Stochastic Oscillator – Meaning, Formula & What This Indicator Measures

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Developed by George Lane in the late 1950s, the stochastic oscillator is a technical analysis tool that has become a staple for short-term traders. The tool is a momentum oscillator, which measures price changes over time to tell you the momentum of a move. High momentum trends are likely to continue, and decreasing momentum points to a reversal on the horizon . 

The stochastic oscillator generates buy and sell signals based on patterns in price movements and a historic reaction to those patterns. 

But what exactly is the stochastic oscillator, and how can you use it to become a more successful trader?

What Is the Stochastic Oscillator?

The stochastic oscillator is a technical indicator that compares the most recent closing price of a financial asset to a high-low range of prices over a period of time, generally 14 days. This comparison helps to determine if the asset is experiencing overbought or oversold conditions. 

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At its core, the tool is a momentum indicator, pointing to both the direction and vigor of price movements. The general idea is that if the asset is trending up, the current price will be closer to the highest high for the period, generating a high reading; when it’s trending down, the current price will be closer to the lowest low, generating a low reading. 

Moreover, Lane theorized that momentum changes before price changes, meaning that signals from this momentum oscillator should happen prior to major price movements. It’s used to determine the strength of current trends, find trend reversals, and help determine the best time to buy and sell assets. 

How to Calculate the Stochastic Oscillator

This indicator is popular among traders and is widely available on most trading charts. So, there’s a strong chance you’ll never have to calculate the oscillator readings on your own. Nonetheless, it’s best to know the inner workings of the tools you use.  

In most cases, the stochastic oscillator uses a 14-day time frame, but you can adjust the time frame to fit your needs.

Here’s how to calculate this indicator:

Stochastic Oscillator Formula

The formula for the stochastic oscillator is as follows:

((C – LP) ÷ (HP – LP)) x 100 = K

The following key applies when using the formula above:

  • C – Most recent closing price
  • LP – Lowest price in the data set
  • HP – Highest price in the data set
  • K – Oscillator reading

Traders who use the stochastic oscillator use two trendlines. The K-line is a plot of the readings of the oscillator, also known as the fast stochastic or the signal line. The D-line, or slow oscillator, is the three-day simple moving average (SMA) of the oscillator’s reading. 

Signals are generated based on the reading of the oscillator and crossovers between the signal line and the D-line. 

Example Calculation

Let’s say ABC stock closed at $100 today. Over the past 14 days, the stock has traded between a low of $95 and a high of $109. The formula to determine the oscillator reading for this example is:

(($100 – $95) ÷ ($109 – $95)) x 100 = 35.71

How to Read the Stochastic Oscillator

Assets are considered overbought when the oscillator reading is 80 or above and oversold when the reading is 20 or below. Overbought assets may have unjustifiably high prices and can be due for a pullback, whereas oversold assets may be priced below their true value and ripe for a rebound.

The oscillator is range-bound, meaning that its reading will always fall between zero and 100. Traders read the indicator at a glance, knowing the closer the number is to zero, the more oversold it is, and the closer it is to 100, the more overbought it is. 

Traders also read the indicator by plotting two trendlines on the financial asset’s chart: the signal line (oscillator reading) and the D-line (three-day SMA of the oscillator). Traders then analyze the relationship between the two lines to determine buy and sell signals. 

Trading Strategies Using the Stochastic Indicator

Traders commonly use three strategies when employing the stochastic indicator in their trading plan. Those strategies include:

Overbought/Oversold Strategy

The overbought/oversold strategy is the most simple strategy to follow using this indicator. All you’ll need to do is look at the reading with the following in mind:

  • 80 or Above: Sell Signal. Stochastic readings at 80 or above suggest the asset being analyzed is overbought, which means the price is likely nearing resistance and a bearish reversal may be on the horizon. 
  • 20 or Below: Buy Signal. Stochastic readings of 20 or below suggest the asset being analyzed is at oversold levels. This means the price of the asset is nearing support and a bullish reversal may be coming. 

When using the overbought/oversold strategy, the signals are most accurate when both the fast and slow readings of the oscillator are above 80 or below 20. 

Let’s look at Apple’s stock chart with stochastics from the beginning of April 2022 (below). The oscillator appears as a sub-chart below the main stock chart:

In the stochastics chart at the bottom of the image, the signal line is represented in black and the baseline is red. Both readings in this chart are over 80, suggesting the stock is overbought and likely to make a bearish reversal.  

Stochastic Crossover Strategy

The stochastic crossover strategy is a bit more involved than the overbought/oversold strategy, but it’s a great way to verify signals from the other stochastic strategies. The crossover strategy uses both the K-line and the D-line plotted on a financial asset’s chart. 

Once the lines are plotted, traders look for crossovers, or points where the faster-moving K-line crosses over the slower-moving D-line. When the crossover is in the upward direction, it acts as a buy signal, suggesting recent prices are increasing. When the crossover is in the downward direction, it acts as a sell signal, suggesting recent prices are decreasing. 

Let’s look again at Apple’s chart, with the sub-chart below the main chart showing the red and black lines plotting the stochastic oscillator:

Note that the fast Stochastic (K) is plotted in black and the slow stochastic (D) is plotted in red. Each time the black line crosses above the red line, it acts as a buy signal, suggesting prices are likely to head up moving forward. When the black line crosses below the red line, it’s a sell signal, suggesting Apple’s stock will fall ahead. 

Stochastic Bull/Bear Strategy

The bull/bear strategy uses the divergence between price action and the movement of the stochastic oscillator to determine when reversals might take place. 

For example, if a stock is trending down and mints a new low, but the stochastic oscillator reads a higher low, the divergence could mean the downtrend is coming to an end and the bulls will take control soon. This is known as a bullish divergence. 

On the other hand, when a price is on the uptrend and hits new highs, but the stochastic oscillator produces a lower high, a bearish divergence is taking place, suggesting declines could be ahead. 

The Relative Strength Index (RSI) vs. the Stochastic Oscillator

The relative strength index (RSI) and stochastic oscillator are both momentum oscillators, made to generate the same types of signals. The difference is the underlying data and methodology the two use. 

The stochastic oscillator is based on the relationship between the most recent closing price and the recent range of prices.

The RSI, by contrast, measures the velocity (or speed) of price movements rather than the relationship between recent prices and the closing price of an asset. 

Because these indicators are based on different points of data, they are often used in conjunction with one another before a trade is made, each helping to verify the signals of the other. 

Stochastic Oscillator Limitations

As a technical indicator, the stochastic oscillator has proven its worth time and time again, but it’s not perfect. The biggest limitation to the indicator is the potential for false signals, where the indicator suggests a move is coming that doesn’t come to fruition. 

Due to the potential for false signals, it’s important to use the stochastic indicator in conjunction with other technical indicators when making your trades. 

Stochastic Oscillator FAQs

Technical indicators are complex topics that often lead to questions. Some of the most common questions surrounding the stochastic oscillator are answered below:

What Do K and D Mean?

K is the reading for the oscillator that acts as the signal line when plotted on a trading chart. D is the abbreviation used to describe a three-day moving average of K. Traders plot both K and D on trading charts and analyze the relationship between the two trendlines to generate buy and sell signals. 

What Is a Slow Stochastic Oscillator?

The slow stochastic oscillator is known as the D-line and is another term for the three-day moving average of the oscillator’s reading. The slow stochastic is used for two reasons:

  1. Generate Signals. The K-trendline crossing above or below the D-trendline generates buy or sell signals. 
  2. Verify Signals. Traders using the overbought/oversold strategy focus primarily on the K-reading in the oscillator. But they can also use the slow stochastic (D-line) to verify whether the asset is in overbought or oversold territory because it moves more slowly than the fast stochastic (K-line).

What Are the Two Lines in the Stochastic RSI?

The Stochastic RSI, or StochRSI, applies the formula for the stochastic oscillator to RSI data, combining the two methods to determine the strength of a trend. As with the traditional stochastic oscillator, the two most-used trend lines in the Stochastic RSI are K (the signal line) and D (the baseline). 

Final Word

The stochastic oscillator has become one of the most widely used technical analysis tools in financial markets. Whether you’re trading stocks, forex, cryptocurrency, or any other asset, paying attention to the stochastic reading and crossovers has the potential to generate compelling buy and sell signals. 

However, like any other financial tool, the oscillator isn’t perfect. Traders should consider using it in conjunction with other technical indicators when researching opportunities. 

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Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.


25 Must-Follow Tips When Moving To a Different State

This moving checklist will make crossing state lines a breeze.

Moving is always annoying but much easier when you’re moving just a few blocks away. But moving out of state? That’s a whole different ballgame. There are many details and things to check off your list before hopping on a plane to your new city.

It can get overwhelming quickly, from professional movers and having a job lined up to making new friends and leaving family members behind.

These 25 must-follow tips for moving out of state will help with the heavy lifting that comes with moving out of state.

What to consider before moving to another state?

Moving out of state is scary, but if you’re armed with a good checklist, everything can seem a little more approachable. Sure, there are a lot of details to take care of before moving, but the most important thing you should focus on is finding the right city for you.

1. Finding your next city

Make a shortlist of your dream cities and book a long weekend at each, if possible. Forgo a hotel room in favor of living like a local and research neighborhoods before you go. Book an Airbnb listing in the one that fits your lifestyle the most.

Gather intel from friends, make a list of your favorite things to do (think movie theaters, preferred stores, etc.) and check your social network to see if you know anyone in the area. Do groceries and take public transportation to get a true feel of your potential everyday life.

2. Visit a few places before deciding on your new state

Go to several cities.

Go to several cities.

After a few visits to your top 3 cities out of state, think about what’s important to you. Do you want to ditch your car in favor of public transportation? How’s the dining scene in these cities? Is the job market in your career path of choice thriving there? How are the local schools? Are you moving alone, or are you moving in with your partner? Can you afford to live in this prospective city with your current salary?

This is when pro/con lists come in handy. Be sure to sit down and think it through before deciding on your new state.

3. Compare the cost of living before moving out of state

When picking a new city to live in, you have to consider more than moving expenses. Whether you’re relocating for a new job or moving while keeping your current one, you need to consider the new cost of living expenses. Is rent more expensive in the new city? Do you have nature or a local park nearby? What about groceries and transportation?

The cost of living in Washington, D.C., versus Charlotte, NC, is very different, for example. In Florida, the state has no income tax. Make sure that wherever you’re relocating to, you compare both your budget and current salary to the new city’s cost of living differences so you can adjust accordingly and save money where you can.

4. Set a moving budget

So, you’ve picked your new city. Now, it’s time to start thinking about your moving budget. You’ll need to decide whether you’ll hire professional movers and a long-distance moving company to handle your move. Or, if you’ll just get your friends to help you load a moving truck, and you’ll unload it on your own once you arrive at your new address.

You’ll also need to consider deposits for your new apartment, plane tickets, security deposits for utility companies, any new food and house items you’ll need and possibly a storage unit if you have to stay in temporary housing for a bit.

A spreadsheet outlining every money detail will help keep you within budget.

5. Find an apartment in your new city

apartment hunting

apartment hunting

Pick your dream neighborhood and start researching apartments. It’s always good to secure housing before moving out of state. Hunting long-distance for an apartment is challenging, so seeing it in person or sending a friend will make the easiest move.

Read reviews, set up tours for various apartments and always confirm that an apartment is legitimate before wiring any money. Ask for move-in specials and current amenities like an in-unit washer and dryer or stainless appliances.

Bring a blank check and any required documents for the application so you can apply on the spot if you love it. This may include:

  • State-ID or driver’s license
  • Proof of income (latest paystub)
  • At least one reference from a previous landlord
  • Employment details
  • Co-signer information, if needed
  • Unfrozen credit for the landlord to run it for application

Check with your job to see if they reimburse employees for relocation expenses or have any moving services available. Also, check your lease terms and let your landlord know with enough time that you’re leaving your current apartment soon. Make sure to schedule a walkthrough date to get your security deposit back.

6. Update your work about your move

In this pandemic era, working remotely is the new normal. If your job allows you to work remotely and you’re staying, for now, update HR with your new address. This will help your company remain updated with payroll and update your healthcare information.

Follow up with them to make sure they have all they need before your move date. Inquire if, due to your relocation, you now have access to any remote working stipend.

7. Find a new job, if needed

Maybe you’re ready for a whole new life? A new state, new job. Start applying to new jobs as soon as you can since landlords in a new city may require a certain income before renting you a place.

Head to job boards online for opportunities in your chosen city and start sharing that you’re looking for a new opportunity with your network. If you can, schedule upcoming job interviews via Zoom or by phone before you move.

8. Go over your belongings and make donation piles



Things are getting real, and it’s time to see how much stuff you really have. You can start calculating how many boxes you need or if you’re hiring movers or just a moving truck.

Go over your furniture, clothes and even kitchen utensils and start donating and selling piles. Start listing items on social media and put every cent you make toward moving costs.

Leave only what you need in the last 30 days, including medical records and important documents like birth certificates and what’s making a move out of state in the apartment. Everything else needs to go to make sure that you only pay the moving company precisely for what you want to keep.

9. Pick a move-in date and start packing

The moving out of state timeline starts getting faster once you pick an apartment and your job situation is all settled. Check your lease and choose a move date. Pick up boxes, packing tape and bubble wrap, and start streamlining all your belongings.

Spend your weekends patching up holes in your current apartment, repainting any walls, confirming your move-in date with your new landlord and picking up your keys.

10. Book the moving company

After purging your belongings, you’ll have a better idea of the number of boxes and furniture you need to hire movers for. Research moving companies that specialize in out-of-state moves. This is an excellent time to ask for recommendations on social media for moving companies.

Get a few quotes to compare them, confirm that there are no add-ons or surprise charges with the quote, how they go about hiring professionals and vetting them and, of course, read reviews.

Once you pick a reputable moving company, confirm the delivery address of your new house, ask about day-of protocol so you’re ready for the movers and ask for an estimate of when they will deliver your belongings. Some moving companies allow you to track your belongings for peace of mind.

11. Schedule a going away party

Send an invite to all of your friends and family before you move out of state. If you can, ask a close friend to take on planning details for the party so you can focus on your long-distance move. Book a venue or go down to your favorite restaurant (that you will miss very much!) and have a casual night with everyone you know.

12. Make travel arrangements

Decide if you

Decide if you

Now that you have a date for moving out of state, you have to decide how to get there. If you hire movers, you have the choice of hopping on a plane or driving there.

This is the time to book your plane ticket if that’s the best choice. Make sure that you plan which bags you’re taking with you and that they all meet the weight requirements. Have a small pet? Don’t forget to buy them a ticket, too.

If you’re driving, make sure to budget for gas and have your route planned out. Making long-distance moves via car is more exhausting, but you do get to bring a few more of your things with you, see new things on the way and go at your own pace. Be sure to pack a first aid kit for the road, just in case.

This is a good option if you have temporary housing and will have stuff in a storage unit for a while at first.

13. Arrange cleaners at your old place

Schedule cleaners for the day after the movers come by and double-check that you covered every nail hole, there are no stains on the carpet and you packed up all of your things.

Once the cleaners leave the place sparkling clean, let your landlord know the apartment is ready for a walkthrough. Return the keys and finalize how you’ll receive your security deposit before you head out of state.

14. Clean and sell your car

If you don

If you don

If you chose a place with stellar public transportation, you’re probably thinking of leaving your car behind. You don’t have to sell it until a week before you move to make sure that you get all of your errands done.

Start the process early by looking at online vendors like Carmax, Carvana and Blue Book to see how much you’ll get for your car. Get it clean and in tip-top shape, so it sells for the maximum amount possible. Schedule a pick-up at your apartment for convenience and sell it to the best offer.

15. Time to move

Almost there! You’ve prepared, and the moment is here. It’s time to move. You’re more prepared than most for your move out of state. You’ve said your goodbyes, you’re checked into your flight and the movers have your couch.

16. Update your pet’s microchip and registration

Before getting too settled into your new place, update your pet’s microchip and registration in the new state. If they were to go missing, they would have an old address and make it hard to find you. Check if this new place has additional requirements beyond rabies shot and registration with the county.

It’s also an excellent time to find a 24-hour vet that’s close by for any emergencies while you unpack in the short term.

17. Get a new driver’s license and registration

Keep all documents up to date.

Keep all documents up to date.

Most states have a 30-day grace period for new residents to update their driver’s license and vehicle registration. Along with your pet’s registration, add this one to the top of your to-do list once you land in your new apartment. Visit the local DMV to get a new license and registration for your car.

Check if you need specific documents like a birth certificate or social security card. If you can’t find either (and who can blame you mid-move), you can go to the local social security administration branch and ask for a new one.

18. Register to vote in your new state

Don’t forget about doing your part for your country. Switch your voter registration as soon as you have your new address to allow time to update. Check where your voting precinct is, so you’re ready for election day. You can easily switch your voter registration online or at your local library.

Start reading about issues in your new state and get familiar with your representatives. Now that you have a new home, you have new things to fight for and worry about, no matter your political leaning.

19. Connect your utilities

Once you sign your lease, cancel your utilities at your current place and start calling local utility companies to create accounts for electricity, gas and internet access in your new apartment. Depending on your internet provider, you can just transfer service.

Get ready to set up an account and pay deposit fees. You should start this process at least two weeks before your move since utility companies often move slowly.

Check with your landlord to see if your lease includes any utilities, like water or trash.

20. Reach out to friends for local connections

Making new friends is hard! But if you reach out to your network and social media to share your news about moving out of state, be sure to ask if they can connect you with any pals in your new state, either via email or group text.

Schedule friend dates for your first month after your move to get to know your new neighborhood.

21. Change your mailing address

Mail slot

Mail slot

About a week before you move out of state, begin forwarding your mail with the U.S. Postal Service. Get ahead of any lost mail by changing your address in your streaming accounts, account and any magazine subscriptions you already get.

You don’t want to have a random package go to your old apartment because you didn’t forward mail after moving out of state.

22. Transfer your gym membership

If you’re lucky, your gym will have various locations around the country, and you can just transfer your membership. Let your gym, meal planning service and anything else within your routine know that you’re moving out of state. Make sure to cancel and get confirmation of any services that don’t transfer to your new place.

23. Find new doctors in your area

Don’t let your moving out of state keep you from your medical and dental routine. Ask colleagues in your new place if they have any recommendations for dentists, general practitioners and any other doctor you may need.

Your health insurance may also have a helpful directory of in-network providers so you can start finding your favorites.

24. Update the bank of your new location

It’s important to update your financial institutions that you’re moving out of state and are now residents of your new state. This isn’t just your primary bank. You need to update every financial institution, including your financial advisor, accountant, any investments and those that hold any retirement accounts.

25. Get settled in your new state

Settle in with new friends.

Settle in with new friends.

There’s no greater feeling than the one of relief when you have unpacked every box in your new apartment. Start a good routine for the first month of exploring a new restaurant, coffee shop or neighborhood near you. Getting to know your new town and making friend dates will help you feel settled in no time.

Ready to move to another state?

The moving process is stressful, with unexpected expenses, finding the right moving company and launching yourself into a new life. This moving out of state checklist will make your relocation a lot easier.

The weeks ahead will be uncomfortable as you settle into your new job and new neighborhood after the long-distance move. But slowly, you’ll meet new friends and find yourself as a regular in the corner coffee shop.


15 Technical Indicators for Stock Trading

Using technical analysis to research stocks is a common strategy to profit from short-term movements in security prices. While some stock analysis tools are fundamental in nature, technical stock indicators typically seek patterns in past price and volume data to give investors and traders insights about how a stock might move in the future.

Naturally, every stock indicator has its pros and cons. Technical indicators can be used by traders to analyze supply and demand forces on stock price, to help investors to understand market psychology, or to manage risk. But while stock indicators and trading tools can help with buy and sell points, false signals can also occur.

For that reason, although technical indicators can assist with trend identification, it’s best to combine different indicators when conducting your stock analysis.

Learn more about the pros and cons of using the following 15 trading tools in your strategy.

Table of Contents

How Do Stock Technical Indicators Work?

Technical analysis uses various sets of data and indicators, such as price and volume, to identify patterns and trends. It does not use fundamental analysis to look at the underlying companies, their industries, or any macroeconomic trends that might drive their success or failure.

Rather, technical analysis solely analyzes a stock’s performance. Technical indicators are often rendered as a pattern that can overlay a stock’s price chart to predict the market trend, and whether the stock would be considered “overbought” or “oversold.”

One of the basic tenets of technical analysis is that history tends to repeat itself. By examining certain patterns in light of past outcomes, analysts can make an educated guess about where stock prices might be headed. That said, past performance is never a guarantee of future stock price movements, so traders must bear this in mind.

Knowing many of the most popular trading tools might benefit your investing strategy with easier to spot buy and sell signals. You don’t have to know every single technical indicator, and there are many ways to analyze stocks, but using multiple stock indicators may improve trading results. You can also use these stock indicators to help you manage risk when you are actively trading.

Trend indicators are some of the most important technical trading tools since identifying a security price’s trend is often a first step to forming a strategy. Long positions are often initiated during uptrends, while short sale ideas can occur when prices are in an established downtrend.

Volume technical indicators are also helpful to gauge the power or conviction of an asset’s price move. Some believe that the higher the stock volume on a bullish breakout or bearish breakdown, the more confident the move is. Higher volume could signal a lengthier trend continuation.

Two Types of Technical Indicators

Technical indicators generally come in two flavors: overlay indicators and oscillators.

Overlay Indicators

An overlay indicator typically overlays one trend onto another on a stock chart, often using different colors to distinguish between the lines.

Oscillator Indicators

On a technical analysis chart, an oscillator tracks the distance between two points in order to gauge momentum. The moving average is a common oscillator; it’s considered a lagging indicator as it measures specific intervals in the past.

An oscillator indicator can help traders determine support and resistance in certain price trends, so they can decide whether to sell or buy.

Oscillator indicators can be leading or lagging:

•   A leading indicator tracks current market movements to anticipate where the trend is headed next.

•   A lagging indicator is based on recent history and seeks patterns that will indicate potential price movements.

Top 15 Stock Indicators for Technical Analysis

It’s important to remember that these trading tools were developed based on the belief that mathematically derived patterns may be valuable as predictors of stock movements. Past performance, however, is not a guarantee of future results. So while it can be useful to employ stock technical indicators, they are best used in combination before deciding on a potential trade.

Also, many of these trading tools are lagging indicators, which can lead to an inaccurate reflection of current and future market conditions.

Following are 15 of the most common technical stock indicators, along with their advantages and disadvantages.

1. Moving Averages (MA)

A moving average (MA) is the average value of a security over a given time. The MA can be Simple Moving Average (SMA), Exponential Moving Average (EMA), and Weighted Moving Average (WMA).

A moving average smooths price volatility and is taken as an indicator of the direction a price may be headed. If the price is above the moving average, it’s considered an uptrend versus when the price moves below the MA, which can signal a downtrend. Moving averages are typically used in combination with each other, or other stock indicators, to identify trends.


•   Using moving averages can filter out the noise that comes from price fluctuations and focus on the overall trend.

•   Moving average crossovers are commonly used to pinpoint trend changes.

•   You can customize moving average periods: common time frames include 20-day, 30-day, 50-day, 100-day, 200-day.


•   A simple moving average may not help some traders as much as an exponential moving average (EMA), which puts more weight on recent price changes.

•   Market turbulence can make the MA less informative.

•   Moving averages can be simple, exponential, or weighted, which might be confusing to new traders.

2. Moving Average Convergence Divergence (MACD)

The Moving Average Convergence Divergence (MACD) also helps investors gauge whether a security’s movement is bullish or bearish, but it uses two different MAs to do so. Often, a 26-period exponential moving average is subtracted from a 12-period EMA to spot trading signals. Then a signal line, based on a shorter period EMA, is plotted on top of the MACD to help reveal buy and sell entry points.

Traders use the convergence or divergence of these lines to identify when bullish or bearish momentum is high.


•   The MACD, used in combination with the relative strength index (below) can help identify overbought or oversold conditions.

•   The MACD can be used to indicate a trend and also momentum.

•   Can help spot reversals.


•   May provide false reversal signals.

•   Responds mainly to the speed of price movements; less accurate in gauging the direction of a trend.

3. Relative Strength Index (RSI)

RSI is a tool that identifies bullish vs. bearish price momentum. The relative strength index is an oscillator — a tool that builds a trend indicator based on the price movement between two extreme values. It ranges from 0 to 100. Generally, above 70 is considered overbought and under 30 is thought to be oversold.


•   Can help investors spot buy or sell signals.

•   May also help detect bull market or bear market trends.

•   Can be combined with moving average indicators to spot breakout trends or reversals.


•   The RSI can move without exhibiting a clear trend.

•   The RSI can remain at an overbought or oversold level for a long time, making this tool less useful.

•   It does not give clues as to volume trends.

4. Stochastic Oscillator

The stochastic oscillator has two moving lines, or stochastics, that oscillate between and around two horizontal lines: The primary “fast” moving line is called the %K, while the other “slow” line is a three-period moving average of the %K line.

A signal is generated when the “fast” %K line diverges above the “slow” line or vice versa. The stochastic oscillator uses a 0 to 100 value range.The two horizontal lines are often pre-set at 30 and 70, indicating oversold and overbought levels, respectively, but can be modified.


•   Since it’s plotted on a 0 to 100 scale, it’s possible to gauge overbought and oversold levels.

•   Traders can adjust time frame and range of prices to reduce market fluctuation sensitivity.

•   Can be used by day traders.


•   A security can remain overbought or oversold for long periods as the range of oscillations is not always proportionate to a security’s price action.

•   It can be useful for implementing an overall strategy, but not for gauging the overall market sentiment or trend direction.

5. Williams %R

Similar to the stochastic oscillator, above, the Williams %R (a.k.a. the Williams Percent Range) is also a momentum indicator — but in this case it moves between 0 and -100 to identify overbought and oversold levels and find entry and exit points in the market. The Williams %R compares a stock’s closing price to the high-low range over a specific period, typically 14 days.

Readings between 0 and -20, which are in the top 20% of price during the look-back period, are considered overbought. Readings between -80 and -100, which are in the lowest 20% of price during the look-back, are considered to be oversold.


•   You can combine different short and long time periods to compare trends.

•   Identifies overbought and oversold levels.


•   False signals can happen if price strength or weakness leads to a brief movement in the Williams %R above 70% or below 30%.

•   There is no volume analysis with the Williams %R.

6. Bollinger Bands

Bollinger Bands are a set of three lines that help measure the relative high or low of a security’s price in relation to previous trades. The center line is the Simple Moving Average (SMA) of the stock price. The other two trendlines are plotted two standard deviations away from the SMA (one positively, one negatively). These can be adjusted.

The upper and lower lines show the high and low boundaries of the security’s expected price movement (90% of the time). The middle line shows real-time price action moving between those bounds as it fluctuates day-to-day.


•   Helps traders identify volatility.

•   Can help point to trading opportunities.


•   Large losses are possible when volatility surges unexpectedly.

•   Does not identify cycle turns quickly enough at times.

7. On-Balance Volume (OBV)

OBV is a little different from the other indicators mentioned. It primarily uses volume flow to gauge future price action on a security or market. When there’s a new OBV peak, it generally indicates that buyers are strong, sellers are weak, and the price of the security will likely increase. Similarly, a new OBV low is taken to mean that sellers are strong and buyers are weak, and the price is trending down.

The numerical value of the OBV isn’t important — it’s the direction that matters. Declining volume tends to indicate declining momentum and price weakness, while increasing volume tends to indicate rising momentum and price strength.


•   Volume-based indicator gauges market sentiment to predict a bullish or bearish outcome.

•   OBV can be used to confirm price action and identify divergences.


•   Hard to find definitive buy and sell price levels.

•   False signals can happen when divergences and confirmations fail.

•   Volume surges can distort the indicator for short-term traders.

8. Accumulation / Distribution Line (ADL)

The ADL is a momentum indicator that traders use to detect tops and bottoms and thus predict reversales. It does this by using volume versus price data to identify divergences and thereby show how strong a trend might be. For example: If the price rises but the ADL indicator is falling, then the accumulation volume may not actually support a true price increase and a decline could follow.


•   Traders can use the AD Line to spot divergences in price compared with volume that can confirm price trends or signal reversals.

•   The ADL can be used as an indicator of the flow of cash in the market.


•   Doesn’t capture trading gaps or factor in their impact.

•   Smaller changes in volume are hard to detect.

9. Average Directional Index (ADX)

The Average Directional Index (ADX) also helps investors spot asset price trends and to quantify the strength of those trends. ADX shows an average of price range values that indicate expansion or contraction of prices over time — typically 14 days, but it may be calculated for shorter or longer periods. Shorter periods may respond quicker to pricing movements but may also have more false signals. Longer periods tend to generate fewer false signals but may cause the indicator to lag the market.

The ADX uses positive and negative Directional Movement Indicators (DMI+ and DMI-). ADX is calculated as the sum of the differences between DMI+ and DMI- over time. These three indicators are often charted together.


•   Can help identify when price breakouts reflect a solid trend.

•   Can send signals to traders to watch the price and manage risk (e.g. thru divergences).


•   Can generate false signals if used to analyze shorter periods.

•   Can’t be used as a standalone indicator.

10. Price Relative / Relative Strength

Relative Strength should not be confused with the Relative Strength Index (above). Relative Strength is more of an investment strategy than a specific indicator. It involves comparing one asset to another or the broader market and helps traders find securities that are trending on a relative, not absolute, basis.


•   A stock indicator that helps compare one security’s price to another to find which is outperforming.

•   Can plot one stock versus a competitor or market benchmark.


•   Does not provide exact buy and sell levels.

•   False breakouts and breakdowns can happen.

•   Mean reversion can lead to losses for momentum traders.

11. Relative Volume (RVOL)

RVOL relays to traders how near-term volume compares to historical volume. The higher RVOL is, the more other traders might be paying attention to and trading the asset. Think of it as the stock being “in play.” Stocks that have a lot of volume have more liquidity and tend to trade better than stocks with low relative volume. The RVOL is displayed as a ratio.

So if it is showing 2.5 relative volume, that means it is trading at 3.5 times its normal volume for that time period.


•   Can offer clues to identify unusually powerful price moves.

•   High and low volume is easily detected by use of being above or below a value of one (1).


•   While volume is important, it does not give exact buy and sell price levels.

•   Volume surges can be fickle — like around an earnings date.

12. Rate of Change (ROC) and Momentum

ROC is just what it sounds like — the speed at which a stock is moving compared to its trend. The indicator measures a stock’s percentage price change compared to how it moved in recent periods. Like many of the tools mentioned, it can be used to spot divergences.


•   Works better in trending markets.

•   When used with other trading tools can help traders spot strong momentum.

•   A technical trading tool that can identify overbought and oversold levels.

•   Ideal for spotting divergences.


•   False signals can happen when the indicator suggests a price trend reversal will take place.

•   Does not give higher weight to more recent price action.

13. Standard Deviation

An asset’s standard deviation is a fundamental statistical tool to get a sense of volatility. It uses historical volatility to arrive at a percentage that is used to reflect how much a security moves. While volatility can indicate potential risk, it can also signal the potential for opportunity.


•   Mathematically captures the volatility of a stock’s movements, i.e. how far the prices moves from the mean.

•   Provides technicians with an estimate for expected price movements.

•   Can be used to measure expected risk and return.


•   Does not provide precise buy and sell signals.

•   Must be used in conjunction with other indicators.

14. Ichimoku Cloud

Ichimoku clouds are used to show support and resistance areas on a price chart in an extra-illustrative manner. An Ichimoku Cloud is comprised of five separate calculations that examine multiple averages, and uses the difference between two of the lines to create a shaded area (the cloud) that aims to predict support and resistance levels. It is also employed to identify momentum and trend. It is thought to provide more data than a simple candlestick chart.


•   A leading indicator of price.

•   Indicates support and resistance areas.

•   Useful for gauging the direction and intensity of a price trend.


•   Can give many false signals in trendless markets.

•   Can be confusing to traders given its complexity.

15. Fibonacci Retracements

Fibonacci Retracements are based on the golden ratio discovered by mathematician Leonardo Pisano in the 13th century. At its core, a Fibonacci retracement is a mathematical measurement of a particular pattern. The Fibonacci sequence and ratio are used to form support and resistance lines on a price chart.


•   Offers clues about where a stock might find support and resistance.

•   Helps define exit and entry levels.

•   Can be used to place stop-loss orders.


•   The use is subjective.

•   Some say Fibonacci Retracements are simply a self-fulfilling prophecy: if many traders are using these ratios, then outcomes will reflect this.

•   No logical proof of why it should work.

The Takeaway

Technical analysts use past price and volume data to help traders identify price trends and make buy and sell decisions. It’s important to know that technical analysis does not use fundamentals to assess the underlying companies, their industries, or any macroeconomic trends that might drive their success or failure. Rather, technical analysis solely analyzes a stock’s performance.

Technical indicators are often rendered as a pattern that can overlay a stock’s price chart to predict the market trend, and whether the stock would be considered “overbought” or “oversold.” There are countless stock technical indicators in existence, and it can quickly become overwhelming to learn them all. It might be more useful to focus on a handful of the most popular trading tools so you can execute a strategy that works for you.

To start trading stocks and gain a hands-on understanding of how technical indicators work, you can open a brokerage account online with SoFi Invest®. You can trade stocks, fractional shares, exchange-traded funds (ETFs), IPO shares, and cryptocurrencies right from your laptop or phone. As a SoFi member, you will have access to many online resources — including financial professionals who can guide you in your financial journey. Get started now!

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

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What Is Home Title Insurance – Policy Costs, Coverage & Need

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You’re all settled into your dream home — the one you saved up years to afford. You’ve unpacked every last moving box, arranged the furniture, and made the first payment on your mortgage. Life is good.

Then, one day, you hear a knock at the door. The person standing there hands you an official-looking document and tells you the now-grown child of a previous owner is suing you. They believe the property belongs to them, and they have the previous owner’s will to prove it.

You know you need to hire a lawyer. But you’re all tapped out after paying tens of thousands of dollars for the down payment. You’re in a serious bind — one that could get worse if the person suing you prevails. But if you had home title insurance, you probably wouldn’t have to pay out of pocket to defend yourself. 

What Is Home Title Insurance?

Home title insurance, or simply title insurance, is a special but common type of real estate insurance that protects your financial interest in a specific piece of property. 

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You can buy title insurance on your primary residence, second home, or any investment property you buy directly. You don’t need title insurance to invest in real estate indirectly, such as through publicly traded real estate investment trusts or real estate crowdfunding. 

Most forms of insurance provide financial protection against future losses. For example, homeowners insurance protects against costs related to damage to or theft from your home. Title insurance protects against future losses too, but it covers out-of-pocket expenses associated with future ownership disputes.

Title insurance also covers a lot of upfront work that happens before you even own your home. After you make an offer on a new property but before you close, your title insurance premium covers the cost of investigating the title. It also covers the cost of fixing any title issues, such as old liens or ownership disputes, before they cause greater financial harm. 

What Does Home Title Insurance Cover?

Title insurance policies typically have three functions:

  • Cover the cost of investigating the chain of title, the official ownership records of the property in question
  • Cover the expense of fixing any problems discovered during this investigation 
  • Pay future legal expenses for any action against or attempts to collect money from the current owner resulting from any undiscovered issues 

Though title insurance policies vary from state to state and provider to provider, they always cover the cost of conducting a title search. A title search is a thorough examination of relevant public records to determine whether any problems exist with the title. These records are typically held with the city or county where the property is located.

Ideally, a title search looks at the entire history of a property stretching back to its original platting or subdivision. That’s generally done by scrutinizing the property’s abstract, a document containing the complete chain of ownership and historical liens. 

A comprehensive title search doesn’t stop there. Since abstracts can be incomplete or contain erroneous information, title searchers rely on other sources, such as local tax records, previous owners’ wills, and past court judgments.

Curing or Resolving Problems

Title insurance policies also cover the cost of resolving or “curing” most title problems uncovered during the search, which insurance professionals call “defects.” Common title defects include:

  • Liens for unpaid property taxes, known as tax liens
  • Construction liens — also known as mechanics’ liens — for unpaid construction, renovation, or repair bills
  • Liens for other unpaid debts that used the home as collateral
  • Court judgments, such as a post-divorce judgment awarding part of the property to a former spouse

Old liens or judgments don’t necessarily jeopardize the sale. But in rare cases, the title search does uncover egregious problems with the title that make it difficult to proceed. 

For instance, the title searcher might discover the seller doesn’t really own the property and thus doesn’t have the right to sell it or that a previous deed transferring the property was forged and the true owner can’t be located. 

In such cases, the lender could refuse to issue a mortgage on the property and force the buyer to walk away.

Finally, title insurance policies cover future costs arising from title disputes. For example, if you have a valid title insurance policy, you won’t have to pay out of pocket when a building contractor stiffed by the previous owner sues you.

In the rare event a court rules the most recent transfer of the property was invalid, your title insurance policy compensates you for any loss of equity in the property. That might occur if it’s discovered a previous owner deeded the property to a third party in a previously undiscovered will, for example.

A title insurance policy’s coverage limit is usually equal to the property’s assessed value when the policy is issued. The lender’s appraisal sets that value.

Types of Title Insurance

Title insurance comes in two basic forms: lender policies and buyer policies. 

As the buyer, you’re generally responsible for paying the full cost of both policies. That expense is one of many closing costs. However, in a buyer’s market, you may be able to work out a cost-sharing arrangement with the seller or even convince them to cover the entire cost.

Either way, each policy type works slightly differently. 

Owner’s Title Policy

Also known as an owner’s title policy, a buyer’s policy protects your ownership interest as the buyer and future property owner. That interest increases with time, which means your financial liability for any title issues also increases with time. 

Owner’s title insurance is not mandatory. However, the cost is a fairly small share of total closing costs, and going without it could have serious financial consequences, so it’s worth the investment.

Your owner’s policy remains in force for as long as you own the property, even after you pay off your mortgage. 

Lender’s Title Policy

Also known as loan policies, lender policies protect the mortgage lender’s interest in the property, which usually decreases over time. For this reason, they tend to cost less than buyer’s policies.

Lender policies remain in force for the entire life of the loan or until you refinance the loan, at which point the lender obtains a new policy.

How Much Does Home Title Insurance Cost?

Like other types of insurance, title insurance policies wrap their fees into a single charge called a premium. Unlike most other types of insurance, title insurance premiums don’t recur every month or year. You pay them all at once during closing.

Some of the factors that affect title insurance premiums include:

  • The value of the property — typically, more expensive properties have higher title insurance costs
  • The amount of work necessary to maintain accurate, up-to-date information on the covered and adjacent properties
  • The amount of work necessary for the title search and examination
  • The amount of work required to cure any defects or adverse interests uncovered by the title search
  • The expected cost of compensating the insured parties for any title defects

The average title insurance policy carries a one-time premium of about $1,000, which covers all upfront work and ongoing legal and loss coverage. However, premiums vary substantially. They can range from less than 0.5% to more than 1% of the purchase price.

State regulation also plays an important role in title insurance premiums. Some states tightly regulate the industry, severely limiting how title insurers can structure their policies and how much they can charge.

In other jurisdictions, title insurance regulation is lighter, and insurers have more leeway to set rates. For example, Wisconsin allows title insurers to follow a “file-and-use” standard, where they can change rates on the fly as long as they notify the state within a set time frame.

Do You Need Title Insurance Coverage?

You’re not required by law to purchase an owner’s title insurance policy. In that sense, you don’t “need” owner’s title insurance.

But choosing not to buy title insurance for yourself could be a very costly mistake. There’s a reason your lender has title insurance. It has seen far too many examples of title issues causing serious financial hardship for homeowners and doesn’t want any part of them.

Without title insurance, you could be held liable for old liens, fines, and other debts attached to the property. Yes, even if the owner who was supposed to pay them is long gone. As the current owner of record, it falls to you to make the creditor whole.

If you’re not able to pay old debts that come to light, you risk losing the property to foreclosure. That’s most commonly for unpaid property taxes, which can be hefty. If you can’t pay the bill for back property taxes and can’t work out a payment plan, the city or county could seize your property and sell it in a tax foreclosure auction.

How to Choose the Right Home Title Insurance Policy

You’ll receive a title insurance recommendation at some point during the underwriting process. Depending on how real estate transactions work in your state, this recommendation might come from your mortgage lender, title agent, real estate agent, or real estate attorney.

Title insurance costs and policy terms rarely vary much between insurers operating in the same jurisdiction. And purchasing title insurance is just one of many things you must do to close on a mortgage loan, so you might feel tempted to act on this recommendation without a second thought.

But you don’t have to. A federal law known as the Real Estate Settlement Procedures Act prohibits anyone from forcing you to use a particular title insurance company. As a real estate buyer, you always have the option to shop around for an owner’s title insurance policy and choose the provider that best fits your needs. You can’t shop around for a lender policy, though.

Because title insurance is so standardized, the most important factor to consider when shopping for an owner’s policy is price. The first closing estimate you receive from your lender should include a line item stating the estimated total cost of your owner’s policy. That’s your number to beat — you want a cheaper policy.

To find that policy, search online using terms like “owner’s title insurance policy in [your state].” Visit each provider’s website and look for pricing information. If you’re lucky, you’ll find actual prices listed on the site, but don’t be surprised if you don’t. A quick phone call should get you a ballpark estimate. 

If you’re buying lender’s insurance and owner’s insurance from the same company, ask about a bundle discount. They won’t necessarily offer one unless you ask. And if the seller bought the home less than 10 years earlier, ask the title company for a reissue rate — basically, an extension of the seller’s current policy.

Once you have several quotes, choose the lowest one. Make sure the policy you end up selecting covers a full title search, defect curing, and future legal expenses. 

Final Word

Title insurance doesn’t come cheap. Depending on factors like where the property is located, how much it’s worth, and how many times it has changed hands over the years, your owner’s title insurance policy could cost anywhere from less than 0.5% to more than 1% of the purchase price.

Add in the lender’s title policy, which is typically cheaper but by no means free, and you’re looking at a sizable addition to your closing costs.

But does that mean title insurance is a bad deal? Hardly. It’s a drop in the bucket compared to the total cost of homeownership, and the protection it provides is potentially invaluable. Though title issues are relatively unlikely to arise on any given property, title insurance ensures you’re not financially liable for past debts or legal expenses related to those issues. 

And in a worst-case scenario, title insurance could mean the difference between staying in your home and losing it to foreclosure. 

When you put it that way, home title insurance sounds like a bargain.

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Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.


Stock Market Today: Stocks Sink After April Jobs Report

On the heels of their worst session of 2022, stocks initially struggled to find direction Friday following the release of the April jobs report – though in the end, they settled for selling, again. 

The Labor Department this morning said the U.S. added 428,000 jobs last month, while the unemployment rate held steady at 3.6%. This marked the 12th straight month U.S. employers have added at least 400,000 new jobs. At this pace, the economy could recover all of its pandemic-related job losses by mid-July, says Kiplinger economist David Payne. 

Also notable in the report was wage growth, which rose 0.3% month-over-month and 5.5% year-over-year, and the participation rate – or the percentage of the population that have jobs or are seeking them – which declined slightly to 62.2%.

“While there’s no shortage of concerns to take the wind out of investors’ sails right now, this jobs read likely won’t be one of them,” says Mike Loewengart, managing director of Investment Strategy at E*Trade. “With a relatively rosy jobs picture, despite slight misses on participation and wages, the Federal Reserve likely won’t be swayed from its rate hike campaign. And since numbers came in mostly in line with expectations, the market may have already priced in a robust jobs read.”

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Stocks initially opened lower before finding their way higher by lunchtime. These intraday gains were short-lived, however, with all three markets sinking back into negative territory in the afternoon.

At the close, the Nasdaq Composite was down 1.4% at 12,144, the S&P 500 Index was 0.6% lower at 4,123 and the Dow Jones Industrial Average was off 0.3% at 32,899.

stock price chart 050622stock price chart 050622

Other news in the stock market today:

  • The small-cap Russell 2000 plunged 1.7% to 1,839.
  • U.S. crude oil futures gained 1.4% to end at $109.88 per barrel.
  • Gold futures rose 0.4% to settle at $1,882.80 an ounce.
  • Bitcoin retreated 0.9% to $35,953.66. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
  • DraftKings (DKNG) plunged 8.9% after the online sports gambling company reported a first-quarter net loss of $467.7 million, wider than the $346.3 million net loss it incurred in the year-ago period. On an adjusted basis, though, DKNG’s adjusted per-share loss of 74 cents was slimmer than the $1.09 per-share loss analysts were expecting. Revenue of $417 million came in above the $412 million consensus estimate. “DraftKings quarter was buoyed by strong numbers from March Madness and the Super Bowl, which set records for first-time bettors,” says Jonathan Dube, executive in residence at investment bank Progress Partners. “DraftKings and its competitors are all looking at ways to grow their businesses and increase their margins, and one of the ways they are doing so is aggressively moving into the iGaming online casino space. DraftKings announced it completed its purchase of Golden Nugget Online Gaming, which will help it compete with established brands like Caesars and BetMGM in the iGaming space, a strategically complementary business which has higher margins than sports betting.”
  • In its first quarter, global cloud services provider Cloudflare (NET) posted revenue of $212.2 million, up 54% year-over-year, and adjusted earnings of 1 cent per share compared to a per-share loss of 3 cents in the year-ago period. Still, NET stock plunged 12.4% post-earnings, possibly due to the company reporting cash flow from operations of -$35.5 million for the three month period vs. +$23.5 million in Q1 2021. “The company is beating best of breed point  solutions with its easier-to-use and cheaper bundled solutions, all on one developer platform—workers,” says Oppenheimer analyst Timothy Horan (Perform). “It had a major role in protecting Ukraine’s and other countries’ digital infrastructure from Russian attacks.” Horan also believes Cloudflare “should be able to deliver double-digit revenue growth rates over the next several years based on the strong demand for its offering and the rising economic importance of the internet across the globe.”

Wall Street’s Newest Dividend Payers

The Fed is unlikely to change course with its monetary-tightening plan any time soon. That seems to be the general consensus around Wall Street, especially on the heels of today’s solid jobs report. 

“We have been cautious all year given the unprecedented size of the Fed’s balance sheet, which they need to unwind due to the inflationary pressures we have been experiencing and a concern that valuations were too high as interest rates were poised to move higher,” says Chris Zaccarelli, chief investment officer for registered investment advisor Independent Advisor Alliance. Zacarelli believes the Fed will continue to “aggressively fight inflation,” no matter how much damage might be inflicted upon the stock market in the near term. 

With this in mind, he reminds investors that it’s prudent to be invested in quality stocks of companies that have the ability to power through a recessionary environment. This includes companies “with a competitive advantage, pricing power and a strong balance sheet (e.g. relatively low debt compared to operating earnings),” Zaccarelli adds. 

There are many ways investors can track down companies with high-quality fundamentals, including looking for those that are consistently increasing dividends or issuing special dividends – both signs of financial strength. 

There’s also money to be made with Wall Street’s newest dividend stocks. Despite a U.S. economy plagued by labor shortages, supply-chain woes and higher prices, these companies are flexing their financial muscle by initiating dividends.


What Is a Stock Market Benchmark? – How to Measure Index Performance

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When researching investment opportunities or financial markets, you often hear something compared to something called a benchmark. You might see statements like “outperforming benchmark returns” or “lagging the benchmark.” 

Based on context, we can surmise that these terms mean an investment is performing better or worse than something, but what exactly is that something? What does a stock market benchmark mean for the average investor? 

Find out what benchmarks are and how you can use them to your advantage when investing.

What Is a Stock Market Benchmark (Index)?

A stock market benchmark, sometimes called a market index or benchmark index, is a carefully selected group of stocks meant to measure the overall performance of a group of equities or the market as a whole. Benchmarks are used as a standard or baseline against which specific investments or a portfolio’s performance can be measured.

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History of the Stock Market Benchmark

The first market index was created by Charles Dow and Edward Jones in 1884. The index was called the Dow Jones Transportation index and tracked the performance of the large railroad companies that were seen as a reflection of the United States economy at the time. 

That index evolved to become one of the best-known benchmarks, the Dow Jones Industrial Average, which today includes 30 of the largest industrial companies that represent the U.S. economy.  

Another classic market index was created by the Standard Statistics Company in 1923. Within a few years, the company developed 90 indexes that would be computed on a daily basis. 

The Standard Statistics Company evolved to become one of the biggest names on Wall Street: Standard & Poor’s, or S&P. Through a merger, the company’s name recently changed once again to S&P Dow Jones Indices. The company’s flagship index, the S&P 500 composite, is the most widely used benchmark in the U.S. today. 

Types of Benchmarks

Over the past century or so, benchmarks have become a crucial part of the complex machine that is the stock market. However, it’s important that you use the appropriate benchmark for what you plan to measure and compare — more on this later. 

There are several types of benchmarks investors use, each measuring different market segments. The most common types of benchmarks are:

Market Capitalization-Focused

The central theme to some indexes is market cap, or size of the constituents listed within it. There are four primary types of market-cap-focused indexes:

1. Blue Chips

A blue-chip benchmark is designed to track the results of the largest, most successful companies on the market. These companies are known for producing relatively predictable gains and revenue growth. 

The flagship blue-chip index in the United States is the Dow Jones Industrial Average. The Dow tracks 30 of the largest and most successful publicly traded companies in the U.S. 

2. Large-Cap

Large-cap stocks represent companies worth $10 billion or more. These are some of the largest companies in the world and tend to be leaders within their respective industries. Large-cap indexes list a diverse group of stocks in this category, tracking and measuring the performance of very large companies. 

The most popular large-cap index is the S&P 500, which tracks the 500 largest publicly traded companies in the U.S. It represents around 85% of the country’s total market cap.  

3. Mid-Cap

Mid-cap stocks represent companies worth between $2 billion and $10 billion. These companies tend to be just finding their footing in their respective industries. They’re not quite as predictable as large-cap stocks, but offer the potential for meaningful growth as these companies continue to grow and evolve. 

Mid-cap indexes are made up of a diversified list of these companies, giving investors the ability to track the performance of mid-sized companies. 

One of the most popular benchmarks in this category is the Russell Midcap Index, which is made up of the 800 smallest companies on the Russell 1000. 

4. Small-Cap

Small-cap indexes include stocks representing companies worth between $500 million and $2 billion. 

These companies are often in the beginning to intermediate stages of business, or may be experienced players in relatively small markets. A small-cap benchmark shows investors how smaller publicly traded companies are faring.

One of the most popular small-cap indexes is the S&P 600, the small-cap index also maintained by Standard & Poor’s that includes 600 smaller U.S. companies.. 


There are several sectors across the stock market. Some of the most popular include technology, biotechnology, energy, and consumer goods. Each sector is represented by a long list of benchmarks. 

One of the best examples of a sector-focused index is the Nasdaq. Known as a tech-heavy index, a large percentage of its constituents are within the technology and biotechnology sectors. 


Some indexes have a central focus on an investment strategy. These usually fall into one of the following categories:

  • Growth Stocks. Growth-focused indexes track a diversified group of stocks known for producing compelling revenue, earnings, and price growth. One of the most popular in this category is the Russell 3000 Growth Index. 
  • Value Stocks. Value-focused indexes track a diversified group of stocks that are believed to be undervalued when compared to their peers. Investors believe that by investing in these stocks, they’ll outperform the market as the stocks recover from recent lows. One of the most popular in this category is the S&P 500 Value Index. 
  • Income Stocks. Income-focused indexes track stocks known for paying the highest dividends. One of the most popular benchmarks in this category is the S&P 500 Dividend Aristocrats. 

Asset Class Focused

Stocks aren’t the only asset class on the market, nor are they the only class of assets with a benchmark index to track them. Indexes exist to track bonds, commodities, futures, and more. If it’s an asset class, there’s likely an index that covers it.

A great example of indexes in this category is the S&P U.S. Treasury Bond Index, which tracks the performance of a highly diversified group of bonds issued by the U.S. Treasury.  


Risk-focused indexes are largely used to determine the level of volatility and variability in the market, helping investors understand what they’re up against in the battle between the bears and bulls. 

One of the most popular risk-focused indexes is the CBOE Volatility Index (VIX). 

How to Use a Benchmark

Benchmarks have become incredibly valuable tools for investors. Here are the different ways to use them:

Index Investing

With so many people tracking benchmark indexes, it was only a matter of time before they were used as investments themselves. These days, there’s a long list of index funds, which are mutual funds or exchange-traded funds (ETFs) that make investments that track the movement of an underlying index. These funds are based on an underlying index instead of the investment decisions of a fund manager. 

The index investment strategy (indexing) is centered around investing in these funds. Individuals investing in a benchmark index’s performance benefit greatly from heavy diversification. Indexing removes much of the research and decision-making from the process of managing investment portfolios. Index investors know the fund’s performance is likely to be very similar to that of the underlying index. 

Measure Portfolio Performance

Another common use for benchmarks is to measure the performance of your investment portfolio. All you need to do is compare your portfolio’s performance to the appropriate benchmark to see how well you’re stacking up. 

For example, if your portfolio is tech-heavy, consider comparing your performance to that of the Nasdaq. If your portfolio is outpacing the index, you’re in good shape. If it’s underperforming a comparable benchmark, it’s time to adjust your holdings because there’s more money to be made elsewhere. 

Gauge Economic Performance

Stock market indexes aren’t just a tool for understanding the performance of different segments of the market. Widespread benchmarks that focus on the market as a whole also tell you quite a bit about the state of the economy. 

After all, the economy and equities market are closely correlated. 

When economic conditions are good, stocks tend to be up. Conversely, when economic conditions look grim, stocks tend to be down. Paying attention to the movement in the largest flagship benchmarks for any economy will paint a picture of that economy’s health. 

Gauge Market Performance

The stock market is known for moving through a series of peaks and valleys. Benchmarks can be used to give you a clear picture of the market and market sentiment. 

In the U.S., the best benchmark for this is the S&P 500 index. That’s because the index lists 500 of the largest publicly traded companies in the U.S., representing 85% of the country’s market cap. 

With such a large representation of the domestic market, when the S&P is up, you can safely assume that stocks are generally trending in the upward direction, and vice versa. 

Measure Historical Performance

History tends to repeat itself. Although past performance isn’t always indicative of future results, the world’s most successful investors often use historical performance as a way to predict the returns they may generate. 

Tracking benchmarks throughout history gives you an idea of how the index has performed over time, the levels of volatility generally experienced, and the risk and reward associated with investing in the section of the market measured by the index.  

Determine Market Timing

Warren Buffett famously told investors to buy when fear is high and sell when greed sets in. Benchmarks can tell you when those emotions are taking hold in the market. 

CNNMoney created the Fear & Greed Index to help investors measure market sentiment when determining the best time to buy and sell stocks. Many other benchmarks can also be used to determine market sentiment to help you decide when to make your moves. 

Final Word

Stock market benchmarks have been around for more than a century and have proven to be valuable tools for investors and economists alike. Whether you compare your portfolio to a benchmark during rebalancing or invest directly in index funds, these tools are integral in the search of stock market success. 

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Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.


What Is a Moving Average (SMA & EMA) in the Stock Trading World?

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Price action happens fast in financial markets. One minute a stock price may move up, then the next minute it’s heading down. However, most investors pay little mind to the short-term fluctuations in prices. 

But how do investors weed out the noise of short-term volatility in market prices? Many use measurements called moving averages to spot longer-term trends. 

Read on to find out what a moving average is and how you can use this technical analysis tool to improve your investment returns. 

What Is a Moving Average (MA)?

A moving average is a statistical calculation for measuring long-term trends in the stock market. Moving averages smooth the choppy up and down movement the market is known for, making it easier for you to visualize trend direction and strength on a financial asset’s chart. 

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In financial markets, moving averages are used to create a constantly updated average price with closing prices as the central data points. The moving average is a lagging indicator because it uses past prices to determine a trend, rather than trying to predict the future as a forward-looking indicator would. 

How Does a Moving Average Work?

Moving averages work by plotting average prices over a period of time on a chart. Although most interactive charts can do the calculations and plot the moving average for you, it’s important that you understand how these calculations work. 

The moving average starts with the first set of closing prices over the period’s time frame. With each day that passes, the oldest closing price in the average is dropped off and the newest price is added in. 

For example, a 30-day moving average plots the average price over the past 30 days on the chart. This is calculated by adding the closing prices for the past 30 days together and dividing the total by 30. Then, at the close of each trading session, the closing price from the first day of the average is removed and the new closing price is added in. A line plotting these data points represents the moving average.

Check out Apple’s three-month stock chart below, complete with its 30-day moving average drawn in purple:

(Chart courtesy of Yahoo! Finance)

The blue line that tracks the stock’s day-to-day price movements fluctuates rapidly, making it difficult to determine a trend. However, the purple line, the 30-day moving average, smooths out these price movements. This shows that Apple’s stock has been moving downward gradually for the past three months. The stock’s recent upward movement has started to pull the 30-day moving average higher again, however, which suggests a reversal of this downtrend may be on the horizon.  

Types of Moving Averages

There are two different ways to calculate moving averages. Moreover, the time frames used in the calculations make a difference in the data the moving average yields. 

Simple Moving Average (SMA)

The simple moving average (SMA) is the easiest average to calculate. The SMA is made up of the raw price movement data, giving each day in the average an equal weight. The simple moving average plots the mean of price data over a predetermined number of days, with each closing price having an equal importance to the calculation. 

Exponential Moving Average (EMA)

The exponential moving average (EMA) uses the same information but gives more importance to the most recent price data. The calculation for the EMA is a weighted average calculation because of the emphasis it puts on the most recent data.  

This weight is created using a multiplier on the most recent price in the dataset. Multipliers in EMAs are determined using the following formula:

(2 ÷ (Time Frame +1) = Multiplier 

So, for a 30-day EMA multiplier:

(2 ÷ (30 +1) = 0.0645

Multiplying the most recent price by the multiplier puts more emphasis on the most recent data. This results in an EMA that’s higher than the SMA when the most recent stock prices are up and lower when prices are down. 

Take a look at the Apple chart below. The blue line is Apple’s stock price, the 30-day EMA is drawn in red, and the SMA appears in purple.

Notice how the red line (the EMA) reacts to movements in the stock price faster than the purple line (the SMA) does. This sensitivity makes it easier to catch recent price trend reversals by looking at EMA. 

Short-Term vs. Longer-Term Moving Average

The time period covered by the moving average makes a difference as well. Short-term moving averages show short-term trends, while long-term averages signal long-term trends. Oftentimes, investors and traders alike use a mix of short- and long-term averages as indicators that let them know when to jump into or out of an investment. 

Why Use Moving Averages?

There are two reasons investors and traders alike use moving averages:

Most financial markets are volatile in nature. That’s because these markets depend on supply and demand for price movement. When there are more buyers than sellers, the prices of assets rise, and when there are more sellers than buyers, the prices of assets fall. 

With high levels of volatility in financial markets, it may be difficult to determine the direction of a trend and when that trend is making a reversal. Moving averages help investors weed out the noise of short-term price changes and focus on the overall trend at hand. 

To Find Entrance and Exit Signals

Choosing the best time to enter or exit a financial position is one of the most challenging aspects of participating in financial markets. Moving averages help make decisions to enter or exit an investment more simple. 

Professionals use moving average oscillators and crossovers (described below) as signals that determine when they should buy or sell an asset. For example, when a short-term moving average crosses over a long-term moving average, the action acts as a buy signal that suggests it’s time for investors and traders to dive in. 

How to Use Moving Averages

Moving averages are an important part of technical analysis. They make up multiple key indicators that signal when to buy and sell assets. Here’s what you need to know when using these tools. 

Using Simple Moving Averages vs. Exponential Moving Averages

The exponential moving average is far more responsive to price movements because of the heavy weighting placed on the last piece of data in each dataset. This comes with advantages and disadvantages. 

Trends are easier to read when using a simple moving average because it’s less responsive to price movements. However, the EMA is more sensitive to price movements, making reversals easier to spot. EMA generally gives buy and sell signals faster than the SMA, making it a perfect tool for a short-term trader. 

Choosing a Time Frame

The time frame you choose when setting up a moving average makes a big difference in the trend that emerges. 

For example, take a look at the chart for Apple stock below. The purple line is a 30-day moving average while the green line is a 10-day average.

As you see, the 10-day average is more uneven than the 30-day average and the two lines cross several times over the course of three months. Here’s how to know when to use one, the other, or both:

  • Short-Term. Short-term averages are best used when investors and traders are interested in making short-term moves in the market. 
  • Long-Term. Long-term averages are best for determining long-term trends. They’re best used by investors who are interested in buying and holding an asset for a while. 
  • Both. Using short- and long-term moving averages together can help to determine the best time to buy and sell assets. When the short-term average crosses over a long-term average, it’s time to buy, and when it crosses below the long-term average, it’s time to sell. 

Advantages of a Weighted Moving Average

The primary advantage of a weighted moving average like the EMA is that it responds to price movement much more quickly than a simple moving average. This sensitivity helps spot reversals more quickly, giving traders an opportunity to act earlier. The ability to tap into trends early gives a trader a leg up in the market. After all, time is money!

Limitations of Using Moving Averages

Moving averages are an important tool for those accessing markets, but there are limitations to consider. The most notable limitations to moving averages include:

  • Purely Technical. Moving averages are technical indicators that derive their data solely from price movement. Investors should also understand the fundamental factors that explain why the movement is taking place and whether it’s likely to continue. 
  • Lagging. Moving averages are lagging indicators. It’s important to keep in mind that past performance isn’t always indicative of future price movements. 
  • Conflicting Signals. Moving averages can point to different trends when they span different periods of time. For example, a 10-day moving average could signal a buying opportunity at the same time the 200-day moving average for the same stock suggests it’s a long-term loser. 
  • Useless In Erratic Markets. When prices jump up and down frequently, it can be hard to determine a trend using moving averages. 

Trading Signals From Moving Averages

Moving averages are used to generate trading signals known as technical indicators. Some of the most common indicators that use moving averages include:


Moving average crossovers happen when a short-term moving average crosses over a long-term moving average. 

When the short-term moving average, called the signal line, crosses above the long-term moving average, it’s a signal to buy the stock. Conversely, when the signal line crosses below the long-term moving average, the crossover is a sell signal. 

Take a look at the chart below — a three-month chart of Apple stock with a 30-day moving average (purple) and a 10-day moving average (orange):

The shorter, 10-day moving average line in orange is the signal line. When the orange line crosses below the purple line, it suggests it’s time to sell Apple stock. When the orange line crosses above the purple line, it’s time to buy. 

In the chart above, there are two buy and two sell signals. Can you find them?

Moving Average Convergence Divergence (MACD)

The moving average convergence divergence (MACD) is a momentum indicator that’s designed to determine trends and their momentum. The indicator is an oscillator that shows the relationship between two moving averages and the price of an asset. 

The indicator is an oscillator that can be found on most interactive charts. It is derived from the 26-day EMA and the12-day EMA, which creates the MACD line. A nine-day EMA of the MACD acts as the signal line. 

Like with moving average crossovers, traders who use MACD look for crossovers of the signal line and MACD line. When the signal line crosses above the MACD line, it’s considered a buy signal, while a cross below the MACD line is considered a sell signal. 

The MACD data is generally shown in a sub-chart below the main chart:

In the case above, the MACD line is purple and the signal line is orange. Any time the orange line crosses above the purple line, it’s a sign that it’s time to buy the stock. Conversely, when the orange line crosses below the purple line, it’s time to sell. 

Bollinger Bands

Bollinger bands are another oscillator created by plotting lines two standard deviations above and below the SMA. When the price moves closer to the upper band, the asset is believed to be overbought, suggesting it’s time to sell. On the other hand, when the price moves close to the lower band, it suggests the asset is oversold and it’s time to buy. 

See the chart below:

The orange line is a 20-day simple moving average. The space between the upper and lower Bollinger bands is shaded in. Notice that when the price nears the upper band, downtrends tend to follow. On the other hand, when prices near the lower band, Apple stock tends to make a recovery. 

Moving Average FAQs

Naturally, you might have a question or two about moving averages. You’ll find answers to the most common questions below.

What Does a Moving Average Tell You?

Moving averages tell you a few things. First and foremost, they’re great at pointing to trend directions. You can tell an uptrend is taking place when the moving average slopes upward and a downtrend sets in when the average slopes downward. 

Moving averages are also used as technical indicators that signal to investors and traders when to buy and sell financial assets. 

What Is a Good Moving Average to Use?

Simple and exponential moving averages, both short-term and long-term, have their pros and cons. The best moving average to use depends on your needs. 

For example, if you’re looking for a stock that has been trending upward for a long time and is likely to continue, a long-term SMA is the way to go. 

On the other hand, if you’re looking for a short-term opportunity to cash in on a new trend, short-term EMAs are the best bet. 

Which Moving Average Is Best for Swing Trading or Day Trading?

Short-term traders tend to use the EMA rather than SMA. This is because these traders make their money by taking advantage of short-term trends in the market, and the EMA is more responsive to these types of trends. 

What Is EMA In Forex?

The EMA works the same way in forex trading as it does for any other financial asset. It’s a weighted average of prices over a predetermined period of time with extra emphasis given to the newest data in the set. 

What Is a 50-Day Moving Average?

A 50-day moving average is the mean (average) of closing prices of a financial asset over the past 50 trading sessions. The 50-day moving average is one of the more common technical indicators used to spot technical trends in stocks. It is often used to identify key technical support and resistance levels.  

What Is a 200-Day Moving Average?

A 200-day moving average is the mean (average) of closing prices of a financial asset over the past 200 trading sessions.The 200-day moving average is a long-term indicator commonly used to identify much longer-term trends.  

Final Word

Moving averages are a great tool for investors and traders alike. However, they shouldn’t be the only tool in your toolbox. 

Before acting on a moving average signal, investors should research fundamental data that explains why the trend is moving in the direction it is and whether it’s likely to continue. Technical traders should use a mix of different technical indicators for the best shot at success in the market. 

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GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.


173 Household Product Hacks to Save Money

This grid of images shows peanut butter, coconut oil, windex, and Aluminum Foil.

Getty Images and Chris Zuppa/The Penny Hoarder

You probably have aluminum foil, Coca-Cola, salt, baking soda, peanut butter, vinegar, and Windex in your house and you might already have coconut oil. If not, you should. These common household items can save you emergency trips to the store as well as money.

You may never buy bleach, stain remover, or furniture polish again!

Our guide to using these common and cheap items can save you time and money, sometimes in surprising ways.

30 Uses for Baking Soda

Opening a little box of baking soda is like opening a money saving treasure chest. There are so many uses for baking soda that you might forget you bought it for baking. Cut flowers will look pretty longer. Kitty litter boxes won’t stink. You may never buy toothpaste again.

Baking soda is great for getting rid of odors and getting stains out of laundry. It unclogs drains, tames spicy food, and makes your omelets fluffy. There are still 22 more baking soda tips to discover.

26 Uses for Salt

Salt has many uses more than flavoring food. Its abrasive nature makes it good for body scrubs but also for scrubbing out stubborn stains. It can even treat dandruff and kill weeds between cracks in your walkway.

We’ve rounded up more than two dozen uses for salt that will make you start buying this miracle mineral in large quantities. Cheap table salt works best for almost any job. Save those pricey sea salt flakes for baking.

25 Uses for Peanut Butter

Most of the uses for peanut butter we think of involve chocolate and dipping. But did you know it gets gum out someone’s hair? And out of the carpet. Find out more uses for peanut butter and you’ll be surprised at how handy this childhood favorite is.

In a pinch, peanut butter can fix squeaky hinges. It can be used as a moisturizer, ice cream cone sealant, and of course giving little Fido or Kitty their pills. Some people like putting it on bread with jelly.

25 Uses for Coconut Oil

There are way more coconut oil uses that will save money and time than you could guess. Refined coconut oil is a healthier oil option in cooking. It’s touted for how good it is for your hair and skin. Did you know it can clean dead bugs off your car?

Coconut oil cleans, soothes, polishes furniture, restores leather, is good for your pets, and scads more. Check out the article for some surprising uses.

24 Uses for Vinegar

We’ve heard about using vinegar as a glass cleaner, but didn’t know there were so many uses for vinegar for our skin and scalp. We found 24 of them! Vinegar can be used to brighten laundry and replace fabric softener. It cleans our precious coffee makers.

Vinegar is really amazing. Vinegar can remove rust, stand in for eggs in baking, and battle ant infestations. Pretty great for something so cheap.

We are talking about diluted white vinegar mostly. Save the balsamic for drizzling over tomatoes and fresh mozarella.

21 Uses for Coca-Cola

Coca-Cola has been offering that refreshing fizz on a hot day for more than a century. But there are a whole lot more uses for Coca-Cola than just plain drinking, especially for getting stubborn stains out of tubs, tile grout and even pots and pans.

Cola’s carbonation and phosphoric acid combine to create a powerful household and garden workhorse. In some cases, diet versions can alter the results. But, yes, for these household hacks you can use Pepsi or even a generic cola.

12 Uses for Aluminum Foil

We had no idea that there were so many uses for aluminum foil beyond covering things. Foil to sharpen scissors? Immediately had to try it and yes, it really works. Aluminum foil can be used in the garden, laundry room, and before you go to the nail salon.

Check out this article to learn how aluminum foil might help shine a light when you’re out of batteries or save money off your heating bill.

10 Uses for Windex

You’ll be happy to save money with these various Windex uses, but really, showing off the imaginative ways a couple pumps of glass spray fixes things is part of the fun.

It makes moving heavy furniture easier. Windex gets stains out. It’s an insect repellent. There’s so much this three buck bottle can do — we found 10 household bonuses.

The Penny Hoarder contributor JoEllen Schilke writes on lifestyle and culture topics. She is the former owner of a coffee shop in St.Petersburg, Florida, and has hosted an arts show on WMNF community radio for nearly 30 years.




10 Things You’ll Spend More on in Retirement

Even if your real retirement is years away, you’ve already had some practice.

That came during the pandemic lockdown and into its aftermath, when many of us were tucked away at home, working remotely. Except for the part where you’re actually working and getting a full paycheck, this is similar to what life is like for many retirees.

So ask yourself: How did your spending fare on that retirement test drive?

Before you can determine how much you will need to save for a fulfilling retirement, you first need to know how much you will spend in retirement. You’ll also need to factor in soaring prices on everything from gas to groceries. Sure, inflation affects everyone, but it could hurt more in retirement when your income will probably be lower.

Financial planners have estimated that retirees need 80% or more of preretirement income to maintain their standard of living, though individual situations vary greatly. Another data point that correlates: According to the Bureau of Labor Statistics’ annual survey on consumer spending, the average retired household spends 25% less than the average working household each year.

That said, some items to do stand out in a retired household, including big-ticket expenses such as health care and travel. Here’s a look at 10 budget categories where retirees are likely to spend more and some tips on keeping costs in check.

1 of 10

You’ll Spend More on Travel in Retirement

A senior man and his wife holding hands walking up a hill on a footpath looking away from the camera at the view. The fishing village of Polperro is behind them.A senior man and his wife holding hands walking up a hill on a footpath looking away from the camera at the view. The fishing village of Polperro is behind them.

Most retirees put “travel” at the top of the list of things to do more of in their post-work years.

Maybe you plan to set off on a cruise or two. Or perhaps you simply want to pack up your car for weekend getaways with your grandkids. Either way, you may find yourself spending more on travel in retirement than you bargained for. The customer-starved travel industry is eager to get retirees back on the boat, bus, train – or into an RV.

While overall transportation expenses decline throughout retirement, many retirees take the kind of trips they could only dream about while working full time. For instance, compared with their working peers, retirees were choosing (at least, before the pandemic) longer cruises and cruises that visit more destinations, according to travel experts.

Deborah L. Meyer, a Certified Financial Planner and founder of fiduciary advisory firm WorthyNest, recommends a five-step plan for pre-retirees looking to turn these dreams into reality, :

  1. Assign specific cost estimates to travel goals
  2. Break the big savings goal into monthly or quarterly allocations to savings
  3. Adjust income and expenses to make room for the regular savings
  4. Don’t compromise on future goals (that is, beyond the trip)
  5. Act on achieved goals

2 of 10

You’ll Spend More on Health Care in Retirement

Close-up of senior woman sorting weekly medication. Close-up of senior woman sorting weekly medication.

It’s a blast to kick back and make big travel plans in retirement. Less fun: The reality that we spend more on medical care after we retire –  and that those costs keep increasing as we age.

The Employee Benefit Research Institute found that the percentage of a household’s total spending on health care increases from 8% in preretirement households to up to 13% by the time a household is past the age of 85. A similar finding turns up in a survey by the Employee Benefit Research Council.

Unpredictable and costly new diagnoses and hospitalizations drive much of the increase inhealth care spending for the average retired household, but overall spending rises for general health needs, health insurance, prescription medication, medical supplies and medical services as well. As the National Council on Aging reports, 84% of people 65 and plus have at least one chronic condition.

3 of 10

You’ll Spend More on Utilities in Retirement

Mature Man Using App On Phone To Control Digital Central Heating Thermostat At HomeMature Man Using App On Phone To Control Digital Central Heating Thermostat At Home

If you noticed your utility bills spike while you were working remotely, welcome to another reality of retirement.

The average retired household spends more each year on utilities than the average working household, according to the Urban Institute. Why? If retirees are home more often, they’re simply using utilities more. If you’ve seen a bump in your bills – gas, electric, water and sewer, cable and streaming services – think of it as a precursor. On the plus side, chances are you’ll have finished paying off your mortgage (or come pretty close) when you reach retirement age. That means you’ll be saving thousands each year.

4 of 10

You’ll Spend More on Moving and Relocating in Retirement

Senior couple having a break surrounded by cardboard boxes in an empty room Senior couple having a break surrounded by cardboard boxes in an empty room

Empty-nesters tend to take flight in retirement. Downsizing that multi-bedroom home for smaller living quarters, and ones that may be more elderly friendly, is an obvious strategy that could save money in the long run. For the most part, that’s true. But the move-out process can set you back thousands of dollars.

Take it from experience. My wife and I recently moved into our “retirement” home and community. I put retirement is in quotes because we haven’t actually left our jobs. But the right house in the right city popped up on our radar at the right time and we went for it. Fortunately, we’re still working and were able to cover the thousands of dollars in related expenses:

  • Getting one home ready to sell
  • Listing our existing house
  • Buying a new home
  • Settlement and moving costs

Not to mention upgrading appliances, new lighting, window treatments, and all the other tweaks you’ll do to a new living space.

According to Mike Palmer, a certified financial planner with Ark Royal Wealth Management in North Carolina, downsizing in full retirement can present huge unexpected costs for some of his clients, particularly when they want to stay within urban areas. “I see a lot of folks thinking they’re going to walk away with $200,000 [by downsizing], but that’s rare. In most cases, it will be lateral,” he says. To avoid this, he recommends trying to move from an urban area to a more rural one.

It can be nearly impossible to predict every moving expense as it comes, but Squared Away can help: It offers a calculator that estimates what you’ll spend.

5 of 10

You’ll Spend More on Fitness in Retirement

A multi-ethnic group of seniors is attending a fitness class. They are indoors. The group is doing yoga. A multi-ethnic group of seniors is attending a fitness class. They are indoors. The group is doing yoga.

Research indicates that retirement itself is a motivator to get fit. With a flexible schedule free of commuting and the stress of a busy work week, many retirees drop unhealthy habits and pick up healthier ones, raising their spending on gym memberships and fitness classes and equipment (a new bicycle, perhaps?)

Approximately 53% of retired Americans participate in physical activity and allocate about 13% of their annual spending to fitness and leisure activities. Because of this, Fung Global Retail & Technology says that the fitness industry is starting to cater to seniors as well, offering more specific (and pricey) gym options for aging populations. (See Gyms for Older Exercisers.)

Marguerita Cheng, the chief executive officer of Blue Ocean Global Wealth, says that fitness is one of the biggest new expenses she sees her retired clients take on. For her clients, she says, it is often the fear of declining health as they age that motivates them to take fitness seriously. Some of her clients put so much time and money into fitness that they schedule meetings with her around their yoga or spinning classes.

You may have a workaround to gym costs: Some Medicare Advantage plans have a free gym membership as part of their benefits.

6 of 10

You’ll Spend More on Day-to-Day Expenses in Retirement

Close up of a group of seniors enjoying food in a restaurantClose up of a group of seniors enjoying food in a restaurant

As they transition into retirement, many people’s lives aren’t radically altered. They may still drive to meet with friends or associates, grab coffee from around the corner, or use their laptop do work from the comfort of their couch. What often does change after leaving the workforce, however, is who picks up the bill for a lot of the small stuff — lunches, parking, dinners, concert tickets. In short, so long, expensing!

“Small-business owners and professionals who retire are often surprised at how many of their expenses were picked up by their company,” says Bert Whitehead, president of Cambridge Connection, in Franklin, Mich. “It is a jolt when they discover how much it adds up to.”

7 of 10

You’ll Spend More on Debt in Retirement

Hispanic man paying bills on laptop in kitchen Hispanic man paying bills on laptop in kitchen

Retirees are especially vulnerable to accumulating debt and subsequent interest. Although the average debt ballooned across all age groups between 1989 and today, older retirees were by far the hardest hit. According to a study from the National Council on Aging, the average debt held by people 65 and older keeps climbing. The total median debt for those 65 and up in 2016 (the latest year available) was $31,300. That’s 2½ times more than what it was in 2001.

Credit cards with high interest rates carry the greatest risk to retirement security. According to the research and advocacy group Demos, roughly half of those older than 50 reported using credit cards to pay medical expenses, as well as groceries, utilities and even rent.

If bills are beginning to pile up, don’t hesitate to ask for help. Focus on paying off the cards with the highest rates first, and consider consolidating your balances on a card offering a 0% interest rate if it will take more than a few months to pay off each card.

The National Council on Aging also offers tips for seniors to manage debt.

8 of 10

You’ll Spend More on Charitable Giving in Retirement

Photo illustration of two hands cupping a heart symbolizing charityPhoto illustration of two hands cupping a heart symbolizing charity

Americans age 65 and up, even with their reduced income, contribute almost 11% more to religious, educational, charitable and political organizations than people from 55 to 64. Retirees age 75 and older donate even more, on average.

Part of this phenomenon is psychological. Researchers have found that older adults take more pleasure in charitable donations than their younger counterparts. On the other hand, older retirees may have less control over their finances than they realize. A diminished capacity for financial decision-making in retirement is “extremely common,” says Daniel Marson, a neurology professor at the University of Alabama at Birmingham. “In fact, I might say it’s inevitable.”

While many retirees have no problem managing their money into old age, it never hurts to have a trusted family member keep an eye on things. Services such as EverSafe, for example, allow a designated family member to monitor a retiree’s finances and get alerts in case of excessive withdrawals, changes in spending patterns and other unusual activity—all without the retiree losing control of their money.

9 of 10

You’ll Spend More on Reading in Retirement

Woman Reading and Relaxing in RowboatWoman Reading and Relaxing in Rowboat

Before retirement, the average household spends $101 each year on reading. Yes, it’s a category tracked by the Bureau of Labor Statistics that includes the cost of books and audiobooks, as well as devices such as a Kindle. In retirement, the average household spends $173 each year, a 73% increase.

A greater number of subscriptions to newspapers, magazines and audiobook services—the result of a more flexible schedule—accounts for some of the increase.

How do you cut those expenses? Try your local library for free hardcover books, audiobooks, magazines and, increasingly, online access to streaming services.

10 of 10

You’ll Spend More on Financial Planning in Retirement

Shot of a senior couple meeting with a consultant to discuss finances at homeShot of a senior couple meeting with a consultant to discuss finances at home

If you’re entering retirement with accumulated wealth, that’s great. You may have done so with guidance from a financial planner, but then again, maybe you’ve had good luck along with regular 401(k) contributions using some sort of robo-adviser service. 

But remember, the more wealth you’ve collected, however, the more elbow grease it’ll take to manage that money and make it work for you. That’s where financial planners come in. Their services can be invaluable, but they’re not free. Depending on the management style you prefer, figuring out what to do with your money can become an expense in its own right.

Fee-only planners may charge a flat annual retainer (which could run a few thousand dollars or more), or they may charge on an hourly basis (often from $100 to $250 per hour), by the project (from $1,000 up to $10,000 for a comprehensive plan) or, if they’re managing your investments, as a percentage of assets (from about 0.5% to 1.25% of your investable assets). Or they may use some combination of those billing models.

In a recent survey of financial planning firms, Fidelity found that 23% of all clients were older than 70, and they held as much as 28% of total assets. According to AARP, retirees should continue to use financial planners to assist with relocating, with managing new medical expenses and to address changing financial needs.