money

A beginner’s guide to mutual fund investing

Fact checked by Vikki Velasquez
Reviewed by David Kindness

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

Key Takeaways

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

What Is a Mutual Fund?

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

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

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

Types of Funds

Equity Funds

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

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

Bond Funds

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

Balanced Funds

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

Money Market Funds

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

Index Funds and Target-Date Funds

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

Specialty Funds

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

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

Note

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

Getting Started

Set Investment Goals and Budget

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

Evaluate Fund Choices

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

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

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

Open an Investment Account

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

Place Orders and Make Contributions

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

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

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

Important

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

Risks and Considerations for Investors

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

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

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

What Is the Difference Between Mutual Funds and ETFs?

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

What Does the Fund’s Prospectus Tell Investors?

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

What Is Asset Allocation?

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

The Bottom Line

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

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

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

Key Takeaways

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

Early Life and Education

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

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

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

Early Career

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

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

Major Ventures

SpaceX

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

Note

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

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

Tesla

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

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

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

X (formerly Twitter)

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

Other Ventures

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

Note

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

Political and Legal Entanglements

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

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

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

DOGE

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

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

Personal Life

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

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

Note

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

The Bottom Line

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

A step-by-step guide for lenders and borrowers

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

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

Key Takeaways

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

What Is a Personal Loan Agreement?

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

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

Note

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

What’s in a Personal Loan Agreement?

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

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

Other Clauses You May Find in Business Loans

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

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

Example of a Personal Loan Agreement

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

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

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

PROMISSORY NOTE

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

ADDITIONAL LOAN TERMS

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

A. Principal Loan Amount [Insert Principal Loan Amount]

B. Loan Repayment Terms.

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

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

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

C. Collateral.

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

D. Method of Loan Payment.

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

[Name of Lender]

[Address and Street Name]

[City, State, ZIP Code]

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

E. Default.

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

1)

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

2)

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

3)

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

F. Additional Provisions Regarding Default.

1)

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

N/A

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

2)

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

3)

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

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

4)

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

G. Parties That Are Not Individuals.

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

H. Integration.

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

I. Severability.

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

J. Modification.

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

K. Exclusive Jurisdiction for Suit in Case of Breach.

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

L. State Law.

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

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

BORROWER:  

LENDER

_/s/[Insert Name]____________

  /s/[Insert Name]___________

[Borrower Name]                                                      [Lender Name]

Dated: Month, Date, Year

Dated: Month, Date, Year

The Bottom Line

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

Fact checked by Betsy Petrick

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

Key Takeaways

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

What Is a Mortgage Lender?

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

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

Types of Mortgage Lenders

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

Mortgage Brokers

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

Pros

• Can help you find lower rates

• Saves you time by comparing multiple lenders

Cons

• May charge broker fees

• You won’t have access to the lender

Note

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

Mortgage Bankers

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

Pros

• Faster loan approval

• Quicker closing

• Competitive interest rates

Cons

• Limited loan options

• Terms may not be as flexible

• Not ideal for buyers without good credit

Retail Lenders

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

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

Pros

• Simplified loan process

• No intermediaries involved

• Existing banking relationship may be beneficial

Cons

• Limited loan options

• May have strict credit and income requirements

Direct Lenders

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

Pros

• May offer faster loan approval and processing

• Direct communication with the lender

Cons

• Limited loan options

• You must shop around on your own

Portfolio Lenders

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

Pros

• More flexible qualification requirements

• Can offer customized loan terms

• Can cater to borrowers with unconventional finances

Cons

• May charge higher interest rates

• Fewer loan options compared to large lenders

Wholesale Lenders

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

Pros

• More loan options

• May offer better rates than large banks

Cons

• You must work with a broker

• Broker fees apply

Correspondent Lenders

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

Pros

• Flexible loan terms

• Fast loan processing

Cons

• Loan servicing may change after closing

• May have higher fees

Warehouse Lenders

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

Pros

• Competitive loan options

• Access to lower fees and rates

Cons

• No direct access for borrowers

• Potential for closing delays

• Smaller lenders are affected by market conditions

Hard Money Lenders

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

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

Pros

• Quick approval and funding

• More flexible requirements

Cons

• High interest rates and fees

• Short repayment periods

Warning

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

How to Pick the Right Mortgage Lender for You

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

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

The Bottom Line

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

According to the Global Financial Centres Index 36, New York is the world’s financial capital, with London second

Fact checked by Vikki Velasquez
Reviewed by Andy Smith

The global financial network is made up of many cities. These important financial hubs often have strategic locations and a storied history of leadership in the global economy. Examples include Shanghai, Tokyo, and Hong Kong in Asia, as well as Zurich, Amsterdam, and Frankfurt in Europe.

Any list of the world’s top financial cities, however, is likely to lead off with London and New York. The U.K. capital remains a vital center for the insurance and foreign exchange markets, while the largest U.S. city is home to the world’s two biggest stock exchanges. Let’s take a look at how these two English-speaking financial capitals compare.

Key Takeaways

• The Global Financial Centres Index 36 ranks New York and London as the top two financial hubs in the world.
• Having the world’s two largest stock exchanges by market capitalization helps ensure New York’s global reach, while London leads on insurance and foreign exchange.
• London’s firm grip on second place suggests that its financial reputation has been withstanding uncertainties related to the U.K.’s departure from the EU.

London vs. New York: How Do They Compare?

New York holds the top spot on the 36th Global Financial Centres Index, which was published by Long Finance in September 2024. The index ranks the vital roles that different cities play in global finance. London is in second place. This hasn’t always been the case, though, as New York ranked below its rival across the pond as recently as March 2018.

It may seem difficult to quantify the importance of a financial center, but the index ranks the world’s major financial cities and evaluates their future competitiveness by analyzing 143 “instrumental factors.” These data points include quantitative measures gathered from third parties like the World Bank and the United Nations (UN). The index also accounts for the results of questionnaires asking more than 6,000 respondents around the world to assess different financial centers.

New York came in first in the September 2024 edition with an overall rating of 763, followed by London with a rating of 750. Hong Kong and Singapore switched spots in the September 2024 list from the previous one, ranking third with a score of 749 and fourth with a score of 747, respectively.

The Global Financial Centres Index 36
Rank	Financial Center	Rating
1	New York	763
2	London	750
3	Hong Kong	749
4	Singapore	747
5	San Francisco	742
6	Chicago	740
7	Los Angeles	739
8	Shanghai	738
9	Shenzhen	732
10	Frankfurt	730

The fact that three other U.S. cities—San Francisco, Chicago, and Los Angeles—join New York in the top 10 points to strength and resilience in the U.S. financial markets. Meanwhile, London’s solid grip on second place suggests that the U.K.’s financial services sector has maintained its relevance and reputation, even amid questions about its future following Brexit and heightened competition with financial centers that remain in the European Union (EU).

A deeper dive into the data from the GFCI shows New York and London firmly entrenched in their No. 1 and No. 2 positions.

Important

The index breaks down its evaluation of financial centers into five “areas of competitiveness”: business environment, human capital, infrastructure, financial sector development, and reputational and general. Among all the cities included in the index, New York topped the list across the board in all these categories. London came in second for human capital and the last category.

Key Differences

The status of New York and London as global finance powerhouses is largely due to their leadership in financial markets.

New York stakes its claim as the world’s financial capital partly because it’s home to two of the world’s two largest stock exchanges by market capitalization—the New York Stock Exchange (NYSE) and the Nasdaq. Global companies opt to list their shares on New York-based exchanges, showing concrete proof of the Big Apple’s global reach.

London is also home to the London Stock Exchange (LSE), one of the world’s oldest and most important stock exchanges. However, the global impact of the U.K. financial services sector may be strongest in insurance and foreign exchange. London is also an important player in the international commodities market, with the London Metals Exchange (LME) among the world’s largest commodities exchanges.

Which City Is the Financial Capital of the World?

There may not be a definitive answer to the question of which city truly deserves the title of the world’s financial capital. People from the U.S. may be quick to answer that it’s New York, and the 2024 Global Financial Centres Index (the most recent) confirms the argument that the home of Wall Street is the top financial city.

However, it’s worth noting that London also has taken the top spot on this list of the most important global financial hubs in the past. There is no telling how shifts in the global economy might eventually reshape the relative influence and importance of worldwide financial centers.

The Future of these Financial Capitals

New York and London appear unlikely to give up their leadership positions in the global financial markets anytime soon. Both cities look poised to embrace the future of finance—New York came in at No. 1 in the GFCI’s fintech rankings, while London was in second place followed by Shenzhen.

While there are plenty of reasons to be optimistic about both cities retaining their global financial relevance, New York and London also face their own sets of risks. The Federal Reserve’s campaign of inflation-fighting rate hikes could slow economic growth in the U.S. and hamper New York’s financial markets. Meanwhile, plenty of unknowns remain in London about the evolving impact of Brexit.

Is London or New York the Financial Capital of the World?

London and New York are both key financial hubs that play an important role in the global economy. According to the Global Financial Centres Index 36, released in September 2024, New York is the top world financial center, followed by London in second place.

What Is the Most Powerful Financial Institution in the U.S.?

The Federal Reserve is the central bank of the U.S., endowed with the power to set monetary policy that can determine the direction of the nation’s entire economy and influence the entire world. Other powerful financial institutions include large banks, some of which are considered too big to fail.

What Is London’s Financial District Called?

London’s financial services industry has never left the city’s historical center, which is often referred to as the City of London or the Square Mile. In addition, following its construction in the 1980s, Canary Wharf has been a focal point for London’s insurance companies and other financial firms.

What Is London Known for in Finance?

London is home to important financial institutions such as the Bank of England (BoE), the London Stock Exchange, and the London Metals Exchange. It’s also a key player in many areas of the global economy, particularly when it comes to forex markets and insurance.

The Bottom Line

The Global Financial Centres Index 36 lists New York as the world’s top financial hub in 2024, followed by London. Both cities have a long history as key players in the global economy, and despite the challenges they face, New York and London will likely remain at the center of world finance.

Fact checked by Suzanne Kvilhaug

Building a financial plan for your family is essential for long-term stability—even if the process can sometimes feel overwhelming. A strong plan will help you manage your day-to-day expenses, prepare for major life milestones, and safeguard against unexpected financial setbacks. However, every family’s financial situation is unique, so you’ll need to take a tailored approach.

Key Takeaways

• Every family’s financial plan should start with clear goals.
• A strong budget helps balance short-term needs with long-term goals, while an emergency fund provides a crucial safety net against unexpected expenses.
• Smart and tax-efficient investing strategies, along with proper insurance and estate planning, can help secure your family’s financial future.

“Each household has different priorities,” says Noah Damsky, the founder of Los Angeles-based Marina Wealth Advisors. For some, budgeting is going to be critical to success. For others, the main goal is saving money to send their kids to college. “The key is identifying priorities and your financial blind spots early so that you know where to start,” adds Damsky.

Whether you have a specific financial goal or are simply looking to create a budget, here’s how to build a comprehensive family financial plan that adapts to your evolving needs.

Identify Your Financial Priorities

The foundation of a good financial plan is setting clear objectives. Whether you’re saving for a home, planning for retirement, or prioritizing your child’s education, identifying these financial goals early helps create a structured roadmap for your finances.

Ask yourself questions like: How much do I need to save for retirement? Will I need to contribute to my child’s education expenses? Should I focus on paying off debt or investing for the future?

Clarifying these priorities early allows you to make informed financial choices. Damsky emphasizes that families must decide what matters most to them: “Some parents want to fully fund their kids’ college education, while others believe in having children contribute through scholarships or loans. Defining these decisions early on ensures your financial resources can be allocated effectively.”

Build a Budget

A budget tracks income and expenses, allowing families to balance immediate spending needs with long-term savings. Along with various budgeting tools and apps, you can also employ numerous strategies. For example, the 50/30/20 rule involves grouping expenses into three categories and allocating a set percentage of your income to each: 50% for needs, 30% for wants, and 20% for savings.

Another common budgeting tactic is the “pay yourself first” strategy, which prioritizes your savings. “Before spending on anything else, set aside a portion of your income for savings and investments,” explains Daniel Milks, the founder of South Carolina-based Woodmark Advisors. “That way, you’re securing your financial future rather than just covering monthly expenses and spending what’s left.”

While traditional budgeting methods like the 50/30/20 rule can provide structure, you can also take a more personalized approach to your spending. Damsky stresses that budgeting should be tailored to individual circumstances.

“Fixed expenses—rent, loan payments, utilities—should be prioritized first,” he says. “Once those are accounted for, families can decide how to allocate the remainder based on their financial goals.” Ultimately, what’s most important is keeping track of your income and expenses—while working toward your long-term financial goals.

Establish an Emergency Fund

Building an emergency fund should be one of your top priorities if you don’t have one already because a financial plan isn’t complete without a safety net. Emergency savings protect against unexpected costs like medical bills, car repairs, or job loss—and when the unexpected happens, it’s best to be prepared.

So how much should you save? Experts generally recommend that an emergency fund should be able to cover three to six months’ worth of essential expenses. However, Damsky notes that you should consider your income and job stability when deciding how much to save.

“A firefighter and a tenured professor—which both have good job security—may only need three months of expenses in their savings,” he explains. “But a freelancer or a business owner with fluctuating income may want to consider 12 months’ worth.”

Make Smart Investments

Investing is key to building long-term wealth, and having the right mix of investments can help families meet their financial objectives. Also, don’t forget to consider taxes when evaluating different types of investments. “Many people focus solely on growing their investments but fail to consider how taxes will impact their savings in retirement,” says Damsky. “Using Roth IRAs, tax-advantaged 529 plans, or defined benefit plans can lead to significant savings.”

Types of Investment Accounts to Consider

Retirement Accounts: 401(k)s and IRAs offer tax benefits essential for long-term savings. If your employer provides matching contributions, taking full advantage of them will help you maximize investment growth.

529 College Savings Plans: These accounts allow tax-free growth for qualified education expenses. State-sponsored plans may offer additional tax incentives.

Brokerage Accounts: For families who have maxed out tax-advantaged accounts, a taxable brokerage account provides flexibility by allowing you to invest in stocks, ETFs, mutual funds, and more.

Plan for the Unexpected: Insurance and Estate Planning

Your financial plan should also safeguard against risks to protect your family from any hardships caused by unexpected events. “Many families put off buying insurance because they don’t see the immediate benefit,” says Damsky. “But if something happens, it can mean the difference between financial security and devastation.”

Different types of insurance to consider include term life insurance, which can provide a cost-effective way to protect dependants, as well as disability insurance and, of course, health insurance.

Estate planning is another critical component. Damsky stresses the importance of having a trust to help ensure your assets are distributed according to your wishes while avoiding the delays and expenses of probate—especially in states like California, where probate can be costly and time-consuming.

“If something happens to you, having a trust makes life so much easier to navigate for your loved ones,” says Damsky.

Manage Debt Wisely

Balancing debt repayment with savings can be challenging in financial planning. However, some strategies can help make the process easier, such as tackling high-interest liabilities first. It’s also important to remember that not all debt is harmful.

For example, debt with low interest rates can help preserve your liquidity—or shore up cash to invest in higher-yield opportunities. In that sense, a low-interest mortgage, for example, “can actually be a financial asset,” Damsky says. “But high-interest student loans or credit card debt should be prioritized for early repayment.”

Debt repayment strategies include the avalanche method, which involves paying off your highest-interest debt first to minimize interest costs, and the snowball method, which focuses on paying off the smallest balances first to build momentum as you work toward larger debts.

Common Mistakes to Avoid

Even with a smart strategy, any financial plan can fail if you fall victim to certain common pitfalls. For one, you’ll want to remember that the “decisions you make today can have an exponential impact in the future—especially while you’re young,” says Milks, cautioning against “bad purchases” such as taking on a large loan to finance a pricey new vehicle. “A dollar today might be worth $10 when you’re 50.”

Other common mistakes include underestimating expenses by not accounting for all your discretionary spending and failing to invest or save in a tax-efficient way. Lastly, failing to review—and adjust—your plan regularly can get you off track, so be diligent about checking in periodically and making changes as necessary.

The Bottom Line

A well-structured financial plan can help provide you and your family with stability, security, and long-term financial health. By setting clear priorities, maintaining a solid budget, building an emergency fund, and making smart investment decisions, you can create a financial future that aligns with your family’s goals.

“The most important step is getting started,” says Milks. “You can always adjust as circumstances change, but having a plan in place ensures you’re moving in the right direction.”

KEY TAKEAWAYS

• Commerce Secretary Howard Lutnick hinted at a compromise and a scaling back of the 25% tariffs imposed by Washington on Canada and Mexico on Tuesday.
• Lutnick told reporters after President Donald Trump stuck with his pro-tariff stance in his address to a joint session of Congress Tuesday night that the administration would “probably” announce a deal to cut the tariffs Wednesday, The Wall Street Journal reported.
• In an earlier interview with Fox Business before Trump’s address, Lutnick said Trump would “come in the middle” with Mexico and Canada.

Commerce Secretary Howard Lutnick hinted at a compromise and a scaling back of the 25% tariffs imposed by Washington on Canada and Mexico on Tuesday.

Lutnick told reporters after President Donald Trump stuck with his pro-tariff stance in his address to a joint session of Congress Tuesday night that the administration would “probably” announce a deal to cut the tariffs Wednesday, according to The Wall Street Journal.

In an interview with Fox Business before Trump’s address, Lutnick said Trump would “come in the middle” with Mexico and Canada.

“He’s really looking carefully at that trying to figure out if there is a way in there that he can come in the middle, where he can give the Canadians and Mexicans something, but they have to got do more,” Lutnick said.

“It’s not gonna be a pause. None of that pause stuff. But I think he’s going to figure out, you do more, and I’ll meet you in the middle someway,” Lutnick added. “We’re going to probably be announcing that tomorrow. So somewhere in the middle will likely be the outcome—the president moving with the Canadians and Mexicans but not all the way.”

U.S. stock futures are rising after indexes closed sharply lower Tuesday as investors worried that the imposition of the tariffs, including a doubling of levies on goods from China, would hurt the U.S. economy and reignite inflation.

In his address to Congress Tuesday night, Trump acknowledged the possibility for disruption but said the tariffs are necessary. “Tariffs are not just about protecting American jobs, they’re about protecting the soul of our country,” Trump said. 

Fact checked by Yarilet Perez

Bitcoin’s price surged to an all-time high in January 2025 and surpassed $100,000 for the first time ever in December 2024, following former President Donald Trump’s reelection and triggering FOMO (fear of missing out) among many investors. While the rally has captured widespread attention, experts told Investopedia that the cryptocurrency’s notorious volatility demands caution.

Instead of chasing short-term gains, financial advisors say it’s important for investors to maintain a disciplined strategy that carefully weighs prospects and risks.

Key Takeaways

• Bitcoin surged to a record high in January 2025 following former President Donald Trump’s reelection and crypto-friendly policy promises.
• Despite the growing investor enthusiasm, experts caution that Bitcoin’s history of massive price drops—like its 70% crash after a 2021 high—underscores the importance of managing risk.
• Financial advisors suggest limiting crypto exposure to 5% of your portfolio and maintaining a long-term perspective to weather volatility.

Bitcoin’s New All-Time High

Bitcoin reached an all-time high of $108,099 on Jan. 20, 2025. The milestone capped a year of significant developments for the cryptocurrency, including the January 2024 approval of spot Bitcoin exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC), which allowed mainstream investors easier access to the asset through traditional brokerage accounts.

The roughly 48% surge from prices of about $70,000 before the election came amid investor exuberance over Trump’s crypto-friendly campaign promises, including a pledge to fire then-current SEC Chair Gary Gensler, who had often been critical of cryptocurrencies. Gensler resigned on Jan. 20, 2025, the same day Trump returned to office.

Trump tapped Paul Atkins, CEO of the consulting firm Patomak Global Partners and a former SEC commissioner, to chair the SEC in his administration. In the years since leaving the SEC, Atkins has argued against too much SEC regulation and has been seen as a crypto advocate.

Note

In addition to Atkins, Trump has added other crypto-friendly personnel to his administration, including venture investor and podcaster David Sacks, whom he named the new “White House A.I. & Crypto Czar.”

Should You Invest in Bitcoin Now?

Despite optimism about a crypto-friendly regulatory shift, wealth advisor Peter Hughes, founder of Evolve Investing, said investors need to stay mindful of Bitcoin’s historical volatility.

“When you see a run-up in Bitcoin like we’ve seen post-election, I get a lot more interest from clients, so what I’ll typically do is show them the drawdown risk,” Hughes said. He pointed to the cryptocurrency’s dramatic decline following its previous peak in November 2021, when prices fell more than 70% over the following year.

If investors are comfortable with the risk, Hughes suggests allocating no more than 5% of their portfolio to cryptocurrencies, citing studies that indicate a Bitcoin or crypto allocation above 5% increases the volatility of an overall investment portfolio dramatically.

“When Bitcoin as a percentage of the overall portfolio starts to exceed that 5% threshold, it’s at that point that the portfolio becomes more risky than holding, say, a nearly 100% equity portfolio,” he said.

For newer investors, Aditi Kapadia, founder of Wealth IQ, suggested starting with small allocations to spot ETFs or regulated platforms as a “prudent” first step. “Regardless of how you invest, maintaining a long-term perspective and keeping emotions in check during volatile periods will be critical to success,” she said.

What Is Cryptocurrency?

Cryptocurrency is a digital or virtual currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Most cryptocurrencies exist on decentralized networks using blockchain technology—a distributed ledger enforced by a disparate network of computers.

What Is Bitcoin?

Bitcoin is the world’s largest and most well-known cryptocurrency. It is designed to act as money and a form of payment outside the control of any one person, group, or entity, thus removing the need for trusted third-party involvement (e.g., a mint or bank) in financial transactions.

What’s the Difference Between BTC and BTCUSD?

BTC is the currency code for the bitcoin, the unit of account of the Bitcoin system.

BTCUSD is the ticker symbol for Bitcoin and the U.S. dollar exchange rate. BTCUSD is a crypto contract for differences (CFD) because of the presence of Bitcoin as the base currency.

How Can I Invest in Bitcoin?

Investing in Bitcoin can seem complicated, but it isn’t. It only requires an account at a service provider or a cryptocurrency exchange and a way to store your purchases safely. Payment methods include bank accounts, debit cards, credit cards, and PayPal. You can also buy Bitcoin at specialized ATMs, peer-to-peer (P2P) exchanges, and brokerages such as Fidelity and Robinhood.

You can also invest in Bitcoin through exchange-traded funds such as spot Bitcoin ETFs and Bitcoin futures ETFs.

The Bottom Line

Investing in Bitcoin following its post-election surge may be tempting, but investors should stay grounded and remember the cryptocurrency’s volatility. Focus on balancing risk and reward, keeping a long-term perspective, and avoiding impulsive decisions driven by market hype.

Hughes offered a sobering reality check for investors caught up in the current enthusiasm. “If you’re feeling bullish on bitcoin after this incredible run, how would you react if the price dropped by half?” he said. “Your answer reveals whether you’re truly prepared for cryptocurrency’s inherent volatility.”

Fact checked by Suzanne Kvilhaug
Reviewed by JeFreda R. Brown

Hong Kong exchange-traded funds (ETFs) track the performance of Hong Kong equities and other assets, usually through indexes tied to the market. These indexes can range from the broader market to specific sectors within the Hong Kong economy. Like other ETFs, Hong Kong ETFs are traded on stock exchanges, offering exposure to the Hong Kong market without the need to buy individual securities.

Key Takeaways

• Hong Kong ETFs grant investors access to the Hong Kong market, offering broad and international diversification advantages.
• When selecting a Hong Kong ETF, consider expense ratios, performance, holdings, liquidity, and assets under management.
• Investing in Hong Kong ETFs carries unique risks, including currency risk and market volatility, as well as political and economic factors that can impact their performance.
• Knowing the tax implications and regulations that come with investing in Hong Kong ETFs is also critical.

How Hong Kong ETFs Work

Hong Kong exchange-traded funds (ETFs) work by tracking a particular index that represents a segment of the Hong Kong stock market. This is done by buying all or a representative group of the securities in the underlying index. The ETF’s price fluctuates throughout the trading day, like individual stocks, and most ETFs are highly liquid.

Some of the key characteristics of Hong Kong ETFs include their:

• Performance, which reflects the underlying index’s return
• Expense ratio, which is the annual fee charged to investors
• Specific holdings, which are the individual securities it owns
• Sector allocations or how its assets are distributed across different sectors

Other important factors include trading volume (how frequently shares are bought and sold) and tracking errors (how closely the ETF follows its index). These collectively determine the suitability of a particular Hong Kong ETF for you.

What to Consider When Choosing a Hong Kong ETF

When choosing a Hong Kong ETF, several factors should be considered:

• The fund’s objective is crucial since it should align with your investment goals
• Holdings are another critical aspect, as they represent the ETF’s assets
• Liquidity determines how easily an investor can trade shares of the ETF
• The provider’s size, scale, expertise, and commitment can also impact your investment, so these should also be considered
• Evaluating an ETF’s performance and track record is an essential step. This includes understanding the performance of the ETF, the underlying index it tracks, and how it does so
• Review the ETF’s costs

Remember that past performance is not a guarantee of future results, and your choice should fit your risk tolerance and investment goals.

How to Invest in Hong Kong ETFs

Investing in Hong Kong ETFs can be done simply through a brokerage account. You need to open an account with a broker that provides access to international markets, including Hong Kong. Ensure that the broker you choose is regulated and has a good reputation. Research the available Hong Kong ETFs, assessing fund objectives, holdings, liquidity, performance track record, and fees.

To buy shares in a Hong Kong ETF, follow these steps:

1. Log into your brokerage account
2. Search for the ticker symbol of the ETF you’re interested in
3. Specify the number of ETF units you want to buy
4. Submit your order

Remember to conduct due diligence beforehand, review your transactions, and check your investments regularly.

Benefits of Investing in Hong Kong ETFs

A primary advantage is diversification. By investing in a Hong Kong ETF, you get direct exposure to a broad range of companies within the Hong Kong market, spreading your risk across many stocks rather than relying on the performance of a single company or a smaller number of shares. This can be worthwhile for those seeking broad international diversification in their portfolios.

It’s also a chance to benefit from the attractive potential of the Hong Kong market. Hong Kong is a leading financial center with a dynamic and robust economy. Investing in a Hong Kong ETF allows investors to participate in this growth.

In addition, ETFs offer advantages such as liquidity (generally, easy trading throughout the trading day), transparency (holdings are disclosed daily), and lower costs than mutual funds.

Risks of Investing in Hong Kong ETFs

Investing in Hong Kong ETFs offers the chance to tap into a dynamic financial market. Before doing so, however, understanding the specific risks and market dynamics of Hong Kong is essential.

Hong Kong is a global financial powerhouse, renowned for its internationalization and role as a gateway for investments in and out of China. Its gross domestic product (GDP) in 2002 was $166.35 billion, climbing to $358.68 billion by 2022, in 2022 U.S. dollars.

Hong Kong operates under a distinct system from mainland China, yet Chinese economic policies and developments profoundly impact its economy. This complex interdependence underscores the importance for investors to watch political and economic changes in China, given their significant influence on Hong Kong’s market. Its role as a critical gateway to Chinese and other Asian markets extends its economic influence far beyond what is reflected in its GDP alone.

Note

Hong Kong’s services sector made up almost 94% of its GDP in 2023. It is the third-largest global financial center and was the 10th largest exporter of merchandise trade in 2023.

The real estate sector, a significant part of Hong Kong’s economy, is characterized by high property prices and a market that can significantly drive economic growth, offering attractive prospects in related ETFs. As a pivotal trading hub, Hong Kong’s reliance on trade, especially with mainland China and other Asian countries, underscores the importance of global trade for its market performance.

Investors must also navigate currency risks with the Hong Kong dollar’s peg to the U.S. dollar. This peg affects monetary policy and can influence inflation and interest rates, impacting investment returns.

Hong Kong’s traditional appeal has been its free-market policies, low taxation, and minimal government intervention. However, the evolving political landscape and recent changes in security laws pose potential risks that could alter this environment.

The focus on technology in Hong Kong, fueled by government initiatives aimed at economic diversification, presents new avenues for ETF investment. This shift toward a more innovation-driven economy could redefine traditional investment strategies.

Fueled by local and global events, market volatility remains a crucial consideration. Political shifts, policy changes, and global economic trends can all significantly influence the value of Hong Kong ETFs. China’s global financial influence, particularly the role of Hong Kong as an international financial center, is crucial. The dynamics of the yuan exchange rate and China’s economic growth rate are also important to assess.

In light of these risks and prospects, a well-diversified portfolio is key. Regular monitoring, staying informed about global and local developments, and strategic use of stop-loss orders can help mitigate potential losses.

Pros and Cons of Investing in Hong Kong ETFs

Pros

• Transparency in ETF holdings and performance

• Broad diversification of different stocks

• Convenient trading during market hours

Cons

• Political risks may increase volatility and potential loss of value

• Potential liquidity risk affecting buy/sell prices

• Currency risk because of different currency denomination

Top Hong Kong ETFs

The two top Hong Kong ETFs available in U.S. markets are the iShares MSCI Hong Kong ETF (EWH) and the Franklin FTSE Hong Kong ETF (FLHK).

EWH had over $631.35 million in net assets and is the oldest and largest Hong Kong ETF. It aims to replicate the performance of the MSCI Hong Kong Index, providing exposure to large and midsized Hong Kong companies. EWH comes with an expense ratio of 0.50%.

FLHK tracks the FTSE Hong Kong Capped Index, and its inception was in 2017. Its assets under management (AUM) are significantly lower than EWH at about $12.19 million. The fund had an expense ratio of 0.09%.

Is the Hong Kong Stock Exchange Part of China?

Yes, the Hong Kong Stock Exchange is part of China, but it operates under a separate regulatory regime because of the “one country, two systems” principle.

What Are Other Ways to Invest in the Hong Kong Market?

Apart from ETFs, investors can also directly buy individual securities of enterprises listed on the Hong Kong Stock Exchange or mutual funds focused on Hong Kong exposure. 

What Is the Largest Sector Represented in the iShares MSCI Hong Kong ETF (EWH)?

The insurance sector is the largest sector represented in the EWH fund, followed by financial services, real estate management and development, and capital goods.

The Bottom Line

Hong Kong ETFs offer advantages like diversification, transparency, and the opportunity for international market exposure. They provide investors access to Hong Kong’s economy and can be traded on stock exchanges. Before investing, interested investors should conduct due diligence and consider expense ratio, performance, size, liquidity, and Hong Kong-specific risks.

Robo-advisors manage an investor’s portfolio, while brokerage accounts are self-directed

Fact checked by Vikki Velasquez
Reviewed by Katie Miller

A robo-advisor is a digital platform that provides investment recommendations based on an individual’s goals and preferences, automating the portfolio management services they might otherwise receive from a human advisor.

A brokerage account requires investors to choose and self-direct their portfolio activity. Brokerage accounts offer freedom and flexibility to investors who want more active control over their portfolios.

Key Takeaways

• Robo-advisors provide customized advice to help investors optimize their investments.
• Self-directed brokerage accounts give investors full control over their portfolios.
• Investors looking for low-cost professional advice or low-involvement investing may benefit from a robo-advisor.
• Investors who engage in complex strategies or want a more active role in managing their assets will prefer the flexibility of self-directed brokerage accounts.

What Is a Robo-Advisor?

A robo-advisor is a digital platform that starts with an online questionnaire gauging an investor’s preferences, time horizon, and risk tolerance. Since robo-advisors offer the added benefit of helping build and manage a portfolio, they generally come with higher fees than investors pay to access an online brokerage platform. Firms include Wealthfront, Betterment, and Empower. Fidelity offers Fidelity Go, while Merrill Lynch has its Merrill Guided Investing program.

An investor portfolio is created based on the individual’s answers and the robo-advisor’s algorithms. The robo-advisor manages the investment, rebalancing the portfolio to ensure it maintains the optimal weightings of different assets to keep investors on track toward their goals. However, robo-advisors may only offer limited investment vehicles.

Robo-advisors stand out from standard brokerage accounts because of the additional portfolio management services they provide. When investors use a robo-advisor, they receive personalized recommendations from the firm’s proprietary algorithm to build a portfolio optimized to help reach their investment goals.

Important

Robo-advisors usually have reasonable minimum deposit requirements, making it easy for beginner investors.

Robo-Advisor: Advantages and Disadvantages

Pros

• Lower cost

• Reasonable minimum deposit requirements

• Hands-off investing

• Ideal for beginner investors

Cons

• Lack of human touch

• Inability to adjust to specific or new situations

• Relies on algorithms not on personal interaction

• Unable to discern an investor’s tax situation

• Limited investment offerings

What Is a Brokerage Account?

A brokerage account allows investors to choose financial assets like stocks, bonds, mutual funds, and ETFs. The assets in the account belong to the investor, and if not in a tax-advantaged account, the investor will have to pay taxes on any profits. An online brokerage account does not offer advice, and the investment decisions are entirely up to the investors.

Discount brokerage firms like Fidelity and Charles Schwab charge no platform fees for their accounts and even offer zero-commission trading on stocks and exchange-traded funds (ETFs). However, even at these low-cost brokerages, there are higher fees to trade more complex instruments like futures and options. Financial giants like JPMorgan and Wells Fargo offer versions of self-directed online accounts alongside their more traditional investment advisory services.

Various brokerage accounts offer investors personal advice and investment management, including full-service brokerage that offers a wide array of services at higher costs. Those who want to keep fees low and willing and able to research and manage their investments typically turn to online brokerages.

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

Brokerage Account: Advantages and Disadvantages

Pros

• Flexibility

• May offer commission-free trading

• Can trade in individual stocks and bonds and incorporate more complex strategies

Cons

• Investors choose individual stocks, bonds, ETFs, etc.

• Requires a more hands-on approach to investing

• Adding a personal advisor will increase costs and fees

What Is the Main Disadvantage of Using a Robo-Advisor?

Robo-advisors may not be as effective as human advisors at understanding their clients’ financial situation, including tax planning and estate planning issues. Also, algorithms are based on data from the past and may not respond to new or unexpected market developments. Although a robo-advisor aims to personalize a portfolio, it typically offers a limited set of investments, excluding things like derivatives, and they don’t allow margin trading or other sophisticated strategies.

What Are the Benefits of Using an Online Brokerage?

Many online brokerages offer commission-free trading of stocks, bonds, and ETFs. Some of these accounts may also allow you to trade on margin or use futures- and options-investing strategies.

How Risky Are Robo-Advisors?

Any investment involves taking on risk, and robo-advisors are no different. Questions arise at how robo-advisors fulfill fiduciary duties—the responsibility of investment advisors to act in the best interest of a client. It is unclear how robo-advisor algorithms handle potential conflicts of interest between their firms and investors’ portfolios.

The Bottom Line

Robo-advisors provide personalized recommendations to help investors build a portfolio, while self-directed brokerage accounts leave investment decisions to the individual. A robo-advisor offers investing management services without the steeper cost of a full-service advisor, without the flexibility to pursue unique or complex strategies. A self-directed account gives investors the autonomy and the responsibility of managing their portfolio.