
• To avoid any unexpected financial strains during your micro-retirement, set firm deadlines to begin the job hunt (if applicable) and return to work.

Why Use a Brokerage Account?

Unlike a 401(k) or Roth IRA, a brokerage account allows you to withdraw funds at any time without early withdrawal penalties, making it an ideal vehicle for funding a micro-retirement. That’s why Eric Maldonado, the founder of California-based Aquila Wealth Advisors, redirected his own retirement contributions into a brokerage account before taking what he calls a “one-year working sabbatical.”

Avoiding these early withdrawal penalties is the major advantage of using a brokerage, according to Maldonado. Most qualified retirement accounts—like traditional IRAs and 401(k)s—have a 10% penalty on all withdrawals before age 59½ on top of any income taxes owed, he adds.

And while Roth IRAs offer more flexibility, Maldonado notes that a Roth IRA is “most effective” when you allow for compounding growth over decades. “Avoid killing the compounding effect of withdrawing from it early if at all possible,” he says.

Plan Early and Invest Strategically

“If you are going all in on the micro-retirement goal, a brokerage account is a smart place to redirect all new retirement savings contributions into,” Maldonado says. He recommends starting as early as possible—ideally five to seven years ahead—and saving more than you think you’ll need.

“Add 20% to whatever you think you need to provide a buffer for contingencies,” said Maldonado.

Early on, you can invest for growth. But as your leave date nears, shift your savings into safer assets. “You would most likely want to have your full year of expenses saved up and allocated into stable funds by the time you take a leave of absence,” he says, citing options like a money market fund, T-bills, or high-yield savings accounts.

If you have large capital gains on your assets, you can ease your tax burden by selling them in two separate years—half in December, and half in January.

Mind the Taxes and the Timeline

Before you start selling stocks or other assets in your brokerage account, be aware of the tax consequences.

“If you have large capital gains in stock positions, you could be paying 15% to 20% long-term capital gains taxes,” Maldonado notes. Consider splitting sales across two tax years—half in December, half in January—to ease the hit.

He also cautions about income taxes on interest from bonds or money market funds. And just as important as tax planning? Exit planning. “The biggest risk is defaulting into an extended micro-retirement unintentionally,” he says. To avoid a prolonged gap, set deadlines for starting your job search or becoming self-employed.

The Bottom Line

A brokerage account offers the flexibility you need to take a career break without touching your 401(k). But that flexibility only works if you’re proactive. To make the most of your micro-retirement, start planning years in advance, invest strategically, understand the tax implications, and above all, stay on track with your return-to-work goals to ensure your finances don’t fall under unnecessary strain.

“We tend to underestimate how expensive life is without an income, and we tend to overestimate how much we can save in a year or two—but don’t underestimate the power of focusing on your goals,” says Maldonado.

One of the first robo-advisors compared to an asset-gathering behemoth

Reviewed by Amilcar Chavarria

Wealthfront and Schwab Intelligent Portfolios are distinct enough to make the choice rather easy regarding which is best for you. If you don’t have the $5,000 minimum required by Schwab Intelligent Portfolios, then Wealthfront’s $500 account minimum is an easier bar to clear. In terms of fees, however, Schwab Intelligent Portfolios has no fees compared to 0.25% at Wealthfront.

Both robo-advisors offer some level of portfolio customization, and Schwab’s Intelligent Income option is a find for those seeking sustainable cash flow. Knowledgeable Wealthfront users can put their own stamp on the portfolio by adding additional exchange-traded funds (ETFs). Wealthier investors might lean toward Schwab’s Intelligent Portfolio Premium with Certified Financial Planner access and low subscription pricing. For those looking for access to more traditional support, the 24/7 customer service and branch access available at Schwab is also enticing. We will compare both digital investment advisors to help you decide which is best for you. 

Key Takeaways of Wealthfront

• The extensive customization options, including over 200 ETFs and two cryptocurrency funds, are good for investors looking to tweak their portfolio compositions. 
• Wealthfront offers a high-yield cash management and borrowing account.
• The Path is a best-in-class financial planning tool in the digital investment advisory sphere. 
• Wealthfront is best for investors comfortable with an all-digital platform and weekday-only phone customer service.

Open and fund your first taxable Wealthfront investing account and receive a $50 deposit bonus – exclusive to Investopedia readers. Get started today. Terms apply. 

Key Takeaways of Schwab Intelligent Portfolios

• Schwab offers highly diversified portfolios with U.S., Global, and Income choices.
• Phone and financial representative customer service is available 24/7.
• Fee-free investment management is a rare benefit for cost-conscious investors.
• The required cash allocation and high account minimum may deter some investors.

Account Setup

Wealthfront

The Wealthfront account setup process is quick. Users complete an initial questionnaire that assesses goals, timeline, and risk level. You can create an account with your name, email, address, phone number, and password. No Social Security number is required to view the suggested Core portfolio, which is a nice benefit. The Core offer includes U.S. and international stock and bond ETFs along with a real estate ETF—another plus not found on some competitors’ platforms. Users can check out alternate portfolio choices before transferring funds into the account. 

You will need a $500 minimum to begin investing at Wealthfront. The management fee of 0.25% of assets under management is near the average digital advisory cost. No financial planners are available at Wealthfront, although the well-trained customer service representatives each have, at a minimum, a Series 7 investment license. More sophisticated investors can add to existing portfolios or create a new portfolio from a choice of 200-plus ETFs and cryptocurrency funds. 

The well-regarded Path digital financial planner, available to clients and the public, enables users to link external accounts and receive high-level digital financial planning guidance. 

Schwab Intelligent Portfolios

To set up an account, Schwab Intelligent Portfolios guides users through 12 questions spanning investing goals, timeline, and risk tolerance. Your responses inform a customized investment portfolio containing ETFs and a cash allocation. You must open and fund an account to view the actual names of the tailored portfolio ETFs. This drawback is partially offset by Schwab’s choice of low-fee, diversified funds for Intelligent Portfolios.

The barrier to entry is a $5,000 account minimum, steeper than many digital investment managers. Making up for the high account minimum, however, is the fact that Schwab Intelligent Portfolios doesn’t charge an investment management fee. Some investors will take issue with the higher than average cash allocation within each portfolio as it can contribute to performance drag over time. In especially conservative portfolios, the cash allocation can reach 30%, but investors with greater risk tolerance will find cash allocations of 6% within Schwab’s global and U.S.-focused strategies.

The Schwab Intelligent Portfolios interactive tool provides potential best- and worst-case scenario investment returns based on investment strategy and risk tolerance level. Although Schwab Intelligent Portfolios’ basic version doesn’t include investment advisors, you can visit a branch or speak with a well-qualified customer service representative for basic guidance. 

Account Setup Verdict: Wealthfront

Onboarding is easy at both platforms. That said, we like the opportunity to view specific ETFs before funding an account at Wealthfront, so it gets the edge in this category. 

Account Types

Most investors will find sufficient account types at either platform. Wealthfront has a high-interest cash account, which requires an additional sign-up. Schwab requires a new account for its checking account with a debit card. Other account differences include a 529 college account at Wealthfront and Schwab’s custodial and SIMPLE individual retirement accounts (IRAs). 

Wealthfront

• Individual taxable
• Joint taxable
• Traditional IRA 
• Roth IRA
• 401(k) rollover IRA
• Simplified employee pension (SEP) IRA
• Trust 
• 529 college saving plan
• High-interest cash

Schwab Intelligent Portfolios

• Individual taxable
• Joint taxable
• Traditional IRA
• Roth IRA
• SEP IRA
• SIMPLE IRA
• Revocable living trust
• Custodial

Account Types Verdict: Tie

The basic account types are available at both Wealthfront and Schwab, so this category is effectively a tie. If you are looking for a 529 plan, choose Wealthfront. Those seeking a custodial account or SIMPLE IRA should select Schwab.

Account Services

Wealthfront

Investors who open an account with Wealthfront will have access to all of the expected financial products and services available at a major financial firm. Presently, Wealthfront customers have the usual auto deposits along with cash accounts, debit cards, and lending.

Schwab Intelligent Portfolios

Schwab Intelligent Portfolios sticks with investment management without checking, debit cards, or lending products within the robo-advisory. But with a click, Intelligent Portfolios users can sign up for banking, lending, self-directed investing, and more within the larger Schwab financial services universe. 

Cash Management

Wealthfront

Wealthfront Cash management requires a separate sign-up. The fee-free, high-yield checking account is available to anyone, whether they have a Wealhtfront investment account or not. Top features include goal-based saving, a fee-free ATM debit card, bill pay, and direct deposit. Wealthfront Borrow provides account holders with at least a $25,000 account value the opportunity to borrow up to 30% of their holdings for low interest rates without a credit check. Uninvested funds in a Wealthfront account are swept into a money market fund currently yielding 4.00%.

Schwab Intelligent Portfolios

Schwab Intelligent Portfolios doesn’t offer cash management within the robo-advisory platform, but access to cash management is quite straightforward. Anyone can open a Schwab high-yield checking account with debit card, banking, and brokerage services. Schwab Intelligent Portfolios does hold a larger amount in cash than most robo-advisors that strive to be fully invested except for enough to cover fees. That said, it also offers a cash sweep to Schwab Government Money Fund – Sweep Shares, yielding 3.95%.

Cash Management Verdict: Tie

At both Wealthfront and Schwab, you need to set up separate accounts for cash management. The distinction between the two is that Wealthfront’s cash management is more integrated with its investment services.

Goal Planning

Wealthfront

Winner of our Best for Goal Planning overall category, Wealthfront is superb for mapping your future plans. Choose from goals such as large purchases, college planning, and retirement. Your progress is updated automatically on the dashboard. The Path digital financial planner provides the opportunity to try out multiple goal-based scenarios. The tool can answer more than 10,000 financial planning questions, including “When can I retire?”, “How much should I save for a home down payment?”, and “Can I afford a new car?”. For a large majority of people, the Path is an effective replacement for a human financial planner in most situations. 

Schwab Intelligent Portfolios

At Schwab Intelligent Portfolios, goal planning includes choices such as retirement, college, home down payment, long-term wealth, and income. Users can access Schwab’s interactive tool to assess how changes in the market, contribution rates, and other factors will impact the likelihood of achieving goals. All Schwab clients can access its digital financial planning tool, which helps you clarify your goals and create a personalized investment strategy. 

Users seeking a digital investment advisor with financial planner access can sign up for Schwab Intelligent Portfolios Premium. Clients with $25,000 or more gain access to a Certified Financial Planner on an as-needed basis, along with automated investment management for the subscription pricing of $30 per month and a one-time setup fee of $300.

Goal Planning Verdict: Wealthfront

Both Wealthfront and Schwab Intelligent Portfolios offer top-notch goal-planning and advice options. As mentioned, however, Wealthfront’s Path digital financial planning tool is almost a match for a live financial planner, so we give it an edge here for having comprehensive digital advice within the platform.

Portfolio Construction

Wealthfront

Wealthfront’s investment portfolios are created by an investment management team using modern portfolio theory (MPT). The investment team blends a variety of asset classes represented by ETFs to match the risk appetite of a given investor. Wealthfront’s standard portfolio options include:

• Classic portfolios with diversified, low-fee index funds
• The Socially Responsible portfolio, focusing on socially responsible ETFs
• Direct Indexing with individual stocks ($100,000 account minimum)
• The Automated Bond portfolio, meant to create cash flow

Schwab Intelligent Portfolios

Schwab Intelligent Portfolios also uses an investment management team to build its portfolios. The team uses a combination of 51 ETFs to generate 80 variations to match the range of investor goals, time horizons, and risk tolerance using modern portfolio theory. Schwab doesn’t offer a socially responsible version of its portfolios.

Portfolio Construction Verdict: Wealthfront

Both Schwab Intelligent Portfolios and Wealthfront use ETFs to represent the typical range of assets including U.S. and international stocks, bonds, REITs, and commodities. Wealthfront gets a slight edge here for having socially responsible and direct indexing options.

Available Assets

	Wealthfront	Schwab Intelligent Portfolios
Individual Stocks	Yes: Direct indexing for accounts worth $100,000+	No
Mutual Funds	No	No
Fixed Income	Yes (through ETFs)	Yes (through ETFs)
REITs	Yes (through ETFs)	Yes (through ETFs)
Socially Responsible or ESG Options	Yes	No
ETFs	Yes	Yes
Non-Proprietary ETFs	Yes	Yes
Private Equity	No	No
Forex	No	No
Crypto	Yes, through iShares by BlackRock Bitcoin Trust (IBIT)	No

Portfolio Customization

Wealthfront

Wealthfront ramped up its customization features by adding access to 200-plus ETFs and cryptocurrency funds. Users can add additional ETFs to existing portfolios or create new customized portfolios with their own picks. Wealthfront also has an Automated Bond portfolio for conservative investors seeking income.

Schwab Intelligent Portfolios

Schwab Intelligent Portfolios users can change their asset allocation composition by retaking the initial goals and risk questionnaire. You can also exclude up to three ETFs from the portfolio. Users may choose a U.S. domestic portfolio of ETFs or a global option. The platform also offers an Income portfolio choice for those seeking cash flow from a more conservatively invested account, with greater allocations to cash and fixed-income ETFs. 

Portfolio Customization Verdict: Wealthfront

Although Schwab Intelligent Portfolios and Wealthfront construct portfolios the same way, Wealthfront offers far more options to take that initial portfolio and tweak it by adding specific ETFs. Wealthfront takes this category handily.

Portfolio Management

Wealthfront

Wealthfront monitors portfolios daily and rebalances when investment values deviate significantly from the target weight you agreed upon. Wealthfront rebalances your portfolio whether you’ve customized it or not.

At Wealthfront, you can sync outside accounts using the Path digital financial planner. Path is designed to answer thousands of financial planning questions and will make recommendations based on all of your linked accounts. The synced accounts don’t impact your portfolio’s asset allocation recommendations.

Schwab Intelligent Portfolios

Schwab Intelligent Portfolios also monitors your holdings daily and rebalances when needed. Schwab doesn’t enable syncing of outside accounts. One feature that stands out at Schwab is the Intelligent Income option, where the platform helps you calculate how much you can safely take out based on your investments and balance.

Portfolio Management Verdict: Schwab Intelligent Portfolio

Wealthfront and Schwab Intelligent Portfolios both use a drift-based approach to rebalancing. We give Schwab Intelligent Portfolios the edge on management due to its support in drawing down your portfolio as well as building it up.

Tax-Advantaged Investing

Wealthfront

At Wealthfront, tax-loss harvesting opportunities are monitored daily in taxable accounts. Wealthfront also follows tax-efficient investing practices, such as using municipal bond ETFs in taxable accounts.

Schwab Intelligent Portfolios

At Schwab, only those with at least $50,000 in their accounts can opt for tax-loss harvesting. Schwab Intelligent Portfolios also engages in tax-efficient investing when building taxable portfolios, and further considers taxes when drawing down a portfolio in the Intelligent Income option.

Tax-Advantaged Investing Verdict: Wealthfront

Wealthfront edges out Schwab Intelligent Portfolios here simply because Wealthfront customers benefit from tax-loss harvesting on all taxable accounts, while Schwab customers need at least $50,000 in assets.

Key Portfolio Management Features

	Wealthfront	Schwab Intelligent Portfolios
Automatic Rebalancing	Monitored daily and rebalanced as needed	Monitored daily and rebalanced as needed
Reporting Features	Statements, tax information; goal progress viewable online	Statements, tax information; goal progress viewable online
Tax-Loss Harvesting	Yes	Yes, for accounts worth $50,000+ (clients must opt in)
External Account Syncing/Consolidation	Yes, automatically updated after linking; used in Path recommendations, not portfolio asset allocation	No

Security

Wealthfront and Schwab Intelligent Portfolios enable top-level, financial institution-grade security protocols. Both also offer two-factor authentication and the highest level of privacy standards. Cash accounts at Wealthfront are insured with the Federal Deposit Insurance Corporation (FDIC) while investment accounts carry Securities Investor Protection Corporation (SIPC) insurance on each platform. You can be confident your money is protected with the highest bank-grade security features and insurance protection for institutional failure and bad actors at both Wealthfront and Schwab Intelligent Portfolios.

Security Verdict: Tie

Users can be comfortable with the security protocols at either digital investment advisor. However, no investment service protects your money from the fluctuations of the financial markets.

User Experience

Desktop

Wealthfront

Wealthfront users will find a clean interface and accessible menu on the desktop site. The home screen includes tabs for Invest, Cash, Borrow, and Blog. Other categories within reach include Research, Support, and Contact.

Schwab Intelligent Portfolios

Schwab Intelligent Portfolios offers an easy-to-navigate, tab-based dashboard. Users can view Portfolio, Goal, Performance, Activity, and Settings at the touch of a button. Clients can easily compare their performance to various benchmarks and view goal performance.

Mobile App 

Wealthfront

Wealthfront’s mobile app is well-regarded, with a good user experience on both the Android and iOS platforms. The app approximates the functionality of the desktop version. Anyone can link their accounts and use the Path digital financial planner. This is a benefit for portfolio insights and financial analysis. 

Schwab Intelligent Portfolios

Schwab doesn’t have a dedicated Intelligent Portfolios app. Schwab is updating its Android app soon to make access to Intelligent Portfolios easier. That said, you can access most of the desktop features on the mobile app. Users will appreciate that customer service is very convenient to access via the app. 

User Experience Verdict: Wealthfront

Wealthfront’s mobile app surpasses the functionality and features of the Schwab mobile app.

Customer Service

	Wealthfront	Schwab Intelligent Portfolios
Phone Contact Available	7 a.m. – 5 p.m. PT, weekdays	24/7
Pre-Funding Phone Consultation With Certified Advisor	No	No
Online Chat Available	No	Yes, 24/7 with customer service representative
Website FAQ section	Yes, comprehensive	Yes, comprehensive

Customer Service Verdict: Schwab Intelligent Portfolios

Customer service at Schwab is superior to Wealthfront’s. With 24/7 live access options as well as nationwide branches, it’s easier to receive live help at Schwab. Wealthfront’s phone representatives are well-trained, but phone access is somewhat difficult to find on the website. That said, both platforms offer good quality FAQ and search features.

Fees

Wealthfront

Wealthfront charges 0.25% of assets managed, regardless of portfolio size. This is a fair price for the platform’s robust features and significantly lower than a typical financial planner. The tradeoff is that users need to be comfortable with limited human hand-holding. 

Schwab Intelligent Portfolios

The Schwab Intelligent Portfolio all-digital option doesn’t charge any management fees. The uniform pricing for the Schwab Intelligent Portfolios Premium is $30 per month with a one-time $300 setup fee. This is rock-bottom for larger accounts but high for accounts between $25,000 and $72,000. For example, a $50,000 account will cost 0.72% of assets under management (AUM). But once your portfolio hits $300,000, the AUM fee is a paltry 0.12%. Of course, investors don’t have to choose the premium option and can continue to use the $0 offering.

Fees Verdict: Schwab Intelligent Portfolios

Schwab Intelligent Portfolios is preferred for investors seeking investment management without a management fee. However, Schwab users will need to accept a higher cash allocation and forgo the customization options available at Wealthfront. Both Schwab and Wealthfront use low-fee ETFs within their portfolios.

Category	Wealthfront	Schwab Intelligent Portfolios
Management Fees for $5,000 Account	$12.50	$0
Management Fees for $25,000 Account	$62.50	$0 ($30 per month plus $300 setup fee for Premium)
Management Fees for $100,000 Account	$250	$0 ($30 per month plus $300 setup fee for Premium)
Termination Fees	$0	$0
Expense Ratios	Average 0.08%	0.02% to 0.19% (0.13% weighted average)
Mutual Funds	N/A	N/A

The Bottom Line

Wealthfront is the winner of Best Overall and a number of other categories in our 2024 Robo-Advisors Review. This makes Wealthfront a solid choice for any investor comfortable with an all-digital investment service. Wealthfront is also the choice for those without the $5,000 minimum required by Schwab. The addition of 200-plus ETFs for customization, cryptocurrency funds, and the Path financial planner places Wealthfront among the best robo-advisors available.

While Schwab Intelligent Portfolios is clearly the low-fee choice, wealthier investors seeking a combined human and digital platform might lean towards the Schwab Premium offer. Existing Schwab customers as well as those seeking extensive customer service options or an income portfolio might prefer Schwab Intelligent Portfolios. In the final analysis, both platforms are well-regarded, and the choice between the two depends upon the features and services that you are seeking.

Can You Have Multiple Schwab Intelligent Portfolios?

Yes, you can open a different Schwab Intelligent Portfolios account for each goal. For instance, you can have one portfolio be risk-averse and a second portfolio that’s more risk-tolerant. The goal tracker will monitor your progress towards each goal separately.

What Happens to My Money If Wealthfront Goes Out of Business?

It’s important for customers to note that Wealthfront is not a bank. However, customer deposits are insured through Wealthfront’s partner banks. Wealthfront’s cash account offers up to $5 million in FDIC insurance for individual accounts and up to $10 million for joint accounts.

Can Customers Take Money Out of Wealthfront?

Yes. Customers can withdraw money from Wealthfront with no fee. There are, however, daily limits for transfers in and out of Wealthfront accounts, for security purposes.

Which Is Better: Wealthfront or Schwab?

Both Wealthfront and Schwab Intelligent Portfolios are well-regarded, diversified, and reasonably priced robo-advisors. Schwab doesn’t charge management fees but requires you to hold cash in the portfolio. Wealthfront offers greater customization options and excellent digital financial planning tools at a lower account minimum and competitive fee. It really does depend on what you are looking for. That said, Wealthfront was our overall winner with the caveat that it works best for those who are ready for truly digital investment management. 

How We Picked the Best Robo-Advisors

Providing readers with unbiased, comprehensive reviews of digital wealth management companies, more commonly known as robo-advisors, is a top priority of Investopedia. To collect data for our 2024 best robo-advisor awards and rankings, we sent a digital survey with 64 questions directly to each of the 21 companies we included in our rubric. Our team of researchers verified the survey responses and collected any missing data points through online research and conversations with each company directly. The data collection process took place from Jan. 8 to Feb. 9, 2024.

We then developed a quantitative model that scored each company to rate its performance across nine major categories and 59 criteria to find the best robo-advisors. The score for each company’s overall star rating is a weighted average of the criteria:

• Goal Planning – 21.00%
• Portfolio Contents – 17.00%
• Portfolio Management – 17.00%
• Fees – 15.00%
• Account Services – 10.00%
• Account Setup – 5.00%
• Customer Service – 5.00%
• Security & Education – 5.00%
• User Experience – 5.00%

Many of the companies we review for our projects grant our team of expert writers and editors access to live accounts so they can perform hands-on testing. Robo-advisor companies allowed us to do this, as well.

Through this all-encompassing data collection and review process, Investopedia has provided you with an unbiased and thorough review of the top robo-advisors. Read more about how we research and review robo-advisors.

The above material and content should not be considered to be a recommendation. Investing in digital assets is highly speculative and volatile, and only suitable for investors who are able to bear the risk of potential loss and experience sharp drawdowns. Digital assets are not legal tender and are not backed by the U.S. government. Digital assets are not subject to FDIC insurance or SIPC protections.

Dotdash Meredith receives cash compensation from Wealthfront Advisers LLC (“Wealthfront Advisers”) for each new client that applies for a Wealthfront Automated Investing Account through our links. This creates an incentive that results in a material conflict of interest. Dotdash Meredith is not a Wealthfront Advisers client, and this is a paid endorsement. More information is available via our links to Wealthfront Advisers.

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Fact checked by Suzanne Kvilhaug

An emergency fund can help you weather unexpected expenses or a job loss, but most people don’t have enough saved. Many financial experts recommend having three to six months of income saved; others recommend more or sometimes even less.

Here’s how to calculate how much you need in your emergency fund using both methods.

Key Takeaways

• An emergency fund can help you deal with financial shocks, such as unexpected expenses or a job loss, without taking on debt.
• Keep emergency savings in a highly liquid, interest-earning account such as a high-yield savings account.
• Some financial experts recommend saving three to six months of income, while others suggest 12 to 18 months’ worth of living expenses.
• Even if you can’t save as much as experts recommend, any emergency savings is better than none when faced with a financial shock.

Why You Need an Emergency Fund

An emergency fund is made up of cash or other highly liquid funds that you can access to deal with financial surprises. These surprises are usually:

• Spending shocks: Large and unexpected expenses, such as a medical bill or home repair
• Income shocks: Sudden loss of income after being furloughed or laid off

Without an emergency fund, you may have to handle an emergency by putting expenses on high-interest credit cards or withdrawing funds from a retirement account. If you have an emergency fund, however, you can more easily weather unexpected financial shocks without taking on debt.

Catherine Valega, a certified financial planner (CFP) and founder of Green Bee Advisory, suggests that clients “have [emergency] funds work for them in higher-yielding liquid alternatives.”

This includes money market funds, certificates of deposit (CDs), high-yield savings accounts, or U.S. Treasury bills. Using these types of savings vehicles allows your money to earn interest while remaining quickly accessible in an emergency.

How Much to Save in Your Emergency Fund

Many financial experts recommend having an emergency fund worth three to six months of your household income. This amount gives you a cushion for several months of unemployment should you lose your job or funds to cover unexpected expenses.

Valega, who describes herself as “more conservative than most other advisors,” advises clients to have a few months of “working capital” in an account like a checking account and plan to pay bills from there. “For their emergency savings, 12–18 months of living expenses,” she says. “Once you have those 12–18 months [of] living expenses saved, then we work on investing and paying off debt.”

Emergency Fund Calculation

“Living expenses” is different than income. You might have an income of $7,000 per month but only need $5,000 to cover your monthly expenses like housing, food, utilities, child care, transportation, debt repayment, and insurance, with the rest likely going toward investments or discretionary spending.

To calculate how much you should have in an emergency fund based on income, start with your monthly take-home pay. Using the above example:

$7,000 × 3 months = $21,000

$7,000 × 6 months = $42,000

An emergency fund with three to six months of income would have $21,000 to $42,000 in it. However, if you’re unable to save that amount, you may be able to get away with a smaller cushion of savings.

In a J.P. Morgan Report, researchers estimate that workers making between $50,000 and $100,000 would need just four to ten weeks worth of net income to manage spending and income shocks.

Yet a more cautious saver could use Valega’s recommendation and plan emergency savings based on more months of living expenses. Using the above example again:

$5,000 × 12 months = $60,000

$5,000 × 18 months = $90,000

An emergency fund with 12 to 18 months of living expenses would have $60,000–$90,000 in it.

This level of saving might feel daunting. In that case, it can feel helpful to think of emergency savings as a goal you’re always working toward. If you consistently set aside money in an emergency fund, even a small amount, eventually you will build up your savings. Even $50 a month will add up to $1,000 in emergency savings in less than two years.

The Bottom Line

Financial experts often have different recommendations for how much to keep in an emergency fund. Some advisors suggest three to six months of income; a more conservative approach would be 12 to 18 months of living expenses. However much you save, hold it in an accessible, interest-bearing account such as a high-yield savings account.

Even if you can’t save as much as financial experts recommend, it’s still worth starting small, because having some money saved for emergencies is better than having none. If you only have $1,000 saved, that might not cover your living expenses if you lose your job. But if you find yourself with an unexpected $800 car repair, you’ll be able to handle it without taking on credit card debt.

Fact checked by Vikki Velasquez

Paying by credit card is increasingly popular. In 2023, nearly one-third (32%) of all payments used a credit card, up from 18% in 2016, according to a Federal Reserve report.

Accepting credit cards is more costly for small businesses due to fees charged by card issuers and payment processors. However, small businesses may find it worth their while to pay those extra costs.

Key Takeaways

• As more consumers rely on credit cards, accepting them is increasingly important for small businesses that want to boost sales.
• Business owners can choose between setting up a merchant account and finding a payment process or opting for an all-in-one payment service provider like Stripe, Square, or PayPal.
• Costs can add up, so it’s important to understanding fee structures and choose the right tools for your business, whether that’s a card reader for in-person purchases or a payment gateway for an e-commerce store.

How Are Credit Card Payments Processed?

To understand how to accept credit card payments, you should have a clear idea of how credit card payments are processed.

Whenever a customer swipes their credit card at a retailer, a complex chain of events is triggered, involving the business, the credit card issuer, the payment processing network, and the business’s bank.

1. When a transaction occurs, it’s first sent to the acquiring bank, which is the merchant’s bank.
2. The acquiring bank then sends that transaction to the issuing bank (the bank that issues the credit card to the consumer) via a payment processing network.
3. The payment processing network is like a middleman that facilitates the transaction between the acquiring bank (the business’s bank) and the issuing bank (the card issuer).
4. After the issuing bank receives the transaction, it determines whether the transaction is safe and determines if the customer has sufficient funds for the transaction.
5. The issuing bank then approves or denies the transaction.

After a transaction is approved, the merchant doesn’t immediately receive funds from the purchase. It may take a few days for funds to be transferred from the merchant account—which is a type of bank account that accepts and processes electronic payments—to the business’s actual bank account.

What Do Small Businesses Need To Accept Credit Card Payments?

Small business owners have two options when it comes to setting up a system for accepting credit card payments:

1. Open a merchant account and then find a separate payment processing network to handle transactions.
2. Use a payment service provider that already includes a merchant account and a payment processing service.

By opting for a payment service provider that includes a merchant account, small business owners can avoid the hassle of having to set up a separate merchant account. Services like Stripe and Square are payment service providers that include merchant accounts.

You’ll also want to think about how you want to accept payments. For example, do you have a brick-and-mortar store or do you run an online e-commerce store? It’s important to determine the payment needs for your small business first because accepting credit card payments in person requires different tools and technology than accepting card payments online.

Accepting Credit Card Payments In-Person

If you want to accept credit card payments from customers making purchases in person, you’ll need to purchase a card reader, which is a physical device that can be used to accept debit and credit card payments.

Typically, these card readers offer customers the option of paying via contactless payment, inserting an EMV chip card, or swiping a card. Some card readers are integrated into point-of-sale (POS) software that tracks sales, updates inventory, and more, which may be helpful for some small business owners.

And if you don’t want to purchase separate hardware for accepting payments, you can opt for a virtual terminal instead. Virtual terminals are a type of software that can be used on a phone or laptop without a card reader.

Warning

Using a virtual terminal requires a little more effort because you’ll have to manually enter customers’ card information to complete transactions.

Accepting Credit Card Payments Online

Payment gateways can be thought of as conduits between customers, payment processors, card issuers, and the merchant. Payment gateways are essential for accepting online payments, as they ensure that transactions are routed to the correct financial institutions and that customers’ payment information is kept safe through encryption.

Note that payment gateways, which connect the merchant with payroll processors, are different than payment processors, which move the funds from one institution to another. But many payment service providers—like PayPal, Square, and Stripe—offer both services.

Fees Can Add Up Quickly

When you’re choosing between different payment service providers, payment processors, or merchant accounts, make sure to carefully analyze the fee structure.

Credit card processing fees can be pricey, so you’ll want to keep track of the various fees charged. For example, there may be payment processing fees, payment gateway fees, chargeback fees, and more.

You may consider opting for a payment service provider if you prefer simplicity. Since these companies bundle together multiple features and services, the fee structure may be more straightforward.

The Bottom Line

Accepting credit cards can help small businesses attract more customers and enhance cash flow. Business owners can either set up their own merchant account and payment processor or rely on a payment service provider like Stripe, Square, or PayPal that bundles these services.

Depending on whether your business operates in person or online, the tools needed to accept credit card payments differ. Brick-and-mortar store owners will likely need to purchase card readers or virtual terminals, while owners of e-commerce stores will need to ensure that they have a payment gateway. By doing research and understanding the associated fees for the different services, small business owners can make credit card acceptance a worthwhile investment.