Investopedia

Fact checked by Vikki Velasquez
Reviewed by Margaret James

If you’re starting a business, it’s crucial to begin with careful financial planning and precise accounting. Unfortunately, many new businesses make the mistake of not properly estimating and budgeting for startup costs. This approach can lead to poor results or even the business’s failure. Instead, take the time to make a budget. Here’s what you need to plan for.

Key Takeaways

• Startup costs are expenses incurred while establishing a new business. They can be divided into two categories: pre-opening and post-opening. 
• Pre-opening startup costs include a business plan, advertising, employee training, professional services, and setting up books and records.
• After the business opens, costs shift toward promotional activities and employee salaries.
• Each type of business structure (e.g. sole proprietorship, corporation) has unique startup costs.

Understanding Common Business Startup Costs

Startup costs are the expenses a new business faces during its creation.

“It’s important to carefully consider start-up costs, conduct sound research, and build a contingency fund to cover these unpredictable expenses and ensure that your business can maintain smooth operations during its early stages,” says Jo Madison, director of the Small Business Development Center at the Urban League of Greater Cleveland. “Careful budgeting and flexibility will give you the financial foundation needed to navigate the challenges of starting a new business.”

A business will incur different types of startup costs depending on its nature of operations.

For example, online businesses, such as e-commerce websites, often have lower initial capital requirements than brick-and-mortar businesses, such as restaurants. This difference in startup costs is because online businesses typically need less physical space and fewer employees compared to brick-and-mortar operations.

Despite these differences, several expenses are common across most types of businesses. These typically include costs related to legal or attorney fees, licensing, initial inventory, market research, and marketing efforts to launch the brand.

Important

Keep detailed records of all your startup expenses from the beginning. This not only helps with budgeting and planning but also helps you take full advantage of tax deductions.

The Business Plan

Creating a business plan is crucial for starting a business, as it provides a detailed roadmap and prompts careful consideration of various startup costs. Underestimating these expenses can lead to an inflated expectation of net profit, which can be detrimental for a small business owner.

“Creating a comprehensive business plan can involve market research, financial projections, and professional assistance,” Madison says. “An individual expert fee structure can range from $300-$1500 depending on the complexity of the business plan.”

Research Expenses

Before launching a business, it’s crucial to thoroughly research the industry and target consumer demographics. Some business owners opt to hire market research firms for this purpose.

Hiring a market research firm is essential for companies wanting to excel in competitive markets. These firms offer key insights into customer preferences and industry trends, using both qualitative and quantitative data to inform strategies ranging from product development to marketing. Their analysis helps businesses make informed decisions and identifies potential risks and opportunities.

For business owners who choose to follow this route, the expense of hiring these experts must be included in the business plan.

Borrowing Costs

Starting up any kind of business requires an infusion of capital. There are two ways to acquire capital for a business: equity financing and debt financing. Equity financing usually entails the issuance of stock, meaning the company offers shares of its ownership to investors in exchange for funds. However, this doesn’t apply to most small businesses, which are proprietorships and don’t issue stock.

For small business owners, the most likely source of financing is debt in the form of a small business loan. Business owners can get loans from banks, savings institutions, and the U.S. Small Business Administration (SBA). Like any other loan, SBA business loans come with principal and interest payments that need to be carefully planned for when starting a business, as failing to make these payments can result in severe consequences.

Insurance, License, and Permit Fees

Many businesses are expected to submit to health inspections and authorizations to obtain certain business licenses and permits. Some businesses might require basic licenses while others need industry-specific permits.

“Business insurance (e.g., general liability, property, workers’ compensation) is essential to protect the company against unforeseen events and legal risks,” Madison says.

Carrying insurance to cover your employees, customers, business assets, and yourself can help protect your personal assets from any liabilities that may arise. 

Technological Expenses

Technological expenses include the cost of a website, information systems, and software, including accounting and point of sale (POS) software, for a business. Some small business owners choose to outsource these functions to other companies to save on payroll and benefits.

Equipment and Supplies

Every business needs equipment and basic supplies, which are crucial components of startup costs. When planning these expenses, you must decide whether to lease or buy the equipment. 

The state of your finances will play a major part in this decision. Even with sufficient funds to purchase equipment outright, it might be more practical to lease initially, with the option to buy later, especially if other unavoidable expenses arise. However, it’s important to remember that, regardless of the cash position, leasing isn’t always the most beneficial option depending on the type of equipment and the lease terms.

Advertising and Promotion

A new company is unlikely to succeed without promoting itself. However, promoting a business entails much more than buying ads online.

It also includes marketing—everything a company does to attract clients to the business. You might consider paying for a marketing consultant or firm.

Employee Expenses

Businesses planning to hire employees must plan for wages, salaries, and benefits, also known as the cost of labor. This includes not only direct payments but also any additional benefits that contribute to employee compensation packages, including health insurance, retirement plans, and bonuses.

Failure to adequately compensate employees can result in low morale and potentially bad publicity, which can tarnish a company’s reputation and be disastrous for the business.

Contingency Fund

The trickiest part of calculating start-up costs is estimating contingency costs. “These are costs that can arise unexpectedly but are critical to account for when preparing a budget,” Madison says.

“The main challenge in calculating start-up costs is ensuring you factor in all of these unpredictable, hidden, or variable expenses,” she adds. “A comprehensive budget needs to include a contingency fund—usually 10-20% of the estimated start-up costs—specifically for dealing with unexpected expenses.”

Additional Startup Cost Considerations

The most expensive element of your business will depend on the nature of your business, and your industry.

It’s wise to set aside some extra money for any overlooked or unexpected expenses. Many companies fail because they lack the cash (or cash flow) to deal with unexpected problems.

“The time it takes for customers to pay invoices could result in delays in receiving payments to cover operational expenses before revenue starts coming in,” Madison says. “Setting up a cushion or cash reserves (liquidity) may be overlooked as it is not viewed as a start-up cost, however, [it] should be viewed as a start-up necessity.”

It’s also important to note that the startup costs for a sole proprietorship differ from the startup costs for a partnership or corporation. Some additional costs a partnership might incur include the legal cost of drafting a partnership agreement and state registration fees.

Other costs that may apply more to a corporation include fees for filing articles of incorporation, bylaws, and terms of original stock certificates.

What Are Business Startup Costs?

Startup costs are the expenses required to create a new business. Once the business is operational, these costs can be broadly categorized into pre-opening and ongoing or operating expenses. Pre-opening costs may include expenses for developing a business plan, market research, securing a location, and initial marketing. Ongoing costs typically involve operational expenses like employee salaries, utilities, and inventory replenishment.

What Business Startup Costs are Tax Deductible?

Tax-deductible startup costs generally include essential expenses for establishing a new business, such as market research, opening advertisements, and employee training salaries. The IRS allows new businesses to write off expenses of $10,000 in startup costs and $5,000 in organizational costs in the year the business begins. However, total startup costs must be $60,000 or less and organizational costs must be $50,000 or less. If the costs exceed the maximums, the remaining has to be amortized.

How Do I Calculate Business Startup Costs?

To calculate your startup costs, first identify all necessary expenses, like office space, equipment, licenses, permits, salaries, and marketing. Estimate each expense by researching online and consulting with mentors or similar businesses. You can then organize these costs into one-time and monthly categories, then calculate a total to understand your capital needs. Calculating your expected startup costs can help you secure funding, attract investors, and launch your business successfully.

The Bottom Line

Understanding and planning for startup costs is crucial for any new business. These costs include pre-opening expenses, like market research and a business plan, and post-opening expenses, such as marketing and employee salaries. Every business has unique costs, but common expenses often involve legal fees, permits, equipment, and technology.

Accurately estimating your startup costs is key for any new founder. Realistic figures can help secure funding from investors or banks and ensure smooth operations. Keeping detailed records from the start can also help you in financial planning and maximizing tax benefits.

Reviewed by Anthony Battle
Fact checked by Suzanne Kvilhaug

Many people wouldn’t dream of giving up an inheritance. After all, a sudden windfall may help them reach some of their financial goals, including getting out of debt or saving for retirement. But, it may make more sense to decline it, especially if the inheritance pushes you into a higher tax bracket or if you simply want someone else to inherit it.

Key Takeaways

• You can decline or disclaim an inheritance for any reason, including avoiding the tax implications.
• Disclaimers must be written within nine months of the decedent’s death.
• Once you’ve refused an inheritance, you cannot benefit from any assets or reclaim them in the future.
• Disclaimers can be a handy estate planning tool, where you add conditions in your will if a beneficiary declines their inheritance.

Reasons for Declining an Inheritance

Declining an inheritance may seem like an unusual move. So, if you decide to proceed, you can use a qualified disclaimer to refuse an inheritance. But why would you? The following are some of the most common reasons why you may not want to accept one.

Disclaiming may make sense if you are heavily exposed to income and estate taxes as a result of the inheritance, according to Keith Atneosen, principal and family business advisor at Freedom Summit. You may be pushed into a higher tax bracket if the assets generate income, and you may be responsible for estate taxes if the inheritance is high enough. Anything over $13.99 million in 2025 ($13.61 million in 2024) is subject to the estate tax.

Some of the other reasons why you would disclaim an inheritance include:

• You want someone else to benefit. You can reject the inheritance if you want someone else, including a sibling, to take possession of the assets instead.
• You’re already financially stable. You may not need the assets or money from an inheritance because of your financial situation.
• You don’t want to deal with tricky or complicated assets, such as vacation homes, that may take time to dispose of or sell.
• Avoiding family conflict. A death, will, and inheritance may cause tension among family members, so you may decide to disclaim it to keep the peace.

You simply may not want the inheritance. This may be for personal reasons, which is very valid.

Legal and Tax Implications

Before you disclaim an inheritance, you should consider some of the legal and tax implications.

Legal Implications

You may have your reasons for declining an inheritance. However, you should understand that if you refuse an inheritance today, you cannot reclaim it in the future. Put simply, a disclaimer is irrevocable, which means you can’t change your mind or claim the inheritance if your situation changes. You also give up the asset or any benefits from it.

Additionally, you’ll have no power to decide where the inheritance goes after you decline it. The assets are passed down to the next beneficiary if one is listed in the deceased’s will. If there is no beneficiary, they are passed on to the estate.

“If there are no estate documents [such as a will], it could be subject to probate court in the state of the decedent,” Atneosen said. This probate process involves reviewing and analyzing the deceased’s assets and documents in probate court. The length of time depends on the state, but the average is generally six months.

Tax Implications

You avoid any of the tax implications that might come with accepting an inheritance. For instance:

• You avoid paying taxes on income-generating assets you inherit.
• You pass any tax implications on to the new beneficiary.
• You reduce the potential for estate taxes passed on to your beneficiary(s) after you die.

Procedure for Disclaiming an Inheritance

Writing a disclaimer involves a process. You have nine months from the date of the deceased’s death to do so.

If you intend to decline an inheritance, you must do so in writing. This written notice must include what you are disclaiming, whether you choose to decline the entire estate or just certain parts. The document must be signed to ensure that the refusal is legal. Once complete, it must be sent to the executor or the estate’s representative.

Although you can do the disclaimer yourself, Atneosen says to be careful, as there may be legal risks if you don’t work with an attorney. “It’s best to engage with an attorney licensed [in] your state of domicile,” he said.

Warning

You generally cannot disclaim an inheritance once the assets have been transferred. And remember, once you disclaim it, you cannot reclaim the inheritance.

Impact on Estate Planning

You can use a disclaimer as a flexible estate planning tool, especially when you’re unsure of what will happen in the future.

For instance, your beneficiary (maybe your spouse) can’t decide where any inherited assets will go if they complete a qualified disclaimer. Since you don’t know if this will happen, you can outline in your will what happens to your assets if your beneficiary decides to refuse the inheritance. This can include naming additional beneficiaries or passing the assets on to a trust.

Speak to an estate planner, lawyer, or financial expert to get the best advice on how to deal with any scenario.

Examples and Case Studies

Here’s a hypothetical example to show how disclaimers work. Imagine Mr. X has a traditional IRA worth $250,000, two properties (a primary and income-generating vacation residence) valued at $300,000 each, a checking and savings account with a combined value of $30,000, and a car worth $15,000. The total value of his estate is $895,000.

Mr. X leaves his entire estate to his adult daughter. If the daughter doesn’t want the tax implications associated with her father’s IRA (she would have to take withdrawals over 10 years after his death) and the income from the vacation home after he dies, she can complete a disclaimer within nine months indicating her refusal of those assets. These assets will pass on to the next available heir. If she wants, she can keep the primary residence, checking and savings accounts, and the car without paying taxes.

The Bottom Line 

Although disclaimers aren’t uncommon, they aren’t unusual. People with large net worths who stand to inherit valuable assets may use them to avoid heavy tax implications. Disclaimers must be made in writing within nine months of the decedent’s death. Keep in mind that once you refuse an inheritance, you are legally bound by the disclaimer. This means you cannot benefit from or reclaim any disclaimed assets in the future. Be sure to speak to a financial or legal professional so you know where you stand.

Fact checked by Vikki Velasquez

If you inherit a house with a mortgage, there is a lot to think about. Should you keep the house and take over mortgage payments? Should you sell it? Let’s look at all your options.

Key Takeaways

• If you keep the house, the deed will be transferred into your name. You can pay the current mortgage or refinance.
• If you sell the house, you can use the proceeds to pay off the remainder of the mortgage.
• If you keep the house and rent it out, a tenant’s monthly rent checks could cover the home’s mortgage payments.
• If you let the home fall into foreclosure, you won’t make any mortgage payments, hurting your credit rating.

Hang on to the House

If you decide you want to keep the house, you’ll also have to make the mortgage payments that come with it. This is a good option if you like the home and the current mortgage payments will fit into your budget.

“Many choose this option if they decide they want to move into the home, if it has sentimental value, or if the value of the home is expected to appreciate over time,” says Adam Rosenblum, attorney at Rosenblum Law.

As soon as you decide to keep the house, you’ll want to reach out to the lender handling the mortgage and ask about taking over the home’s existing mortgage.

“Once you have been approved, continue making monthly mortgage payments and pay for taxes, insurance, and upkeep on the home,” Rosenblum says. “You will then need to work with the lender or servicer to assume the loan and transfer the home’s deed to your name. You may also be able to refinance the home if you want to lower payments or remove other heirs from the title.”

Sell the House

Deciding to sell an inherited house is another option. The money from the sale may cover the remainder of the home’s mortgage. Any money left over after that can be used however you wish. Don’t forget about taxes.

“Any excess money made from the house can be kept by the homeowner or distributed to other heirs,” Rosenblum says. “Many choose this option if they cannot afford to keep the house, but note that you may also need to pay taxes on money made from the sale.”

Before you sell an inherited home, you’ll want to assess the value of the home by getting an appraisal.

“If you choose to sell the house, you should get the property appraised to determine its market value, which can be done with the help of your lender or by contacting a licensed appraiser,” Rosenblum says. “If you decide the value of the home is worth selling it, you should then work with a licensed real estate agent to list the home.”

Rent Out the House

Keeping the house and opening the house up to a tenant is another means of covering a home’s mortgage payments and making some additional cash each month.

“If you choose to keep the home but wish to also make some extra income from it, you can rent it out to someone else, which can also cover the mortgage payments,” Rosenblum says.

Becoming a landlord may be a way to make additional money from an inherited house, but there is much to consider.

“If you choose to rent the home, you should ensure compliance with any rental restrictions in your state, prepare the home, screen tenants, draft a lease agreement, and manage the property yourself or hire a property management company,” Rosenblum says.

Stop Payments on the House

You can choose to let an inherited house go into foreclosure, but it will hurt your credit rating to do so. Think carefully about choosing this option.

“If the mortgage exceeds the home’s value, or if you no longer wish to keep the home in any capacity, foreclosure is an option,” Rosenblum says. “However, we generally do not recommend foreclosure as a good option, as it can severely damage your credit score and make obtaining future loans more difficult.”

The Bottom Line

When you inherit a house with a mortgage, you have four key options to consider:

• You can keep the house, take over its mortgage payments, and have the deed transferred into your name.
• You can sell the house, and pay off the home’s mortgage with the proceeds of the sale.
• You can keep the house and rent it out to a tenant. Ideally, the tenant’s monthly rent check would cover the home’s mortgage plus some additional cash.
• You can let the home fall into foreclosure. This option may be tempting to do if the home’s mortgage is worth more than its current value, but it will damage your credit.

Fact checked by Suzanne Kvilhaug

Not all natural disasters are covered by renters insurance policies, and you may need to buy separate additional coverages for earthquakes and floods to protect your belongings should these disasters strike in your area.

“If you rent a house or apartment and experience a fire or other disaster, your landlord’s insurance will only cover the costs of repairing the building. But it won’t cover your personal property. To protect yourself financially, you will need to buy renters or tenants insurance,” says Scott Holeman, Director of Media Relations for the Insurance Information Institute.

Key Takeaways

• Renters insurance does cover natural disasters, but most don’t cover earthquakes or floods.
• Shop for flood insurance from the National Flood Insurance Program and private insurers.
• Earthquake coverage can be added to a renters’ insurance policy or purchased separately.
• To lower insurance costs, shop around and compare prices, and take advantage of discounts offered by insurance companies.

Natural Disasters and Renters Insurance

Renters insurance covers your belongings, provides liability protection if someone is injured on your premises, and offers additional living expenses if your rented home is badly damaged and you need a place to live while it is repaired.

But where do natural disasters fit in? Some natural disasters are covered by renters insurance, and some are not.

Covered natural disasters include lightning, smoke, fire, and windstorms. But most renters insurance policies do not cover earthquakes and floods. For insurance protection for those natural disasters, you’ll need to buy additional coverage.

For flood insurance policies, check out the National Flood Insurance Program. You can determine your home’s flood risk and get quotes for flood insurance on this website. You can also buy flood insurance from private insurers. Shop around for the best deal.

“Costs vary based on location and risk but typically range from $100 to $600 per year for renters,” says Stacy Brown, Senior Director of Training at Real Property Management.

For earthquake insurance coverage, you can buy it as a separate policy or have it added to your renters insurance. Check with your insurance company to see if you can add earthquake insurance to your current renters insurance policy. Keep in mind that many earthquake insurance policies come with a deductible that you’ll be required to pay should you file a claim.

“Costs depend on seismic risk, but premiums usually start around $50 to $300 per year,” Brown says.

How Much Does Renters Insurance Cost?

The national average cost of renters insurance is $20 per month for $30,000 of personal property coverage and $100,000 in liability coverage.

Renters insurance is affordable, and you can qualify for discounts to make it even cheaper. You’ll receive discounts for bundling your renters insurance with your car insurance, paying the full amount of your premium upfront, paying your bills online, and not having any insurance claims.

“Always ask your insurance professional if you qualify for any discounts. Things like having an alarm system, deadbolt locks, smoke detectors, good credit, and even your age may help lower your costs for renters insurance,” Holeman says.

Getting discounts will slash renters insurance prices, and the money you save can be applied to a separate flood insurance or earthquake insurance policy.

Shopping around for the best coverage from insurers in your area is another way to drive down renters insurance prices. Use the same strategy when shopping for flood and earthquake insurance. Don’t accept the first quote; keep on shopping until you find lower insurance prices.

The Bottom Line

Most renters insurance policies do not cover earthquakes and floods. For insurance coverage of these natural disasters, you’ll need to purchase separate insurance.

For flood insurance, the National Flood Insurance Program is a good place to start, and you will also want to check out flood coverage from private insurers. For earthquake coverage, you can buy a separate policy, or you may be able to get it added to your renters insurance policy. Check to see what’s available from your insurance company.

To lower insurance costs, shop around and ask about discounts. There are several ways to get a discount on renters insurance, including paying your bill on time and having good credit. This same strategy applies to earthquake insurance and flood insurance. So be sure to shop around for the best price and ask about an insurer’s discounts.

Market drops can tempt investors with the supposed profits that await those buying coveted stocks at a discount. When markets took a nosedive after President Donald Trump announced sweeping tariffs in April 2025, many considered “buying the dip,” referring to a drop in the stock market from recent averages.

“If you’re thinking about buying the dip, then you’re looking at market losses in a healthy manner,” said Peter Lazaroff, chief investment officer of Plancorp and a member of Investopedia’s advisor council. “The key now is to be smart with what you choose to buy.”

According to JPMorgan (JPM), retail investors bought billions in popular stocks like NVIDIA Corp. (NVDA) on April 3, buying at the highest level in a decade. However, they threw good money after bad, “buying the dip” as stocks continued to plummet into bear market territory.

Key Takeaways

• Buying the dip can be a sound strategy for long-term investors, but timing the market perfectly is almost impossible.
• Before investing during a downturn, assess your financial stability, including emergency funds and debt levels.
• Don’t invest money that you can’t handle losing in the short term if the market drops further.

What Does It Mean to ‘Buy the Dip?’

Ideally, downturns should offer stocks with strong fundamentals at reduced prices. “Buy low, sell high,” goes the famous investing strategy. So what’s not to like?

Many retail investors know that in recent years, pullbacks during an otherwise strong bull market have been followed by quick recoveries. Indeed, investment forums and social media channels go into overdrive with buy-the-dip advice during such periods. These message boards can make it seem easy, but identifying market bottoms is notoriously difficult. Even professional investors with vast resources and experience fail to time market bottoms.

In addition, dips often turn downward into a deeper correction or bear market. Recent downturns had numerous so-called “sucker rallies“—an apt name for what you’ll feel if you buy into them.

Experts recommend having an emergency fund that can cover three to six months of expenses in easily accessible funds. Buying the dip means nothing if you have to cash-out your stocks to pay bills before the market heads back up.

What You Need To Know

Assess Your Financials

Before buying into a dip, ensure your overall financial house is in order:

• Only invest what you can handle losing. Adding more risk is only prudent if you can withstand additional losses in the near term.
• Get your debts in order. The guaranteed “returns” from paying off credit cards (some with interest rates as high as 30% annually) are often greater than potential market gains.
• Assess your income stability. Those with stable incomes can afford to take more risks than those facing potential unemployment or fewer work hours.

“Is this truly long-term money that you will not need for seven+ years? And if the market drops further, will you stay calm or feel the urge to panic-sell?” said Michelle Perry Higgins, a financial advisor at California Financial Advisors. “If you’re not confident in your ability to ride out more volatility, it may be best to hold off.”

Consider Dollar-Cost Averaging

Rather than putting all your money into a single dip, consider a more measured approach: dollar-cost averaging (DCA). This involves investing fixed amounts at regular intervals—say, $100 weekly or monthly—and removes the psychological and emotional pressure of timing. If you have a 401(k) with contributions from each paycheck, you’re already doing this.

“Understand that you’re unlikely to time the bottom perfectly,” Higgins said. “Statistically, the odds of buying at the exact low are very slim. Instead, think of it as gradually buying at lower average prices over time … nibbling your way in during downturns rather than trying to hit a perfect entry point. This approach helps build long-term wealth without unnecessary stress.”

Focus on Diversification and Fundamentals

Just because something is on sale doesn’t mean you should buy it. The same is true with stocks. Consider shares of companies with strong balance sheets, sustainable competitive advantages, and reasonable valuations (e.g., lower price-to-earnings ratios). But be wary of companies that appear to be facing business model challenges. For example, as the market lurched into bear territory in April 2025, stocks that took a hit included those most likely to face severe problems in a high-tariff environment.

So-called defensive stocks like those for utilities and consumer staples—things that will have demand no matter the economic environment—may offer better value than others. Defensive ETFs that focus on minimum volatility, like the Consumer Staples Select Sector SPDR ETF (XLP), can leave the choice of specific stocks up to the professionals in a fund’s management.

But keep your portfolio diversified. “Individual stocks are historically a losing route to wealth building,” Lazaroff said. “The best route is to emphasize broadly diversified, low-cost options that are well aligned with your time horizon,”

The Bottom Line

Dips can create buying opportunities that improve long-term returns. But trying to time market bottoms is incredibly difficult, and it’s often impossible to judge whether a severe sell-off is just a temporary overreaction or a harbinger of a prolonged bear market. Investors should remain informed, exercise patience, and avoid impulsive decisions based on short-term market moves.

Reviewed by Chip Stapleton
Fact checked by Patrice Williams

If you plan to buy a home in a planned community, condo building, or townhouse development, you’ll probably need approval from a homeowners association (HOA). An HOA is a group that makes and enforces rules for the properties in its area. It also collects monthly fees to pay for the upkeep of the community and manages shared amenities such as a gym or a pool. 

HOA communities can be appealing because they often have well-kept amenities and rules that help keep property values up. But they also involve regular fees and rules about what you can do with your property.

Key Takeaways

• Homeowners associations create and enforce rules for residential communities. Membership is often mandatory for all property owners within their jurisdiction.
• HOA fees can run over $800 monthly on top of your mortgage and other housing costs. These fees can fund amenities, maintenance, and reserve accounts for future repairs.
• CC&Rs (covenants, conditions, and restrictions) regulate everything from exterior appearance to pets.
• HOAs have many legal powers, including the ability to impose fines, place liens on properties, and, in some cases, initiate foreclosure proceedings.
• Before purchasing in an HOA community, consider reviewing its governing documents, financial statements, and other information to assess the association’s health and compatibility with your lifestyle.

1. Impact of Homeowners Associations on Homeownership

Homeowners associations can have a significant impact on almost every part of owning a home in their community. The extent of an HOA’s influence varies between communities. Some associations maintain a light touch, focusing primarily on maintaining common areas and enforcing basic standards. Others control nearly all aspects of your property’s appearance and usage. This variation makes it critical to research the association governing your potential new home before purchasing.

2. Homeowners Association Legal Powers 

An HOA’s power comes from a legal document called the covenants, conditions, and restrictions (CC&Rs). These rules explain what homeowners can and cannot do with their property and how they must take care of it.

A CC&R functions as a contractual obligation between you and your homeowners association. When you purchase property in an HOA community, you agree to follow these rules. The CC&Rs are filed with your county recorder’s office and remain in effect even if a particular property’s ownership changes.

Common restrictions found in CC&Rs include:

• Property appearance: Regulations on paint colors, architectural styles, landscaping requirements, and decorative elements
• Structural modifications: Rules governing additions, renovations, fencing, and exterior alterations
• Vehicle restrictions: Limitations on the number, type, and parking locations of vehicles
• Pet policies: Rules about the number, size, breed, and containment of animals
• Usage restrictions: Regulations on home businesses, short-term rentals, and non-residential activities
• Nuisance prevention: Rules regarding noise, odors, visible storage, and other potential disruptions
• Signage limits: Restrictions on political signs, advertisements, and other displays

3. Homeowners Association Costs

If you own a home in an HOA community, you’ll have to pay an HOA fee in addition to your regular mortgage and home insurance costs. The fee is usually paid monthly or quarterly. 

HOA costs can vary widely depending on where you live, from a high of $859 a month in New York to a low of $64 a month in Idaho.

These fees typically cover:

• Maintenance of common areas and landscaping
• Upkeep of shared amenities (pools, fitness centers, clubhouses)
• Insurance for common property
• Utilities for shared facilities
• Operational costs and management fees

Beyond regular dues, HOAs can also impose special assessments—one-time charges to cover unexpected expenses or major projects when reserve funds are insufficient. 

When determining your loan eligibility and amount, your mortgage lender will factor HOA fees into your debt-to-income calculations. 

4. Homeowners Association Governance

If you decide to buy a home in an HOA community, it’s helpful to learn how the HOA works. This could make it easier for you to deal with the HOA and protect your rights as a homeowner. 

Most associations operate through a tiered governance structure that includes general membership (all homeowners), an elected board of directors, and, potentially, professional management. The board typically consists of volunteer homeowners whom community members elect to make operational decisions, enforce rules, manage finances, and maintain community standards. 

The primary governing documents, beyond the CC&Rs, are the HOA bylaws, which establish:

• Board composition and election procedures
• Meeting requirements and voting protocols
• Powers and limitations of the board
• Committee structures and responsibilities
• Amendment processes for governing documents
• Dispute resolution procedures

As a homeowner in an HOA community, you typically have the right to:

• Attend and participate in meetings
• Vote in board elections
• Review association financial records
• Propose changes to rules and regulations
• Run for board positions

5. Homeowners Association Finances

Before deciding to buy a home in an HOA community, it’s a good idea to check the HOA’s finances and how well it’s currently managed. This can help you avoid unexpected costs and determine if the HOA is running properly.

Request and carefully review key financial information, including:

• Current balance sheet showing assets, liabilities, and reserve funds
• Annual budget with income and expense projections
• Any studies indicating anticipated future capital expenses
• History of special assessments over the years
• Delinquency rates among current homeowners
• Recent audit reports or financial reviews
• Meeting minutes discussing financial decisions
• Pending litigation against the HOA

Additionally, consider speaking with current residents of an HOA about their own experiences. Ask specifically about the HOA’s fee history, communication regarding financial decisions, and transparency in the budgeting process.

Homeowners Association Pros

Advantages of HOA communities include:

• Maintained amenities: Many HOAs provide access to pools, fitness centers, parks, clubhouses, tennis courts, and other facilities that would be unaffordable for individual homeowners.
• Property value protection: Houses in HOAs are 6% more valuable than similar homes located outside of HOAs, according to the Cato Institute, a libertarian think tank. 
• Reduced maintenance responsibilities: Particularly in condominiums and townhouses, HOAs often handle exterior maintenance, landscaping, and occasionally utilities, potentially reducing your workload and time commitment as a homeowner.

Homeowners Association Cons

Disadvantages of HOA living include:

• Financial obligations: Monthly dues, potential special assessments, and fines for violating the CC&Rs represent additional costs beyond your mortgage, taxes, and insurance. These expenses can strain budgets, particularly when unexpected assessments arise. 
• Restrictions on property use: Rules regarding exterior appearance and renovations can limit your freedom as a homeowner, and breaking these restrictions could lead to fines.
• Governance challenges: Volunteer boards sometimes lack management expertise, leading to ineffective operations or internal politics within the HOA. 
• Foreclosure risk: In many states, HOAs can foreclose on your property for unpaid dues or fines, sometimes even when the amount you owe is relatively insignificant compared to your property’s value.

The Bottom Line

Homeowners associations create organized living spaces with appealing amenities, helping protect property values. In return, homeowners must pay fees and follow community rules. Before buying a home in an HOA community, it’s important to research the HOA’s rules, finances, and management. You can do this by reading the HOA’s documents and financial reports and talking to people who already live there.

Shares of Tesla Inc. (TSLA) have long confounded Elon Musk’s critics: while sales have collapsed in some key markets, retail investors remain remarkably devoted to the firm.

For example, after news broke that Tesla’s European sales had plummeted 40% year-over-year in January 2025, even as the wider electric vehicle (EV) market grew 26%, retail investors poured $7.3 billion into Tesla stock over the next 12 days, the most of any “buying streak” over a decade, according to JPMorgan’s “Retail Radar.”

The report suggested this was more money chasing after bad: Noting that Tesla’s retail investors were down 7% in the year to date versus 3.3% for the broader S&P 500 index, JPMorgan analysts pointed out, “Most of the drawdown came…as they increased their holdings.”

What gives? “Core investors” have an “undying faith in and love of Elon Musk,” Steve Sosnick, chief strategist at Interactive Brokers, told Investopedia. “In fact, I’ve frequently referred to it as a ‘faith-based’ stock.” But, he added, “that faith is well-earned after making many long-term investors quite rich.”

Key Takeaways

• For retail investors, Tesla’s value proposition extends well beyond its sales figures.
• Elon Musk‘s promises of Tesla’s transition from car manufacturer to AI-driven mobility company continues to fuel investor enthusiasm even as traditional automotive metrics falter.

It’s Not About Tesla’s Past or Present, But Its Future

“Tesla’s electric vehicle business is under pressure from pricing challenges and fierce competition, with 2024 marking its first-ever annual delivery decline,” John Blank, chief equity strategist at Zacks Investment Research, told Investopedia. “Musk’s divided attention and growing political controversies have investors questioning whether Tesla is still his top priority.”

However, it’s Tesla’s long-term prospects that count most. “Musk wants the company to be primarily viewed through the lens of AI and robotics rather than solely as an automotive company,” Blank said.

Among the CEOs of automakers, “only Musk is perceived as an avatar of the future,” Sosnick said.

Hence, investors’ “faith is based less on corporate fundamentals than futurism—robotaxis, etc.—which is why the stock’s valuation is way above that of a conventional auto company,” Sosnick said. “Thus, if you’ve already decided that the stock is all about the future, you can overlook some pesky details about the present.”

That’s borne out in interviews. “To be honest, I’m not a huge fan of Tesla’s EVs,” a retail investor who snapped up more shares of TSLA as its price fell in March 2025 told Business Insider. “My bullish outlook is more on the AI and autonomous side of the business.”

“It is tempting to blame Elon Musk’s political activities for becoming a headwind” for Tesla’s stock underperformance, wrote Sheraz Mian, research director for Zacks Equity Research, in a late-March 2025 report. “But there is no shortage of fundamental issues related to the company’s China exposure, trade/tariff vulnerabilities, and the evolving EV competitive landscape that has to also be at play here.”

Tesla’s Next Chapter

Instead of the usual “dumb money” derision one might expect, analysts we spoke to don’t think these investors are irrationally following market sentiment.

For several years, Tesla has been making a strategic pivot beyond its core automotive business. “Tesla’s long-term growth prospects still remain strong, driven by its thriving energy generation and storage segment, expansive supercharger network, and AI advancements,” Blank said. The company is sitting on a massive cash pile to help make that happen—about $37 billion at year-end 2024.

“Pretty much all” of Tesla’s market cap is based upon future expectations, and that has always been the case, Sosnick said, noting that General Motors Company (GM), Ford Motor Co. (F), and other automakers all have single-digit price-to-earnings ratios, which means investors are valuing them based almost wholly on where they are now, not where they are likely to be in the future.

For core investors, the numbers are compelling: While automotive operations still accounted for 78.9% of Tesla’s total sales in 2024, its Energy Generation/Storage segment showed remarkable growth, with revenues rocketing 113% year over year in the fourth quarter and its energy storage deployment reaching 11 gigawatt-hours, Blank noted. In addition, “the charging business has the potential to evolve into a substantial revenue stream for the company,” he said, especially as major automakers are forced to adopt Tesla’s charging standard.

However, major challenges remain. Sales of the Cybertruck, launched in 2024, sputtered and the vehicles were recalled for significant problems. In addition, most investors surveyed think Musk’s political activities have damaged the company—they’ve sparked mass protests and acts of vandalism against the EVs and dealerships worldwide. Meanwhile, General Motors, Ford, emerging players like Rivian Automotive, Inc. (RIVN) and Lucid Group, Inc. (LCID), and Chinese competitors like BYD are gaining ground fast as Tesla’s overseas sales drop precipitously.

The Bottom Line

The question is whether Tesla’s ambitious expansion into energy, AI, and autonomous driving can offset the significant challenges in its automotive business. Given the headwinds the company faces, the execution of this transformation becomes all the more crucial if the faith of retail investors is to be justified.

Reviewed by Charles Potters
Fact checked by David Rubin

Accrued Expenses vs. Provisions: An Overview

In accounting, accrued expenses and provisions are separated by their respective degrees of certainty. All accrued expenses have already been incurred but are not yet paid. By contrast, provisions are allocated toward probable, but not certain, future obligations. They act like a rainy-day fund, based on educated guesses about future expenses.

It’s very difficult to draw clear lines between accrued liabilities, provisions, and contingent liabilities. In many respects, the characterization of an expense obligation as either accrual or provision can depend on the company’s interpretations.

Key Takeaways

• In accounting, accrued expenses and provisions are separated by their respective degrees of certainty.
• An accrued expense is one that is known to be due in the future with certainty. The expense has already occurred but has not yet been paid.
• Companies elect to make provisions for future obligations whose specific amount or date is unknown.
• Banks account for unpaid loans by making loan loss provisions.

Accrued Expenses

All accruals are divided into either expenses or revenues. An accrued expense is one that is known to be due in the future with certainty. In a publicly listed corporation’s financial statement, there is an accrued expense for the interest that is paid to bondholders each quarter.

When companies buy and sell from each other, they frequently do so on credit. A credit transaction occurs when an entity purchases merchandise or services from another but does not pay immediately. The unpaid expenses incurred by a company for which no invoice has been received from its suppliers or vendors are referred to as accrued expenses. Other forms of accrued expenses include interest payments on loans, services received, wages and salaries incurred, and taxes incurred, all for which invoices have not been received and payments have not yet been made.

Interest payable on the owner’s bonds is a known figure. It can be estimated well ahead of time, and money can be set aside for it in a very specific fashion. The accrued expense is listed in the ledger until payment is actually distributed to the shareholders.

Provisions

Provisions provide protection and specify deadlines for actions. Provisions can be found in the laws of a country, in loan documents, and in investment-grade bonds and stocks. For example, the anti-greenmail provision contained within some companies’ charters protects shareholders from the board passing stock buybacks. Although most shareholders favor stock buybacks, some buybacks allow board members to sell their stock to the company at inflated premiums. 

Provisions are far less certain than accruals. Companies elect to make them for future obligations whose specific amount or date of incurrence is unknown. The provisions basically act like a hedge against possible losses that would impact business operations.

There are general guidelines that should be met before a provision can be justified in the financial statement. The entity must have an obligation at the reporting date; that is, the present obligation must exist. The amount of the obligation needs to be reliably estimated. Most importantly, the event must be near-certain, or at least highly probable.

Special Considerations

Provisions for banks work a little differently than they do for corporations. Banks make loans to borrowers, which come with a risk that the loan will not be paid back. To protect against this, banks make loan loss provisions. Loan loss provisions work similarly to the provisions that corporations make, in that banks set aside a loan loss provision as an expense. Loan loss provisions cover loans that have not been paid back or when monthly loan payments have not been met.

While gig work offers flexibility, it has a significant downside: no employer-sponsored retirement benefits. For millions of freelancers and other independent workers, this means taking retirement planning into their own hands.

“The biggest retirement mistake gig workers make is not saving for retirement,” said Chloé A. Moore, a certified financial planner, founder of Financial Staples, and part of Investopedia’s advisor council. While a significant challenge, there are more and better retirement savings options specifically for independent workers than just a few years ago.

Key Takeaways

• Gig workers should create their own retirement plans rather than waiting for traditional employment opportunities with benefits.
• Starting early—even with small amounts—enables you to gain from the power of compound interest.

The Retirement Savings Gap for Gig Workers

Studies suggest that about a third of U.S. workers are part of the gig economy, with the percentage of those for whom it’s their main or full-time job is 4.3%. Unlike traditional employees who often have access to employer-sponsored 401(k) plans with matching contributions, gig workers must navigate retirement planning entirely on their own.

“Most likely, you will not have access to an employer-sponsored retirement plan, and you’re not building a business that you can eventually sell down the road,” Moore said.

This structural shift is creating a stark divide between those with employer-sponsored retirement benefits and those without. The unpredictable income that many gig workers experience makes consistent saving particularly challenging. Like much else in gig work, more effort will fall on your shoulders. However, this isn’t just a problem for gig workers: only 56% of workers participate in an employer-based retirement plan.

Moore noted that “the amount needed to save for retirement is based on a number of factors (like income needs and desired lifestyle, among others).” Fortunately, “the amount you save and the strategy are more important than the source of income used for retirement savings.”

Building an emergency fund is a crucial first step before retirement planning since it can help you avoid dipping into retirement savings when your gig work income drops.

Retirement Options for Gig Workers

Without employer-sponsored plans, gig workers need to explore alternative retirement vehicles. Here are what experts say are the most effective options:

• Individual retirement accounts (IRAs): Traditional and SIMPLE IRAs may offer a tax deduction for contributions depending on your income and whether you or your spouse has a workplace retirement plan.
• Simplified employee pension plans (SEP IRAs): The self-employed often use these because contribution limits are higher.
• Solo 401(k)s: These plans allow for higher contribution limits than standard IRAs.
• New platforms: Companies like Robinhood Markets Inc. (HOOD) are launching retirement savings plans specifically for gig workers. For example, Robinhood’s program works with Gopuff, Grubhub, and TaskRabbit to provide their independent workers with retirement options. Benefits include a boosted match ranging from 1% to 3% for the first year (subject to a five-year holding requirement).
• SECURE 2.0 Act benefits: Starting in 2027, the “saver’s match” provision will offer eligible low- and moderate-income gig workers a federal contribution of up to 50% on the first $2,000 contributed annually to retirement accounts—a potential $1,000 yearly boost to your savings.

“It is important to start saving for retirement as early as possible,” Moore said. “The longer you wait, the more you’ll need to save. With compound interest, even small amounts invested consistently over time can lead to a sizeable nest egg in the future.”

The Bottom Line

Creating a secure retirement as a gig worker isn’t impossible—it just requires more planning amid more fluctuating income than traditional employment. Start by establishing an emergency fund to weather income fluctuations, then commit to consistent contributions to a retirement account that matches your needs and income level. “Creating your own retirement plan is critical so you can eventually achieve financial independence,” Moore said.

Compare two leading robo-advisors and decide which one suits your needs

Reviewed by Samantha Silberstein
Fact checked by Suzanne Kvilhaug

Merrill Guided Investing and E*TRADE Core Portfolios are two robo-advisors that stand out for their corporate roots and histories. Merrill Lynch & Company was a famous full-service broker that was absorbed by Bank of America in 2009. E*TRADE, the high-profile discount brokerage, was acquired by full-service broker Morgan Stanley in 2020. Additionally, both companies are among the winners in our list of the best robo-advisors of 2024, with Merrill Guided Investing winning best for education, while E*TRADE Core Portfolios is best for mobile.

Both robo-advisors successfully simplify investment decisions by offering a collection of useful portfolio alternatives that don’t require a sophisticated understanding of finances. Both also assume that their clients want a balance of risk management and growth potential, and the option of selecting environmentally friendly investment choices. However, they differ in their approach to delivering these features. As you’ll learn from this head-to-head comparison, the most significant differences are found in the cost, portfolio management, and customer service features of these two platforms.

Key Takeaways of Merrill Guided Investing

• Our pick for best robo-advisor for educational content
• Accounts integrated with Bank of America products and services
• Offers 24/7 customer service
• Provides a robust collection of investing calculators and other tools
• Tax-aware portfolios but no tax-loss harvesting

Key Takeaways of E*TRADE Core Portfolios

• Our pick for best robo-advisor for mobile users
• Improved asset depth as part of the integration with Morgan Stanley
• Quick and efficient setup for E*TRADE customers 
• Can open an account with just $500
• Added tax-loss harvesting in the last year

Account Setup

Merrill Guided Investing

Setting up a Merrill Guided Investing account is a straightforward procedure. You begin by answering basic investment questions in an online questionnaire. Here you’ll specify your investing goals, financial contributions, and timelines for investing. If you have multiple investment accounts, the questionnaire is comprehensive enough to include them in its eventual calculations as well. You can then choose your risk tolerance or answer a few questions that will yield a suggestion to consider.

The next step requires you to choose your primary investing goal and provide a customized name for it. That sets you up to select between a market-tracking portfolio, which focuses on getting the best gains, or a portfolio that favors companies with high scores in environmental, social, and governance (ESG) criteria. Before completing the sign-up, you receive a targeted asset allocation, ranging from conservative to aggressive, based on your questionnaire answers. This tradeoff between performance-seeking and values-based investing allows the platform to cater to your personal preferences.

E*TRADE Core Portfolios

The first step includes answering a dozen or so questions which are mostly aimed at helping you understand your risk tolerance. These sections are very well done and will help you better understand the tradeoff every investor has to make between risk tolerance and targeted returns.

The final step in the online questionnaire asks whether you want to add a specific investing focus. Here you are offered a choice of emphasizing ETFs that target socially responsible investing (SRI), similar to the ESG criteria mentioned earlier. Another alternative mentioned is a focus on smart beta strategies in an attempt to outperform the market. It isn’t abundantly clear that this choice is a mutually exclusive tradeoff between favoring a values-based investment style and performance-hunting investing style, but that is the case since you can only select one or neither of them.

Account Setup Verdict: E*TRADE Core Portfolios

E*TRADE Core Portfolios gets the edge in account setup. While both robo-advisors have an easy onboarding, we appreciated the extra level of portfolio detail with the types of funds that would be in the allocation that E*TRADE Core Portfolios creates. E*TRADE also has an edge in account minimums, at $500 versus $1000 for Merrill Guided Investing.

Account Types

For both Merrill Guided Investing and E*TRADE Core Portfolios, the final setup steps are to choose the account type and fund the account.

The account types available on both platforms include:

• Individual or joint brokerage accounts
• Retirement accounts, including traditional individual retirement accounts (IRAs), Roth IRAs, simplified employee pensions (SEP), SIMPLE IRAs, 401(k) to IRA rollovers, and others
• Custodial accounts, including Uniform Transfers to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA) accounts

Account Types Verdict: Tie

Both of these robo-advisors offer all the commonly used accounts as well as the custodial varieties. The vast majority of investors will find the account types they need at either of these companies.

Account Services

Merrill Guided Investing

This platform offers excellent tools and features, including the following highlights:

• Research tools: The platform offers excellent goal-planning tools and calculators that can be accessed by all clients who meet the minimum starting balance of $1,000.
• Access to financial advisors: Clients can speak with financial advisors if they pay a 0.85% management fee and maintain a $20,000 balance.
• Preferred rewards: Program clients qualify more quickly for Bank of America Preferred Rewards, including management fee discounts and lower interest rates on loans.

E*TRADE Core Portfolios

This platform caters to customers who need assistance along the way by including the following features and services.

• Access to help: Platform clients can speak with staff by phone or at branch offices.
• Values vs. performance portfolios: Clients can select portfolios filtered through sustainability and corporate governance criteria, or they can select portfolios with the goal of beating the market through the use of smart beta strategies.
• Low minimum balance: The $500 minimum lets smaller and younger investors get started investing towards their goals with limited risk.

Cash Management

Neither E*TRADE Core Portfolios nor Merrill Guided Investing stands out in terms of cash management. These digital investment platforms are part of a larger financial ecosystem that offers more cash management offerings like loans, checking accounts, and so on. In terms of cash inside the platform, E*Trade Core Portfolios holds 1% of your portfolio in cash and it is swept into a money market account that yields just 0.01%. Merrill Guided Investing also allocates some percentage to cash and offers a solid 4.14%.

Cash Management Verdict: Merrill

It is difficult to compare robo-advisors that have added cash management features to full financial firms that have added robo-advisors. Both E*TRADE and Merrill Guided Investing have full-featured cash management adjacent to their platforms, just not within them. Merrill Guided Investing takes the category here for having a higher interest rate on cash held in the account.

Goal Planning

Merrill Guided Investing

Merrill Guided Investing shows its strength in goal planning. It has you select a singular goal for your account and then helps you select a portfolio style that gives you the right mix of risk and reward to accomplish your goal.

This platform walks you through its questionnaire and generates more opportunities for portfolio customization after you enter a birthdate, goal amount, and the goal’s time horizon. The platform is focused on retirement by default, but it allows you to define non-retirement goals that include:

• Retirement at a specific age
• General investing
• Home
• Education
• Family support
• Travel
• Special occasions
• Other large purchases

While there is no guidance for figuring out appropriate targets or time horizons for these goals, and you can only select one for the entire account, the platform does a great job integrating goal-planning tools and tracking functions, and providing prompts for funding to help investors stay on track. With these tools, you can set target time frames with educated estimates.  

E*TRADE Core Portfolios

E*TRADE Core Portfolios doesn’t spend as much time on your choice of goals, but rather assumes you have the singular goal of maximizing your returns for wealth, retirement, or something else. The platform instead orients you to the subject of risk tolerance right from the start.

E*TRADE Core Portfolios seeks to eliminate confusion by simplifying your focus. The platform is built on the assumption that you want to maximize performance, so its opening questionnaire will help you identify your tolerance for fluctuating account values over the years ahead. 

This is a key concept for any investor who wants to achieve their desired performance. Investors who don’t understand their own risk tolerance are much more likely to sabotage their investing goals by changing strategies over time. E*TRADE Core Portfolios users do have access to E*TRADE’s extensive research and educational resources, including retirement calculators and other planning tools, but the functions are not built into the Core Portfolios questionnaire experience, so they are only useful after the account has been opened.

Goal Planning Verdict: Merrill Guided Investing

While both platforms arrive at a similar end through different means, investors who are goal-oriented will appreciate Merrill’s approach.

Portfolio Construction

Merrill Guided Investing

Merrill’s offering has several different investment strategies that align both with the firm’s research and your answers to the questionnaire you completed when opening the account. Though the strategies may target various investing approaches, they follow the classic principles of modern portfolio theory (MPT). 

The platform’s offerings have no set schedule for rebalancing, as they can be triggered by changing risk profiles, contributions, and withdrawals or unspecified market conditions. The platform’s portfolios are directed by a mix of algorithms and fund managers’ guidance. The risk tolerances are low, medium, and high, and there is the option to have socially responsible investment principles inform your allocations. Merrill Guided Investing is all through funds, so it does not offer any exposure to alternative assets like cryptocurrency.

E*TRADE Core Portfolios

E*TRADE Core Portfolios are also based on MPT principles and offer highly diversified swaths of the international and domestic market. This is due to the tie-up with Morgan Stanley increasing the pool of equities and tweaks to the model to consider equities of different sizes to increase overall diversification. In addition to improved asset depth, E*TRADE Core Portfolios has tweaked its risk models. Core Portfolios previously had a range from low-risk portfolios with 20% bonds and cash equivalents and 80% stocks up to high-risk with 80% stocks and 20% bonds. These have been expanded to include an all-risk portfolio which is 100% equities.  E*TRADE Core Portfolios are all done through funds, like Merrill Guided Investing, so no alternative assets like cryptocurrency are available.

Available Assets

Asset Types	Merrill Guided Investing	E*TRADE Core Portfolios
Individual Stocks	No	No
Mutual Funds	Yes	No
Fixed Income	Yes (through ETFs and mutual funds)	Yes (through ETFs)
REITs	No	No
Socially Responsible or ESG	Yes	Yes
ETFs	Yes	Yes
Non-Proprietary ETFs	Yes	Yes
Private Equity	No	No
Crypto, Forex	No	No

Portfolio Customization

As with most robo-advisor solutions, the construction of a portfolio of ETFs and mutual funds begins with a starting allocation algorithmically determined based on the questionnaire answers.  From there, the portfolio strategy can only be enhanced and customized in limited ways, specifically to either incorporate a focus on socially responsible investing (SRI)/ESG criteria or to focus on market-beating strategies, which means accepting greater risk. 

Merrill Guided Investing

Beyond the initial setup of a portfolio, you can specify as part of the questionnaire that you prefer a portfolio solution based on ESG criteria. The fine print on the website adds a bit of caution that investors should take note of; for instance, ESG investing poses certain risks by limiting the account’s investment options. Investors who set their preferences solely based on ESG criteria will waive prospecting investment opportunities that could benefit their portfolio.

E*TRADE Core Portfolios

E*TRADE Core Portfolios customization has improved in the sense that you have more risk models to choose from. With E*TRADE Core Portfolios, you also can nudge the algorithm to go beyond the initial portfolio selection by adopting a focus towards either SRI goals or smart beta goals. This customization creates a tradeoff between a values-oriented strategy and a performance-oriented strategy, though neither customization is a required ingredient of your strategy.

Portfolio Customization Verdict: E*TRADE Core Portfolios

While neither of these robo-advisors stands out in the industry in terms of customization, E*TRADE Core Portfolios takes this category by having more options and a larger underlying tweak to the portfolios with an all-risk model portfolio.

Portfolio Management

This is a major point of differentiation between the two platforms, as E*TRADE’s robo platform uses a set rebalancing schedule and Merrill’s does not. Although this difference is clearly defined, the anticipated benefit or cost of this difference is not. Neither broker provides any data or theory that forecasts which approach is likely to provide better performance. However, it is logical to conclude that the human fund managers included in the Merrill Guided Investing platform are likely related to the higher fees the broker charges. 

Merrill Guided Investing

The platform allows for rebalancing the account under a variety of circumstances. These rules are intended to optimize performance for investors by aligning the account to the target asset allocation. The criteria for rebalancing allows for variations of asset performance, market conditions, and human managers’ discretion to account for unforeseen events. Merrill Guided Investing also takes your synced accounts under consideration when managing your account.

E*TRADE Core Portfolios

Accounts are monitored daily and rebalanced semi-annually to align with the initial allocation identified by the algorithm at the account opening. E*TRADE Core Portfolios have a drift tolerance of 5%, but most of the rebalancing is going to occur as contributions go in or withdrawals go out.

Portfolio Management Verdict: Merrill Guided Investing

Here again, there is not much daylight between these two. E*TRADE has a very clear approach to rebalancing, which is good, but Merrill actually takes synced accounts into consideration when managing your account. This is rare for a robo-advisor and gives Merrill the edge here.

Tax-Advantaged Investing

Merrill Guided Investing does not provide tax-loss harvesting services. Merrill Guided Investing does have tax-aware portfolios that it will place investors in to minimize income with tax-advantaged investments. E*TRADE Core Portfolios include a component of tax-sensitive strategy in the portfolios it offers. This tax sensitivity includes the addition of municipal bonds in the portfolio, which offer beneficial tax treatment to offset the impact of taxable gains. E*TRADE Core Portfolios also added tax-loss harvesting recently and monitors daily for opportunities to realize losses to offset gains in other parts of the portfolio.

Tax-Advantaged Investing Verdict: E*TRADE Core Portfolios

E*TRADE Core Portfolios has a clear edge over Merrill Guided Investing by offering tax-sensitive portfolio construction and tax-loss harvesting in taxable accounts.

Key Portfolio Management Features

Key Portfolio Management Features
Feature	Merrill Guided Investing	E*TRADE Core Portfolios
Automatic Rebalancing	Rebalancing is done with human oversight and occurs as preferred asset allocations and market conditions change	Monitored daily, rebalanced whenever the account drifts out of line with the portfolio allocations by at least 5%
Reporting Features	Dashboard is available 24/7, along with regular statements	Dashboard is available 24/7, along with regular statements
Tax-Loss Harvesting	No	Yes
External Account Syncing/Consolidation	Yes; external accounts are synced when the user sets up goals and considered when asset allocation and goal planning are determined	No

Security

Merrill Guided Investing and E*TRADE Core Portfolios both use heavy-duty 256-bit SSL encryption and client funds are held in-house at both brokerages. Both platforms are part of large financial institutions that provide Securities Investor Protection Corporation (SIPC) and private excess insurance. Also, state-of-the-art fingerprint, face recognition, and two-factor authentication capabilities are available in mobile apps at both brokerages.

Security Verdict: Tie

Merrill Guided Investing and E*TRADE Core Portfolios use effective security with no differentiation between them. Your money is safe at either of these firms.

User Experience

Desktop

Both brokerage platforms are feature-rich resources available to clients who have opened a robo-advisor account. Each has a wide array of technical analysis tools as well as reports on fundamental measures. Both platforms have gone through years of customer feedback and refinement and are highly useful to the curious investor.

Mobile App

The mobile apps made available from these brokerages are both filled with useful features. E*TRADE’s mobile app was selected by Investopedia as the best for mobile users, where it was praised for being very similar to its desktop counterpart. Its organization and style make it a useful tool for the on-the-go investor. 

While its technical research function is a bit less fluid, the Merrill app has a surprisingly beneficial aspect to its design. It is oriented around the “story” of an individual security. This thematic arrangement of information is less intimidating and creates rapid familiarity for the casual user or beginning investor. 

Customer Service

Both brokerages offer multiple access points for customer service, and both have similar strengths and weaknesses. Customers who enjoy using the mobile apps or desktop version can get their questions answered in comprehensive FAQs and help centers. Phone access to customer service reps is also available for 24 hours per day at both robo-advisors.

Customer Service Verdict: Tie

Both Merrill Guided Investing and E*TRADE Core Portfolios lean heavily on the phone for tricky questions not covered in their comprehensive websites.

	Merrill Guided Investing	E*TRADE Core Portfolios
Phone & Email Available	Phone, 888-637-3343, 24/7	Phone, 866-484-3658, 24/7
Pre-Funding Phone Consultation With a Certified Advisor	No	No
Online Chat Available	Yes (for customers in the platform)	No
Website FAQ Section	Yes	Yes

Fees

Merrill Guided Investing

Merrill Guided Investing requires at least $1,000 to get started and has a management fee of 0.45%. The online-plus-financial advisor program requires $20,000 in your account and has a higher 0.85% fee. The Preferred Rewards program can lower fees if you qualify, bringing the management fee down from 0.05% to 0.15%. The higher your account balance with Merrill and Bank of America, the larger the discount on the annual fee. Merrill Guided Investing customers pay the underlying fees for the funds, with expense ratios ranging from 0.05% to 0.13% depending on the portfolio.

E*TRADE Core Portfolios

E*TRADE’s Core Portfolios accounts require at least $500 to open and have a management fee of 0.3%. In this fee structure, a $10,000 account would have an annual fee of just $30. Core Portfolios customers will also pay ETF expense ratios, which range from 0.05% for the Core offering to 0.14% for smart beta and 0.16% for SRI. 

Fees Verdict: E*TRADE Core Portfolios

E*TRADE Core Portfolios charges less of a headline management fee and has low underlying expense ratios. That said, Preferred Rewards can change the fee picture for Merrill/Bank of America customers, as can a promotional six-month waiver of fees that Merrill Guided Investing currently has.

Fees	Merrill Guided Investing	E*TRADE Core Portfolios
Management Fees for $5,000 Account	$22.50	$15
Management Fees for $25,000 Account	$112.50 (Plus Advisor $212.50)	$75
Management Fees for $100,000 Account	$450 (Plus Advisor $850)	$300
Termination Fees	No	No
Expense Ratios	Between 0.05% to 0.13%, depending on your allocation	Between 0.05% to 0.16%, depending on your allocation
Mutual funds	Dependent on portfolio	N/A

The Bottom Line

Both Merrill Guided Investing and E*TRADE Core Portfolios are successful at simplifying investment decisions for those looking for a set-it-and-forget-it solution. Both offer well-constructed portfolios. E*TRADE Core Portfolio includes rules-based rebalancing for the purpose of keeping the allocations consistent with their recommended targets and tax-loss harvesting. Merrill Guided Investing offers situational rebalancing with the intent that it will optimize the performance of the portfolio. E*TRADE Core Portfolios offers lower costs and a better mobile experience for beginners with smaller accounts, while Merrill offers better goal planning. 

The target customers for Merrill Guided Investing and E*TRADE Core Portfolios are customers who are already in their financial ecosystem. Looking solely at the robo-advisors misses the larger wrap-around ecosystem of services that the companies don’t need to bother replicating within the robo-advisor itself. This includes cash management, loans, net-worth analysis, and so on. If you are already with one of these firms, then its respective robo-advisor is the natural choice. If you aren’t, then it is worth broadening your search to other services with stronger goal-planning support and cheaper fees.

Is Merrill Guided Investing Worth It?

Merrill Guided Investing is worth it for investors looking for a way to automate their investments. Merrill offers situational rebalancing that will help you optimize the performance of your portfolio. However, if you have a low balance when opening your account, you’ll find the fees higher than other robo-advisor options (though the fees even out as your balance grows). Compare all the best robo-advisors before deciding which one is worth it.

How Do You Cancel Your E*TRADE Core Portfolio?

E*TRADE does not offer educational information on its website on how to cancel or close your Core Portfolios account. You can call E*TRADE Core Portfolio’s customer service department at 866-484-3658. A specialist should be available when a customer needs assistance.

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.

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We independently evaluate all recommended products and services. If you click on links we provide, we may receive compensation.