MONEY women

10 Countries That Put Women on Cash Before the U.S.

The U.S. lags far behind several other nations when it comes to recognizing female leaders on paper currency.

As a campaign to get a woman on the $20 bill picks up steam, you might be surprised to learn just how far behind the times the United States is compared with other countries.

At least 10 other nations have already recognized female leaders on their banknotes, including Syria, the Philippines, and Israel.

Click through the gallery below to see which countries made the list. Then take MONEY’s poll to vote on the woman you’d most like to see on American currency. If you need inspiration, check out WomenOn20s official site to learn more about candidates like Susan B. Anthony, Betty Friedan, Shirley Chisholm, and Sojourner Truth.

Read next: VOTE: Who Should Be the First Woman on a Modern Dollar Bill?

  • Syria

    Queen Zenobia
    Khaled Al-Hariri—Reuters/Corbis

    Syria’s current image is that of a nation wracked by civil war and struggling against the violent militant group ISIS. But it outpaced the United States on one sign of social progress: recognizing women on official currency.

    Syrian Queen Zenobia, known for fighting back against Roman colonizers in the second century AD, appears on the 500-pound note.

     

  • Philippines

    Philipine 500 and 1000 peso notes
    Edwin Tuyay—Bloomberg via Getty Images

    During the mid-1980s, the Philippines introduced a 500-peso note featuring prominent senator Benigno Aquino Jr., who had been assassinated in 1983. His wife, Corazon Aquino, went on to become the first female president of the Philippines—and the first female president in Asia, for that matter—and her image was added to the bill after she died in 2009. Early 20th-century suffragette Josefa Llanes Escoda also appears (alongside two men) on the 1000-peso note.

  • Turkey

    Nick Fielding—Alamy

    In Turkey, the current 50-lira note features turn-of-the-century novelist and women’s rights activist Fatma Aliye Topuz on its reverse side. (The first president of Turkey, Mustafa Kemal Atatürk, appears on the front of every bill.)

  • Mexico

    500 Mexican pesos notes on a table with traditional Mexican ornament. The note has the portrait of the painter Diego Riviera on one side and Frida Kahlo on the other.
    Daniel Sambraus—Getty Images

    Mexico’s 500-peso note shows muralist Diego Rivera on the front and his wife and fellow artist Frida Kahlo on the back. Her image is a 1940 self-portrait, alongside a famous painting of hers from 1949, “Love’s Embrace of the Universe, the Earth (Mexico), Myself, Diego and Señor Xólotl.” Seventeenth-century Mexican writer Sor Juana Inés de la Cruz appears on the 200-peso note.

  • Argentina

    Eva Peron (1919-1952) on 2 Pesos 2001 Banknote from Argentina. Second wife of President Juan Peron.
    Georgios Kollidas—Alamy

    Argentina’s beloved former First Lady Eva Perón—widely known by her nickname “Evita”—appears on the current 100-peso bill. The 20-peso note depicts 19th-century Argentine political activist Manuela Rosas along with her father, politician Juan Manuel de Rosas.

  • New Zealand

    New Zealand 10 Ten Dollar Bank Note
    Glyn Thomas—Alamy

    Like many other former British colonies, New Zealand features Queen Elizabeth II on its currency—the 20-dollar note to be precise. But Kiwi banknotes also honor suffragette Kate Sheppard, who in 1893 helped New Zealand become the first country in the world with universal voting rights for both men and women. Her image appears on the 10-dollar bill.

  • Israel

    Wikimedia Commons A portrait of Israeli poet Rachel Bluwstein, who lived from 1890 to 1931.

    The Bank of Israel recently announced that it will be adding images of two female Israeli writers to forthcoming 20- and 100-New Shekel banknotes, respectively. The former will feature turn-of-the-century poet Rachel Bluwstein, and the latter author, poet, and literary expert Leah Goldberg, who died in 1970.

  • Sweden

    Artwork showing the designs of new folding Swedish krona, or kronor, currency notes due to be issued in 2014 stands on display at the Riksbank in Stockholm, Sweden, on Tuesday, Jan. 22, 2013.
    Bloomberg via Getty Images—Bloomberg via Getty Images

    Imagery on the krona celebrates several women in Sweden’s history. Currently there’s Selma Lagerlöf—the first woman to win the Nobel Prize in Literature—on the 20-krona note, as well as 19th-century opera singer Jenny Lind on the 50-krona bill. Starting this fall, a new line of banknotes will feature Pippi Longstocking author Astrid Lindgren on the 20-krona, 20th-century soprano Birgit Nilsson on the 500-krona, and classic film actress Greta Garbo on the 100-krona note.

  • Australia

    An Australian one-hundred dollar banknote
    Carla Gottgens—Bloomberg via Getty Images Dame Nellie Melba on the Australian 100-dollar banknote

    Australia has one woman on either the front or back of every banknote currently in circulation. They include Queen Elizabeth II on the front of the $5 bill, social reformer and writer Dame Mary Gilmore on the back of the $10, 19th-century businesswoman Mary Reibey on the front of the $20, politician and social worker Edith Cowan on the back of the $50, and turn-of-the-century soprano Dame Nellie Melba on the front of the $100 note.

  • England

    Jane Austen to feature on banknote. Mark Carney, the Governor of the Bank of England, with the ten pound note featuring Jane Austen at the Jane Austen House Museum in Chawton, near Alton. The Austen note will be issued within a year of the Churchill £5 note, which is targeted for issue during 2016.
    Chris Ratcliffe—PA Wire/Press Association Images The new Jane Austen £10 note will look like this.

    If featuring women on currency were a contest, the Bank of England would win, with every note since 1960 depicting Queen Elizabeth II on the front. Past bills featured nurse and statistician Florence Nightingale on the back, current 5-pound notes show 19th-century social reformer Elizabeth Fry, and the next 10-pound bill will celebrate famed 19th-century author Jane Austen.

MONEY salaries

This Easy Negotiation Trick Could Boost Your Salary

150320_CAR_Negotiation

New research shows that framing your desired pay for a new job in a particular way can help you hit your target.

A new study finds that asking for a dollar amount during a negotiation is more successful if you put it at the bottom of a range instead of just asking for it outright.

So for example, if you’re targeting a salary of $52,000, you’re best off asking a prospective employer for something between, say, $52,000 and $56,000.

The finding, by Daniel Ames and Malia Mason of Columbia University, might seem obvious at first glance—but it actually contradicts existing schools of thought. Some experts have theorized that you should not open salary negotiations with a range because doing so could make you seem either uninformed or manipulative and might cause the person you’re negotiating with to consider only the lowest number in your offer.

Instead, the new research found, couching your request in a range can actually make you seem more cooperative and flexible—and make it harder for a prospective boss to counter with a much lower salary number without seeming impolite. The key is choosing the right high and low anchor numbers so you don’t accidentally low-ball yourself.

“The lowest number is the point offer you are aiming for, and the high number is more ambitious,” says Mason. “People who want $100,000 will often ask for $90,000 to $110,000, but it is going to be most effective to ask for $100,000 to $120,000.”

Of course, there are exceptions to every rule, and sometimes a different tactic might be more effective to gain the upper hand during a salary negotiation. Another study Mason conducted showed that that asking for specific, unrounded figures in negotiations can be better than asking for rounded ones, because it makes you seem more informed. So to use the same example from above, if you want about $52,000, you might want to ask for $52,500.

Those findings aren’t necessarily inconsistent, Mason points out.

“Context is important,” she says. You might be better off using a precise number if you want to send the message that “you have done your homework. But if it seems important for you to appear flexible, then you could signal that by offering a range.”

That’s one reason to pay close attention to the cues your interviewer is sending out. If he or she drops a lot of language about adaptability and cooperation, naming a range might cast you in a more positive light. Alternatively, a specific number might be appropriate if the job description seems to emphasize preparedness, knowledge, and thorough experience in the field.

But none of this is to say you should suggest a salary without being asked about it directly, says Mason. Top recruiters agree that—when you can help it—it’s best to let a potential boss be the one to bring up a number first.

Read next: The Secret Formula That Will Set you Apart in a Salary Negotiation

MONEY interest rates

Higher Interest Rates Are Coming. Here’s Who Wins and Who Loses

150319_INV_InterestRates
Getty Images

The Fed says rate hikes will be gradual, but they'll affect everything in the economy, from your mortgage to your job to your 401(k).

Federal Reserve chair Janet Yellen has signaled, by omitting the word “patient” from her latest statement, that the central bank could begin raising interest rates as early as this summer. On Monday, Stanley Fischer also suggested in a speech that rate hikes are likely before the end of the year.

The rise is likely to be slow and bumpy. Still, the Federal Reserve’s benchmark short-term interest rate has been near zero since the financial crisis in 2008, and it’s been a long time since investors, borrowers and consumers have dealt with a rising-rate environment. The Fed’s decision to move rates in the other direction, when it comes, is something you’re sure to feel in your wallet.

So here’s a primer on who is helped and who is hurt when the Fed makes borrowing more expensive.

Helped: Anyone looking a safe place to stash money

Savings and money market accounts today offer an average interest rate of only 0.44%, according to Bankrate, but the good news for savers is that rising interest rates should buoy yields across the board. One caution is that if the Fed moves slowly, that means the interest earned on your accounts probably won’t bump up very quickly either. So if saving more this year is a big priority for you, take matters into your own hands with these moves, geared toward powering up your savings.

Hurt: New borrowers, and anyone with an adjustable loan

Rising interest rates push up borrowing costs for home and auto loans. If you already locked in a 30-year mortgage at the ultra-low rates that have prevailed over the past several years, you were probably smart. According to Freddie Mac, 30-year mortgage rates are 3.7% on average today, compared with nearly 6% a decade ago.

But the millions of Americans who hold adjustable-rate mortgages could end up paying more. Mortgages are typically pegged to the 10-year Treasury bill. While the Federal Reserve doesn’t control this rate directly, long-term rates typically rise in response to the short-term rates the central bank sets. The good news? Since Treasuries are a safe haven for global investors, yields are generally being held down by high demand—which rises every time there’s bad news in, for example, Europe. So mortgage rates might rise comparatively slowly even after the Fed takes action.

Not so clear: Anyone looking for a job or a raise

One of the Federal Reserve’s mandates is is to maintain full employment. When unemployment rises, it can try to stimulate growth by cutting rates. The idea is that cheaper borrowing makes it easier for consumers to spend and for businesses to expand and hire new workers. The flipside is that higher interest rates and tighter money supply can make hiring less likely. That’s one of the reasons the Fed has been so hesitant to raise rates in recent years, and there’s a risk that a too-early rate hike will cut off job growth.

Of course, keeping interest rates low for too long can come with its own danger: inflation. If there’s no “slack” left in the labor market—meaning that basically everyone who wants to work and can work already has a job—the easy availability of money will stop creating jobs and instead show up in the economy as higher prices. Ideally, the Fed would wait to raise rates until the precise moment when employment tops out and before inflation takes off. But where exactly that point is can be a contentious issue. At the moment inflation is very low and wages have yet to take off (suggesting some slack is left.) But a series of strong jobs reports seems to have some on the Fed wanting to get ahead of the curve.

Hurt: Owners of bonds and bond funds

You likely have a portion of your money, in a retirement portfolio such as a 401(k), invested in bonds.

Rising interest rates mean falling bond prices. Bonds typically pay a fixed coupon, so when prevailing rates rise, the value of your bond portfolio falls until its yield matches what’s available elsewhere on the market. The size of your losses depend on how steeply rates rise and the maturity, yield and other characteristics of the bonds you own. Wall Street sums up a bond’s interest rate sensitive with a figure called duration. You can look a bond fund’s average portfolio duration at sites like Morningstar. In general, duration tells you how large a capital loss you can expect for each 1% increase in rates. So Vanguard Total Bond Fund, with an average duration of 5.6, would fall about 5.6% with a 1% increase in rates.

There’s good news though: If you own a bond fund, the decline in your fund’s value will be made up with higher payouts as your fund acquires new bonds with higher yields. You’re likely to be made whole in a few years. Future bond investors benefit, too.

Not so clear: Stock investors

Whether rising interest rates will help or hurt U.S. stocks is a more complicated question.

All else being equal, a hike should hurt. One big reason is many investors choose whether to put money into either stocks or bonds, as bond yields pay more stocks become comparatively less attractive. But there are lots of other things to consider. For instance, stocks typically reflect investors’ attitudes about the overall health of the economy. And the if the Fed is signaling that it might raise rates, then it also thinks the economy is healthy enough to handle it. Other investors might view this as a bullish signal.

What does history say? The record is mixed. Stock researcher S&P Capital IQ recently examined 16 previous rate tightening cycles since World War II and found that the Fed’s moves led to stock market declines of 5% or more about four-fifths of the time. However, a separate study by T. Rowe Price looked at the question slightly differently: T. Rowe examined nine instances since 1954 that the Fed has raised rates following a recession. It found an average market gain of 14% a year later. In other words, it’s hard to know exactly how the market will react—except to say that it could be bumpy ride.

Helped: Banks

Banks make money by borrowing at low short-term interest rates (think checking and savings deposits) and lending it out at higher, longer-term rates. In an ideal world, they’d love short-term rates to remain at rock bottom, as long as longer term rates are high too. So you might not think they’d be cheering for a short-term interest rate increase.

Their problem has been that long-term rates aren’t high, but low. Meanwhile short-term interest rates can’t really go below the zero they’re stuck at. That’s left them little room in the middle. A rate hike will could give banks a window of opportunity to earn more attractive “spreads” once the Fed moves.

Helped: Anyone looking to spend U.S. dollars abroad

When interest rates rise, it pushes the value of U.S. currency up. That’s good for American consumers who want to buy foreign goods (and go on European vacations) cheaply.

Hurt: Anyone looking to sell things to foreigners.

But there are dangers in a too-strong dollar. If our currency is too strong, it means it willll be harder to sell U.S.-made products globally—which would be bad for economic growth.

Not so clear: Foreign stock funds

Most international-stock mutual funds hold assets denominated in other currencies, like the euro. The strong dollar means those assets they are worth less, all else being equal. (Some funds “hedge” their currency exposure.)

Over the past year, the MSCI All-Cap World EX-USA index is up 14.6% in local currency terms through Feb. 28. But according to Morningstar, the average foreign stock mutual fund—with roughly half its assets in Europe —has falled 0.06%.

On the other hand, the a strong buck isn’t all bad for foreign stocks. Companies in countries with weaker currencies will be able to export more goods to the U.S, boosting their earnings. And while it’s no fun to see your market winning vanish, investors are usually better off riding out such currency swings. When the dollar next weakens, your foreign stocks will have a tail wind.

One special case is emerging markets stocks. Razor-thin U.S. interest rates have been a boon for them, as U.S. investors, frustrated by dismal yields at home, have shifted money abroad. Once that changes, much of that money could rush back home.

MONEY salary

Your ER Doctor Might Get Paid As Little As a Wal-Mart Employee

Bentonville, Arkansas Walmart
Gunnar Rathbun—Invision for Walmart

Wages of about $13 an hour are one thing medical residents face in their first few years out of school.

Fourth-year medical students around the country celebrate Match Day on March 20, the day acceptances to medical residency programs roll in, and soon-to-be doctors learn of the hospitals, clinics, and cities where they will be spending the next few years of their lives.

One topic of conversation that’s less celebratory? How much they will get paid.

The average salary for a medical resident is about $51,000, according to Payscale.com. While that is close to the median household income in the United States, residents are known for working very long hours—a practice that has caused controversy, in part because of safety concerns. Rules set by the Accreditation Council for Graduate Medical Education officially limit residents’ working hours to 80 per week—though exceptions allow hours as high as 88 per week.

What this means is that in hourly terms, pay for residents can be as low as $13 an hour. That happens to be the level to which Wal-Mart announced it would increase full-time wages this year.

The good news, of course, is that doctors can expect their salaries to rise significantly once they finish training: The average pay for general practice physicians is $131,000 a year, according to Payscale—with medical specialists like orthopedic surgeons pulling in starting salaries as high as $450,000.

MONEY Entrepreneurs

Here’s a New Theory About Why People Become Entrepreneurs

mother and daughter shopkeepers
Ariel Skelley—Getty Images

Nurture beats nature when it comes to small business ambitions, according to a new study.

It’s long been known that children with entrepreneurial parents are more likely to become entrepreneurs themselves. But new research quantifies that effect—and goes a step further by suggesting why exactly that might be.

The study, published in the latest Journal of Labor Economics, found that upbringing, rather than genetics, seems to have the biggest effect on the offspring of self-started business owners. The researchers did something prior studies (which mainly focused on twins) hadn’t: They examined the career choices of thousands of Swedish children raised by either adoptive or biological parents to compare the relative effects of nature and nurture on the entrepreneurial impulse.

Adopted children, they found, were 20% more likely to become entrepreneurs if their biological parents were also entrepreneurs. But if it was their adoptive parents who were entrepreneurs, it was 45% more likely children would follow suit.

“The importance of adoptive parents is twice as large as the influence of biological parents,” wrote authors Joeri Sol and Mirjam Van Praag of the University of Amsterdam, and Matthew Lindquist of Stockholm University.

The authors controlled for the possibility that kids might just be inheriting the family business (or money to start a new business) and continued to find the same effect—which suggests that kids were simply seeing their parents as role models. That would also explain why gender had a big impact on children: Daughters in the study were most likely to become entrepreneurs if their mothers were—and sons if their fathers were.

These findings may also have implications for educators and policymakers who care about growing small businesses. The greater the effect of nurture on career choices, the authors wrote, “the larger the potential benefit of programs aimed at fostering entrepreneurship.”

The biggest takeaway for parents? If you want your kids to become start-up success stories, you should first try to become one yourself.

MONEY stocks

How Kraft’s Mac and Cheese Recall Will Affect Its Stock Price

Kraft macaroni & cheese
Richard Levine—Alamy

A look back at history shows that stocks can often bounce back from a recall in short order. Of course, not all product recalls are created equal.

Busy parents aren’t the only ones concerned about Kraft’s KRAFT FOODS GROUP INC. KRFT 1.69% recall of about 242,000 cases of Macaroni & Cheese Dinner because some boxes may contain shards of metal.

Investors may fear the mistake, which has not caused any reported injuries to date, could take a toll on Kraft’s stock. The share price has dropped about 2% since the announcement, but the big question is whether any damage will be lasting.

Based on history, that’s fairly unlikely.

Less than four years ago, Kraft faced a similar recall of about 137,000 cases of its Velveeta Shells & Cheese single-serve cups because a few were discovered to contain wire bristle pieces. The stock (Kraft back then was part of a larger company that has since been renamed Mondelez International) dipped for just a couple of days and then bounced back within weeks.

MDLZ Chart

Further back in February 2007, Kraft had to recall Oscar Mayer chicken strips believed to be contaminated with Listeria, leading to nearly 3 million pounds of meat being pulled from shelves. That big recall hurt the stock for longer, but shares came back to previous prices by summertime.

MDLZ Chart

Other companies have also experienced fairly quick stock price recoveries after product recalls. In 2006, a recall of more than 4 million Dell notebook batteries due to fire risk caused the tech company’s stock to dip, though it rebounded after just a few months.

In general, it’s unlikely for product recalls to have a long-term effect on company stock prices (or sales, for that matter).

Then again, there are always exceptions. After Hasbro had to recall a million Easy-Bake Ovens in 2007, following serious safety problems causing burns and other injuries, the share price sank progressively over the course of months—taking about a year to fully recover.

HAS Chart

HAS data by YCharts

MONEY Shopping

5 Makeup Names Just As Tasteless As “Underage Red”

Red lipstick on lips
Getty Images

The lipstick that has sparked controversy among Sephora customers doesn't stand alone in its tastelessness

Consumers are voicing outrage on Twitter about a new shade of lipstick sold by Sephora under the Kat Von D label.

Critics have said that the color, called “Underage Red,” sexualizes young girls and trivializes pedophilia. The lipstick line already includes a rosy hue called “Lolita.”

This isn’t the first time Kat Von D has made headlines for a makeup name: Back in 2013, Sephora pulled a lipstick from the line called “Celebutard” after customers complained.

But the brand is not alone in applying objectionable names to cosmetics. MAC also offers a peach lipgloss called “Underage,” and several other companies are guilty of labeling makeup with offensive phrases. Here are five other examples that are—or were—equally terrible. Most, fortunately, seem to have been discontinued.

1. “Miso Happy With This Color” by OPI

Puns that tacitly support an extremely tired stereotype about how Asian people speak? Offensive.

2. “I’m Not Really A Whore” by Naughty Nailz

So much for celebrating womanhood. Even among other polishes named “Dirty Slut,” “Nympho,” “Trophy Wife,” and “Gold Digger,” this one stood out as particularly self-loathing. It doesn’t even have a retro ring to it, like “Brazen Hussy.”

3. “What’s A Tire Jack?” by OPI

According to the copywriter assigned to describe this tire-black color, it “speaks to rule-breaking feminine drama”—whatever that means. What it sounds like is another lame joke about women being bad with tools.

4. “Give Me Moor” by OPI

Clearly whoever named this shade skipped Othello in high school English, or else he or she would have realized it’s in poor taste to name a dark nail polish hue with an old racial slur.

5. “Iris I Was Thinner” by OPI

Just what women and teens need: A reminder that it’s “normal” to hate your body. And let’s not even get into the grammatical error.

More from Money.com:

Why Your Smile Might Be Your Next Password

Get Free Ice Cream and Italian Ices this Week

10 Supposedly Irish Things that Aren’t Remotely Irish

MONEY Odd Spending

For $250K You Can Buy Citizenship in an Island Paradise—and a 0% Tax Rate

Frigate Bay, southeast of Basseterre, St. Kitts, Leeward Islands, West Indies
Robert Harding World Imagery—Alamy Frigate Bay on St. Kitts, where citizenship is for sale.

But you won't necessarily be off the hook for taxes owed to Uncle Sam.

From beachy Antigua and Barbuda to snowy Bulgaria, a handful of nations around the world are selling passports to anyone who can pay, according to a new Bloomberg Business report. Often, there is little to no requirement that you ever actually step foot in the country.

It’s your money that has to travel. The phenomenon, euphemistically dubbed “citizenship by investment,” gives anyone able to pony up enough cash a range of benefits, including official passports and visa-free access to dozens of countries, as well as some ethically dubious ones like “limited disclosure of financial information” and preferential tax rates.

A citizenship in St. Kitts, for example, costs $250,000 and buys you visa-free travel to countries like Mozambique and Venezuela, which require travel visas for American citizens. Moreover, income and capital gains taxes on the island are a big fat 0%, making it an attractive outpost for those looking to avoid U.S. taxes.

“This is a fantastic property to have a home, to have an address when the taxman comes asking why I claim that I’m a resident of St. Kitts and Nevis,” Thomas Liepman, director of the Christophe Harbour resort in St. Kitts, told conference attendees to whom he was pitching time-share condos, according to a Bloomberg reporter who was also in the audience. (It turns out prospective St. Kitts citizens can skip the $250,000 fee by investing $400,000 in real estate.)

Of course, pretending to live where you don’t for tax purposes is neither ethical nor legal, even if all those New Yorkers with Florida license plates have been doing it for years.

The foreign earned income exclusion does let you reduce your taxable income by up to $100,800 made overseas, allowing for some legal tax savings. But, says White Plains, N.Y., CPA Paul Herman, “the IRS is very clear that no matter where in the world you earn income, it’s subject to U.S. taxes—assuming you want to stay an American citizen.”

MONEY Millennials

This One Question Can Show if You’re Smarter than Most U.S. Millennials

Millennial office
Leonardo Patrizi—Getty Images

Young people in the United States ranked nearly last in a new international test of skills. See how you compare by answering this one question.

Let’s say you see an advertisement that reads:

Apply for a loan
Up to $70,000
Terms of the loan
Pay only $103 per month for each $1,000 borrowed
Payable in 12 equal monthly payments

What’s the annual simple interest rate on the loan?

If you answer correctly—you’ll have to read on to find out—you’re ahead of the curve when it comes to marketable job skills.

According to a new report from Educational Testing Service (ETS), which designs the GRE and other exams, American millennials lag far behind young people in other countries when it comes to all the top skills that employers seek.

Those include literacy, ability to follow basic written instructions, problem-solving while using technology—and math.

To arrive at these findings, ETS administered a new test called the Program for the International Assessment of Adult Competencies to thousands of people across 22 developed countries.

Out of all millennials, Americans ranked last for numeracy, tied with Italians and Spaniards. Gen Y-ers stateside also got lower reading comprehension scores than peers in 15 of the 22 countries. (Japan ranked number one across all categories.)

That sample question you saw above was described by ETS as 5/5 on the difficulty scale for numeric literacy. The answer, by the way, is around 24%.

You can see a longer list of sample questions here and read the full report on the ETS website.

More from Money.com:

Most Americans Fail This 3-Question Financial Quiz. Can You Pass It?

Europe Just Got Even Cheaper for U.S. Travelers

This Is How You Write a Perfect Interview Thank You Note

MONEY stocks

3 Simple Equations All Investors Should Know

hand doing math equations on chalkboard
Getty Images

You might be wasting money on high fees in your 401(k) or chasing the wrong stocks. This easy math will bring you back down to earth.

Whether you love to buy and sell stocks or barely understand what’s going on in your retirement account, there’s a good chance you could benefit from learning more about the math behind the stock market.

Here are three fundamental equations that the savviest investors know. Relatively easy to understand, they will help you choose the right stocks and funds and, most important, keep your expectations about future returns grounded in reality.

Equation 1

S&P 500 dividend yield + about 4.5% = the expected long-term return on stocks

This formula, known as the Gordon equation, assumes stocks get their ultimate value from being able to one day return earnings to investors. (That’s true whether or not a company currently pays a dividend or reinvests in the business.) Anything above or below that is a result of investor sentiment.

You can look up the current S&P 500 dividend yield, which is about 2% now, at multpl.com; the 4.5% is how much you can expect dividends to grow based on the past. So today the expected long-run return is 6.5%. Adviser and author William Bernstein says thinking about this number brings you down to earth in boom years, and can reassure you when the market is down.

Equation 2

A 1.5% expense ratio = more than 40% of your money after 40 years

Mutual fund and adviser expenses seem so tiny— just 1% or so. But math professor Jordan Ellenberg, author of How Not to Be Wrong, says that over many years “expenses add up—or, more mathematically precisely, they multiply up.”

Put $100,000 into a fund with a 1.5% expense ratio, assume a 6% underlying return, and you’ll get about $560,000 after 40 years. With the same pre-expense return in a very low-cost index fund charging 0.1%, you’d have $990,000. To see for yourself the true long-term costs of a fund you are considering, use the mutual fund fees calculator at Bankrate.com.

Equation 3

Net income / shareholder equity = return on equity

Return on equity is a classic measure of a company’s ability to put shareholders’ money to good use. (Equity is roughly the cash investors put into the business, plus retained earnings.) Calculate a stock’s ROE using the balance sheet and income statement.

Looking for consistent ROE of 15% or more “helps steer you toward profitable companies and away from speculation,” says Robert Zagunis of the Jensen Funds, which screen for stocks with 10 years of high return on equity, like 3M.

Read more investing fundamentals from Money 101:
How do I know if I should buy a stock?
Should I invest in stocks or in a stock mutual fund?
How often should I check on my retirement investments?

Correction: This story has been updated to reflect the current S&P 500 dividend yield.

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