Investopedia

Fact checked by Giselle Cancio

Elon Musk is referred to as “the world’s richest man” so frequently that you might think he trademarked the phrase. But the South Africa-born billionaire also holds another distinction: the largest loss ever of a personal fortune. From late 2021 to early 2023, Musk’s net worth fell from $320 billion to $138 billion, netting a loss of $182 billion.

Key Takeaways

• According to Guinness World Records, between 2021 and 2023 Elon Musk suffered the greatest loss of a personal fortune in history.
• His loss, which was on paper and due primarily to a drop in Tesla’s share price, amounted to nearly $200 billion.
• Since that time Musk has recouped his losses and is believed to be the world’s richest man by a considerable margin.

How Much Musk Lost

The dubious honor of “largest loss” was conferred by Guinness World Records, based on a 2023 report by Forbes. It said that Musk’s net worth fell from $320 billion in 2021 to $138 billion in early January 2023, a net loss of $182 billion. The major reason for the plunge was a decline in share prices of the electric automaker Tesla, probably the best known of Musk’s portfolio of companies.

The nearly $200 billion slide put Musk far ahead of—or behind, depending on how you look at it—the prior record holder. “Although the exact figure is almost impossible to ascertain, Musk’s total losses far surpass the previous record of $58.6 billion, set by Japanese tech investor Masayoshi Son in 2000,” Guinness World Records said in a Jan. 6, 2023 press release. Son is the founder and CEO of SoftBank Group.

At the same time, the loss cost Musk another record, that of world’s richest man—at least temporarily. “Musk’s misfortunes also saw him lose his status as the world’s richest person to Bernard Arnault (France), founder of luxury goods conglomerate LVMH (Louis Vuitton Moët Hennessy), who has an estimated net worth of $190 billion,” the same press release reported.

How Much Elon Musk Is Worth Today

Musk now appears to be a double recordholder. He may still hold the prize for the largest loss, and he seems to have regained his spot as the world’s richest man.

Forbes, which has established itself as a leading authority on these matters, ranks the world’s billionaires in what it calls “real-time,” adjusting the figures on a daily basis. On March 5, 2025, for example, it put Musk’s wealth at $351.6 billion. Runner-up was Meta’s Mark Zuckerberg at $226.7 billion. Rounding out the top five were Amazon’s Jeff Bezos at $223.5 billion, Oracle’s Larry Ellison at $199.2 billion, and the aforementioned Bernard Arnault and his family at $180.6 billion.

By the time you read this, those numbers will have changed, and the order may have shifted slightly. But either Musk will have to lose a lot of money or some other billionaire will have to gain a lot (or some combination of the two) to topple him from first place.

The Bottom Line

Elon Musk holds the prize for “largest loss of personal fortune,” according to Guinness World Records, and he may be in no danger of having to give it back anytime soon. However, his fortunes have improved considerably in the years since, making him the world’s richest individual that we know of—and by far.

Fact checked by Vikki Velasquez

Retirees are finding savvy ways to make money from the hobbies they love.

“Turning that hobby or creative venture into something exciting and meaningful financially has so many benefits, from shoring up retirement savings to increasing quality of life to staving off dementia,” says Patrick McAndrew, founder of American Wealth Planner.

Key Takeaways

• Retirees can turn their hobbies into money-making ventures.
• Starting a blog about your hobby and selling items you no longer use are two ways to make cash.
• Don’t be shy about promoting and selling your artwork if you’re an artist.
• Rent out what you no longer use such as a recreational vehicle, swimming pool, or yard.
• Sell your photography or the produce from your garden.

Getting Profitable With Puzzles

Missy Walker of Winter Garden, Florida is passionate about puzzles. “I love jigsaw puzzles. I solve puzzles at home. I play in puzzle competitions. And I’ve always loved puzzling fast,” Walker says. “As a retired educator, it’s a great stress relief for me and I love the challenge.”

Walker started a blog and began selling used puzzles on Facebook Marketplace to make some money from her hobby. “I started my blog, Speed Puzzling Tips. Just hit the first anniversary last week and we have over 4K viewers a month,” Walker says. “I write all the content myself and I keep it real because I play jigsaw puzzles.”

Selling Artwork

Jan Lawson, 83, began creating art at age 60. She works in acrylics, creating both paintings and collages. She shows and sells her art in coffeehouses, community centers, and art galleries. Lawson has an apartment at Wake Robin, a retirement community in Shelburne, Vermont, and she also hangs a piece of art outside her front door. “It’s kind of fun to keep changing it,” Lawson says.

People notice the art and want to buy it. “Sometimes I sell it to them. Sometimes I give it to them,” Lawson says. “That’s fun to do.”

Renting Out RVs, Pools, and Yards

Retirees are finding ways to make money off vehicles and other items they’re not using. They rent out for cash what they once used for their hobbies.

Important

Retirees are renting out their RVs on Outdoorsy.com, their pools on Swimply, and their yards on Sniffspot, according to McAndrew.

“Myrna and Bill Landers lived on their acreage for over 25 years before deciding to list their pastures as off-leash dog parks on Sniffspot. Not only have they earned meaningful income but they also say that sharing their land and their art with people and pups alike is a joy,” McAndrew says.

Selling Photography

If you’re a retiree who enjoys taking photos, the next step is selling them.

“If you like to take photos, why not turn them into cash by selling them as stock photos?” asks Mark Slack, finance expert at SideHustles.com. “Shutterstock, Adobe Stock, and Alamy will take the photos and license them to people, paying you each time they’re downloaded. The most popular categories, including business, travel, and lifestyle photography, tend to sell really well.”

Selling Homegrown Produce

Did you get into gardening when you retired? Your garden’s bounty can be sold for cash.

“If gardening is a passion of yours, you can definitely earn some money doing it! Selling your home-grown herbs, vegetables, or stylish plants in pots at farmer’s markets or in a small community-supported agriculture (CSA) environment is a great way to spread the love and earn some cash,” Slack says. “If you specialize in growing plants that are hard to get your hands on or organic produce, you can really find your own niche.”

Don’t Be Afraid to Get Started

Consider these tips from Joe Camberato, founder of National Business Capital, if you’re retired and searching for a hobby that you can transform into a money-making small business.

“If you love being out on the water, get your captain’s license and start taking people out for boat tours,” Camberato says. “If you’re into cars, buy and flip them for a profit. Plenty of people are looking for a good deal but don’t know how to find one. Use your knowledge to make money.”

Camberato has more tips for people who love to cook, people who love to drive, and those who speak foreign languages. “If you’re passionate about cooking, offer private chef services for small events or start selling your best baked goods locally. If you like driving, sign up for Uber or Lyft. It’s flexible and you’re getting paid to do something you already enjoy. If you know another language, teach classes over Zoom. People are always looking to learn.”

Take that first step and begin monetizing your favorite hobby. “The opportunities are endless. You don’t have to turn your hobby into a full-time business but almost anything you enjoy can be monetized in some way,” Camberato says. “You just have to take action.”

The Bottom Line

Retirees are taking steps to turn the hobbies they enjoy into money-making endeavors. They can bring in income from the hobbies they love whether it is selling art, blogging about puzzles, or renting out their yards. Selling photos or selling produce from a garden are other ways to make cash in retirement.

What hobby do you enjoy that you would like to monetize? Take the first steps and begin. You’ll have cash coming your way before you know it.

Reviewed by Erika Rasure
Fact checked by Yarilet Perez

Shorting Bitcoin is borrowing the cryptocurrency, selling it, and buying it back later when prices are lower. The number of venues and ways in which you can short Bitcoin has multiplied with the cryptocurrency’s increasing spotlight in mainstream finance.

Here are some ways that you can go about shorting Bitcoin.

Key Takeaways

• Many investing options are available for those looking to short Bitcoin.
• Shorting Bitcoin is borrowing and selling Bitcoin, hoping that prices will go down so you can buy Bitcoin at a lower price to repay the loan and profit.
• Derivatives such as options or futures can give you short exposure, as can margin facilities available on certain crypto exchanges.
• The price of Bitcoin is volatile and prone to sudden increases or decreases. Selling short is risky in any asset but can be particularly dangerous in crypto markets.

1. Margin Trading

One of the easiest ways to short Bitcoin is through a cryptocurrency margin trading platform. Many exchanges and brokerages allow this type of trading, with margin trades allowing investors to “borrow” money from a broker in order to make a trade. It’s important to remember that margin involves leverage or borrowed money, which can increase profits or exacerbate losses.

Many Bitcoin exchanges allow margin trading at this stage. Kraken and Binance are some popular options for this strategy.

2. Futures Market

Bitcoin, like other assets, has a futures market. In a futures trade, a buyer agrees to purchase a security with a contract, which specifies when and at what price the security will be sold.

If you buy a futures contract, you are betting that the price of the security will rise; this ensures that you can get a good deal on it later. If you sell a futures contract, it suggests a bearish mindset and a prediction that Bitcoin will decline in price. In this context, you can short Bitcoin by purchasing contracts that bet on a lower price.

Bitcoin futures trading took off around the run-up in cryptocurrency prices at the end of 2017. It is available on a wide variety of platforms now. You can short Bitcoin futures at the Chicago Mercantile Exchange (CME), the world’s biggest derivatives trading platform, and on some cryptocurrency exchanges. Bitcoin futures can be purchased or traded on popular exchanges like Kraken or BitMEX and can also be found at popular brokerages such as eToro.

You can also trade perpetual Bitcoin futures on platforms like BitMEX if you have access to them. Perpetual futures do not have closing dates, allowing traders to set and forget positions or not have to worry about rolling them.

Note

Coinbase began offering Nano Bitcoin Futures trading on June 27, 2022. The contract sizes are 1/100th of a Bitcoin, have a tick value of $0.05 per contract, and minimum price increments of $5.

3. Binary Options Trading

Call and put options also enable traders to short Bitcoin. If you wish to short the currency, you could:

• Buy a put option: Buying a put option gives you the right, but not the obligation, to sell the bitcoin at a specified price (the strike price).
• Sell a call option: Selling a call option gives you the obligation to sell the bitcoin at the strike price if the buyer chooses to exercise it.

In both cases, you profit when Bitcoin’s price falls below the strike price before the option expires.

You can also profit from buying a call option (which gives you the right, but not the obligation, to buy the bitcoin at the strike price) or selling a put option (which gives the buyer the right, but not the obligation, to make you buy the bitcoin at the strike price), but these are considered long positions because you profit when Bitcoin’s price rises above the strike price before the option expires.

Binary options are available through several offshore exchanges, but the costs (and risks) are high. One of the advantages of using binary options trading over futures is that you can limit your losses by choosing not to execute your options. Thus, your losses are limited to the price you paid for the put options.

Popular venues for trading options are Deribit and OKX.

4. Prediction Markets

Prediction markets—while not necessarily shorting—are where you place bets on the outcome of events. Prediction markets in crypto are similar to those in mainstream markets. Parties can create an event to make a wager based on the outcome.

You could, therefore, predict that Bitcoin will decline by a certain margin or percentage, and if anyone takes you up on the bet, you’d stand to profit if it comes to pass.

Popular crypto prediction markets are GnosisDAO and Polymarket.

You can learn passive and active investing strategies through a crypto trading course.

5. Short-Sell Bitcoin

Though this strategy might not appeal to all investors, those with the stomach can reap gains if their bet against Bitcoin pricing succeeds. If your brokerage or exchange allows it, you could borrow some Bitcoin and sell them at a price you are comfortable with. When the price drops, repurchase some and pay back the exchange. Of course, if the price does not adjust as you expect, you could lose money in the process.

If the price goes up (instead of down, as you had hoped), you could end up with significant losses.

6. Using Bitcoin CFDs

A contract for difference (CFD) is a financial strategy that pays out money based on the price differences between the open and closing prices for settlement. Bitcoin CFDs are similar to Bitcoin futures in that they are essentially bets on the cryptocurrency’s price.

When you purchase a CFD predicting that prices will decline, you are betting against Bitcoin. This is not shorting Bitcoin, but it is similar in that you’re acting on a belief that prices will drop.

Important

Brokerages and exchanges are not permitted to offer CFDs to U.S. residents because they are traded over the counter and are not regulated by the Securities and Exchange Commission (SEC).

CFDs have a more flexible settlement tenure than Bitcoin futures, which have predetermined settlement dates. Additionally, in certain Bitcoin CFD markets, traders can enter into a contract based on Bitcoin’s performance or its performance relative to fiat currency or another crypto.

7. Using Inverse Exchange-Traded Products

Inverse exchange-traded products (ETPs) are instruments that use leverage and other techniques to flip the returns an underlying asset generates. They are similar to futures contracts and are used in conjunction with other derivatives to produce returns.

Until January 2024, the only exchange-traded product available to U.S. residents was ProShares’ Short Bitcoin Strategy ETF (BITI). That month, the SEC approved 11 spot Bitcoin ETPs that can be used for shorting Bitcoin.

Factors to Consider While Shorting Bitcoin

As with any strategy related to cryptocurrencies, shorting Bitcoin involves enormous risk. There are several aspects you should consider while shorting Bitcoin.

Bitcoin Price Is Volatile

Most avenues to short Bitcoin depend on derivatives. These derivatives are based on pricing; fluctuations in the cryptocurrency’s price have a domino effect on investor gains and losses.

For example, Bitcoin futures mimic spot price changes, meaning they cannot be used as an effective hedge against an investment in actual Bitcoin. Similarly, options trading in Bitcoin can multiply losses due to the underlying cryptocurrency’s price volatility.

Bitcoin, as an Asset, Is Risky

Price is just one of several risks you will have to evaluate while shorting the cryptocurrency. Compared to other, more established assets, Bitcoin is new. It has been around only since 2009. Therefore, there isn’t sufficient data or information for investors to make an educated decision about its workings or feasibility as an asset.

While established platforms like CME are safer and guarantee execution for Bitcoin derivatives, new platforms might start off “clunky” and be more susceptible to hacks.

The Regulatory Status for Bitcoin Is Still Developing

Regulations across geographies are still being developed and implemented. The United States has made strides, as several key court cases have concluded and several Bitcoin investment instruments have been approved. The European Union (EU) published its Markets in Crypto-Assets legislation, which guides the bloc’s members in their cryptocurrency dealings.

There are several leading Bitcoin trading platforms, such as Deribit, that are not available to American investors due to regulatory compliance issues. This poses issues for those in the U.S. who wish to trade certain instruments or derivatives offered on exchanges that are not regulated by U.S. authorities because if they trade on them, they are not protected.

Knowledge of Order Types Is a Must

Before undertaking a short position in Bitcoin, you should brush up on your knowledge of different order types. They can help limit losses if the price trajectory does not go in the direction that you initially bet—for example, using stop-limit orders while trading derivatives can curtail your losses.

What Is a Short in Bitcoin?

A short is when you borrow an asset, sell it, and hope to buy it back when its price drops. You can do this with Bitcoin, but it is even more risky than doing it with other assets due to its price volatility.

Is There a Stock That Shorts Bitcoin?

There is no stock that shorts Bitcoin, but there are exchange-traded funds (ETFs) that do so. Funds that short assets are generally called inverse funds because they attempt to return the inverse of falling prices. The ProShares Short Bitcoin Strategy ETF (BITI) is one of these funds.

Can You Make Money Shorting Bitcoin?

It is possible to short Bitcoin and profit—if you can tolerate the risks and time it right, shorting Bitcoin can generate large profits. However, it can also generate significant losses.

The Bottom Line

Shorting Bitcoin is a viable option for traders comfortable with the risks. Several exchange-traded products and strategies are available for shorting Bitcoin. Before you begin, it helps to learn about order types and to practice your strategies.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author owns BTC and XRP.

Correction—Feb. 18, 2025: This article has been corrected to update the concept of selling a put option.

Correction—March 13, 2025: This article has been corrected to state that you could buy a put option or sell a call option to short Bitcoin.

The basics can be taught when kids are quite young

Reviewed by Ebony Howard
Fact checked by Vikki Velasquez

Are you teaching your children about investing? As they become aware of money and other financial concepts, it’s important to familiarize them with investing and arm them with the know-how and tools to take with them into adult life.

Key Takeaways

• Opening your child’s eyes slowly to how markets work will demystify the process of investing and make it feel more accessible to them when they’re older.
• Start by teaching them the basics of risk versus reward, stocks and bonds, and profits and losses.
• If you own stocks, explain why you chose to invest in those companies and consider including your child in keeping an eye on the stock and company news.
• Let your child pick out a stock and either buy a few shares for them or set up a model portfolio so they can make some trades on their own.
• As they get older, encourage your kids to invest their money in a mix of stocks, bonds, and a savings account that you can help manage while they take the lead.

Start Simple With a Savings Account

One of the first ways you can introduce children to finances is by opening a savings account for them. As they earn money, encourage them to put it away in their account. This will demonstrate that they can safeguard their money while also generating a little bit of interest income if they do not spend their money.

This also encourages building relationships with financial advisors. Though your children may not have much to contribute, they may still need to go to a branch to deposit a small amount of cash. This encourages them to work with branch tellers and enforces that there are professionals that can help them on their financial journey.

Discuss Stocks and Bonds

Stocks are classified as high-risk investments. Along with that comes the potential for high returns. In time, you’ll want to address investments like this where a stock’s value can go up and down and that you can’t always predict the effects of the associated risks (as opposed to the consistency of an interest rate earned in a savings account).

If someone has given your child a financial gift like a U.S. savings bond, it can be a great jumping-off point to explain how this sort of debt security works. Remember, a bond is a low-risk, low-return investment. Bonds generally pay a small amount over the prime interest rate and are backed by stable institutions, usually banks or governments.

You can introduce your kids to these investments by telling them about purchasing lower-rated bonds that may offer better returns in exchange for higher risk. Make sure you advise them of the potential for the institution to default and that they can’t necessarily count on getting the income they may expect.

Note

You can set up an account for your child to put investments in where earnings can grow tax-free if they are used to pay for future tuition.

Keep Your Child’s Attention

One of the best ways to get your children interested is by getting their attention with things they may already know. Get them into the spirit by teaching them about popular companies like Nike or Apple. Alternatively, speak to their interests. If they’re interested in planes, for example, introduce them to a company like Boeing. If you own stocks, consider showing them the companies that make up your portfolio.

Take the time to explore the investor relations pages of different companies together to learn more about what the company makes, how much it earned that year, and how many people work there. Then ask your child what company stock they would like to buy. Young as they are, kids often know corporate names and have favorite firms. Disney may be popular with some children. 

Track Some Stocks

Once you introduce your kids to basic concepts, sit down and let them select a company. If you have the money, buy a few shares in the stock and then check the investment together at least once a week to show how it can rise or fall. If you don’t want to take that risk, consider making a simulated online portfolio and tracking stocks for fun, without the expense of purchasing shares. You can start out with Investopedia’s Stock Market Simulator, which is free to use.

Important

If you pick stocks with your children when they are young, they’ll experience the up-and-down cycles of the markets. This may better prepare them for the reality of fluctuations and help them make informed decisions when they grow up.

Let Your Child Invest

Give your kids the basics of investing when they are younger. As their knowledge expands, you can provide them with a more in-depth explanation of stocks and other investments. Let your child buy their own stocks at some point, especially if they have some cash in a savings account. Part of teaching them is ensuring they don’t put all their eggs in one basket, so suggest investing a third in each and keeping a third in savings. This also helps them compare the returns of different investments.

What if your child doesn’t have any money to participate? There are a couple of options:

• You can use your own cash to open a small brokerage account where your child can make investments
• You can build a model portfolio of stocks that your child wants to buy someday
• You can use a portfolio simulator to mimic what certain investments could turn into

There are several ways to open a brokerage account for a minor.

Another thing to decide is whether you want to introduce your child through an online broker—some are especially good for beginners. Depending on the brokerage, you may be able to open a custodial account in the name of your minor child and give them the right to trade in it online. As the adult, you would remain the official custodian. As with anything else, check with a tax expert for the best option before you start.

Learn From Current Events

As your child develops their favorite products or hobbies, have them think through how changes with those products may result in changes in their investments. For example, imagine a child who loves playing video games. Let’s say Microsoft then releases a poorer earnings report where fewer Xbox consoles were sold than expected last quarter. You can tie these items together by having your child think through what the impact will be to Microsoft’s stock.

By extension, this can also expose your child to other industries they may not know about. For example, let’s say Microsoft sold less consoles than expected but their stock still generated a 20% spike upwards after their earnings release. Ask your child why that could’ve been, what other products could have outperformed, or what other things are going on in the world could have resulted in this. The goal of this is to have your child think a bit broader about all the items that come together to drive a company’s stock price.

When Is the Best Time to Introduce My Kids to Finances?

The earlier you start teaching your kids about finances, the better. You may want to start by opening a savings account. Get them excited about saving their money by putting it into the account and watching it grow. As they get older, you can open up the dialogue to more significant topics, like stocks and bonds. At some point, it may be wise to show them your investments and either let them use a simulator or open an investment account for them, too. Taking a hands-on approach when they’re ready will expose them to the ups and downs of the market. Be sure you monitor them so there are no surprises.

Why Is Financial Literacy Important for Kids?

Financial literacy is important for everyone. But it may be even more important for young children. Teaching them about money, money management, and investing at an early age can help them achieve financial freedom and success later in life. Starting small with teaching them about saving can lead to more in-depth topics like the basics of investing, which may help them make more meaningful decisions about their money and finances as they get older.

Can I Open a Trading Account for My Child?

If you’re confident enough, you can open a trading account for your child. Most brokerages require you to open a custodial account. This type of account lets you open it in the name of your child and give them the right to trade online. Keep in mind, though, that you are the one who is ultimately responsible to manage and invest in it.

The Bottom Line

It’s important to allow your child to make real decisions and take real risks. Your child may lose money, but the purpose of the exercise is to familiarize them with investing, and part of that is learning that investments have advantages and disadvantages. Whatever the outcome, the experience of following their investments and gaining and losing money—whether actual or theoretical—will be invaluable.

Fact checked by Kirsten Rohrs Schmitt
Reviewed by Lea D. Uradu

A mortgage loan to finance buying a home is often the largest purchase most people make in their lifetime. A mortgage comes with years of monthly payments and interest that inflates the cost of the home to well beyond the purchase price. Paying off your mortgage early offers several benefits, including saving thousands of dollars in interest and providing the financial security and freedom of owning your home outright.

Paying off a mortgage early also allows you to pay down other debts, which can help provide relief in your monthly budget. Getting out from under your mortgage—if you can afford to do it—may offer advantages that can positively impact your finances, as well as your quality of life, especially in retirement. Discover four reasons why paying off your mortgage early can benefit your long-term financial prospects.

Key Takeaways

• Paying off your mortgage early could free up your cash for travel, retirement, or other long-term plans.
• Being mortgage-free may insulate you from losing your home if you run into financial difficulties.
• The interest accrued on a home loan can run upwards of tens of thousands of dollars during the lifetime of the mortgage.

1. You Can Tackle Other Debts

One of the biggest benefits of paying off a mortgage includes the long-term financial security. Without the burden of a monthly mortgage payment, you may find yourself with extra breathing room in your budget.

If you were struggling to pay bills before your mortgage was paid off, you will be able to redistribute the money you would have paid on your mortgage towards high utility bills, credit card balances, college loans, and other kinds of debt.

2. It Reduces the Cost of Interest

When you take out a home loan the mortgage lender will generally lend 80% of the home’s price, depending on the type of mortgage. However, the total cost of a mortgage isn’t just the actual price tag on a home, it includes the hefty cost of interest on the loan. The longer you carry a mortgage, the more you pay in interest.

For example, if you take out a 30-year fixed mortgage loan, you can plan on sending a payment (covering principal, interest, and homeowners insurance) to your mortgage lender for the next three decades.

By paying off your mortgage early, you may save significantly due to the additional cost of interest, especially if your home loan had a high interest rate when you took out your mortgage.

3. It Provides Protection During Unstable Housing Markets

A major concern for many homeowners, especially if they remember the Great Recession, is the impact that an unstable real estate market can have on homeowners. Being able to keep up with your mortgage payments during a large-scale financial crisis is a real concern for many homeowners.

For example, if you find yourself in need of cash suddenly, and you want to tap equity out of your house, it may be difficult to do if the value of your home goes down due to an unstable market.

But if you have paid off your mortgage, at least that monthly financial burden is lifted, and you can wait for the market value of your home to improve.

Important

Some financial experts caution that you should not sacrifice your retirement in order to pay off your mortgage. If you are retired, it may pay to weigh the pros and cons of paying off a mortgage versus boosting your retirement accounts.

4. It Provides Financial Freedom to Pursue Other Ventures

A pleasant advantage of paying off your mortgage, assuming you have no other debt, is that it may give you the financial freedom to pursue other ventures.

Whether you have always dreamed of living somewhere tropical, traveling around the world, or owning your own business, having extra money in your bank account every month will allow you to pursue other economic opportunities.

Should You Invest or Pay Off Your Mortgage?

That depends on the state of your finances, the interest rate on the mortgage, and how close you are to retirement. Paying off your mortgage early could save you years of interest payments. Investing the money you were going to use to pay off your mortgage early could result in higher returns than the cost of the loan’s interest. The caveat is that investing brings the risk of losses.

What’s the Downside of Paying Off Your Mortgage Early?

When you pay off your mortgage early, you lose the opportunity to deduct the interest you pay on a mortgage loan. When you itemize your deductions, the interest you pay on a loan is deductible up to $750,000 if you’re single and up to $375,000 if you’re married, filing jointly.

What Debts Should You Pay Off First?

Although there are various debt-reducing strategies, if you have credit card debt with a high annual percentage rate (APR), you might want to pay it off first, followed by lower-interest loans like mortgages and student loans. Also, paying off credit card debt can improve your credit score and the interest rate on a mortgage.

Some might consider investing the money that they would use to pay off a credit card, but the cost of the card’s high interest rate for any period of time would most often negate the investment gains. The rate of return on your investment would need to surpass the financial impact of the growing debt from your high-interest credit card, which could cost 19.95%.

The Bottom Line

Paying off a mortgage is a dream for many homeowners. If this goal is within reach for you and your family, it might be a smart move to satisfy your mortgage balance.

Paying off your mortgage can free up extra money every month and provide added financial security during a crisis, allowing you to save more. It may even let you chase down your dreams that need extra financial backing.

Fact checked by Vikki Velasquez
Reviewed by Andy Smith

Exchange-Traded Products (ETPs) vs. Exchange-Traded Funds (ETFs): An Overview

Exchange-traded products (ETPs) offer investors diversity and liquidity through pooled investments that trade on stock exchanges, akin to individual stocks. ETPs are not stocks; they are sophisticated financial instruments that can pool a variety of investment types, including funds and commodities, traded like stocks.

Among ETPs, exchange-traded funds (ETFs) are the best known, and offer flexibility, cost efficiency, and comparatively lower fees. ETFs often mirror the performance of indexes, sectors, or commodities prices, providing a transparent and effective way to invest in entire markets or specific economic niches without having to buy the underlying assets.

Key Takeaways

• Exchange-traded products are accessible investments offering diversification and liquidity.
• Exchange-traded funds are a specific type of ETP that tracks an underlying index and can be bought and sold on an exchange throughout the trading day.
• ETPs also include other exchange-traded instruments, such as exchange-traded notes and exchange-traded commodities.
• Factors to consider when choosing between ETPs and ETFs include expense ratios, liquidity options, diversification, and regulatory oversight.
• Investors should thoroughly research any ETP or ETF and seek professional advice before investing in them.

With ETPs, the pooling of different investment types enables both seasoned and novice investors to access a broad range of assets, from traditional stocks and bonds to more niche markets like commodities or specific industry sectors, all with the ease of buying and selling shares throughout the trading day. ETPs not only provide a platform for portfolio diversification but also enhance the financial ecosystem’s adaptability, allowing investors to respond swiftly to market changes and opportunities.

ETPs include other securities beyond ETFs, such as exchange-traded notes (ETNs) and exchange-traded commodities (ETCs). ETNs are debt instruments that track an index while carrying credit risk, while ETCs offer exposure to commodities and currencies, but can face unique risks discussed below.

Exchange-Traded Products

ETPs bundle securities into a portfolio to provide exposure to a wide array of assets, all while trading like stocks on major stock exchanges. These products are designed to offer diversified exposure, high liquidity, transparency, and cost efficiency.

The first ETP is thought to be the Standard & Poor’s Depositary Receipts (SPDRs), commonly known as “Spiders.” The first SPDR was introduced in 1993 and is now known by its ticker symbol, SPY. This product was designed to track the S&P 500 Index, allowing investors to buy shares in a portfolio that mirrors the performance of the S&P 500.

The approval process for the first ETP was a significant milestone in financial markets, requiring collaboration among the American Stock Exchange, the Securities and Exchange Commission (SEC), and State Street Global Advisors, which developed and sponsored the ETP.

Before SPY’s debut, trading the S&P 500 Index was difficult, and investors had to dig into each component stock. SPY would expose investors to the broad index through a single product. Given the novelty of this product, there were regulatory and logistical hurdles to overcome. Until then, stock exchanges focused on individual company stocks rather than pooled investment products.

SPDRs adopted a unique share creation/redemption mechanism to assuage regulators to keep their prices closely aligned with the index it tracked. This mechanism allowed large broker-dealers to exchange underlying stocks for shares of the SPY ETP with the fund manager.

SPDRs paved the way for the ETP industry by proving the appeal and feasibility of packaged financial products that supply diversified exposure to indexes through a publicly traded security. SPY remains the world’s largest and most actively traded ETP, with an average of around 55 million shares exchanged daily and $602 billion in assets during the previous three months as of March 12, 2025.

Key Characteristics of ETPs

ETPs have these main elements:

• Basket of securities in one security: Each ETP contains a portfolio or basket of assets rather than a single security. The basket can include stocks, bonds, commodities, currencies, and more. This provides instant diversification.
• Traded on exchanges: ETPs trade on major stock exchanges like individual stocks, allowing investors to buy and sell them throughout the trading day via their broker.
• Intraday pricing: The price of an ETP fluctuates throughout the day based on supply and demand, allowing for real-time pricing and trading flexibility.
• Cost-effective: A pivotal feature of ETPs is that they often offer low management fees and expense ratios, making them less costly to trade than mutual funds or even the underlying securities they hold. In addition, many brokerages today offer commission-free trading for these products.

Benefits of ETPs

Several advantages make ETPs an appealing investment vehicle:

• Diversification: ETPs provide instant diversification across asset classes, market sectors, industries, geographic regions, and more. Investors gain broad exposure through a single ticker.
• Liquidity: The ability to trade ETPs seamlessly throughout the day on major exchanges provides constant liquidity. This distinguishes them from mutual funds that trade once a day.
• Low costs: ETPs have lower expense ratios than actively managed mutual funds since they passively track an index. This means saving substantially on fees.
• Tax efficiency: ETPs are structured in a tax-efficient manner compared with mutual funds in most cases, saving investors further costs.

ETP Regulations

While they may be structured differently, all ETPs in the United States are regulated by the SEC for investor protection and transparency. The SEC reviews ETP prospectuses, requires regular disclosures, oversees market trading, and enforces rules around practices like manipulation and fraud. This oversight applies across the ETP spectrum, no matter its structure.

However, the level of oversight depends on the type of ETP. For example, ETNs operate as unsecured debt securities issued by financial institutions. This differs from ETFs, which directly hold underlying assets.

As a debt instrument, ETNs carry credit risk should the issuing institution default. As a result, the SEC monitors ETNs more closely than it does the diversification and tracking error risks of ETFs. While both are ETPs, the SEC tailors its approach based on each structure’s characteristics to safeguard investors.

Exchange-Traded Funds (ETFs)

ETFs are popular financial instruments designed to offer investors an easy and efficient way to gain diversified exposure to an entire index or market segment through a single trade. They are easily the most traded and best-known of the ETPs.

Unlike mutual funds, ETFs trade on stock exchanges like equities. This gives ETFs the advantage of continuous pricing and trading throughout the day. ETFs hold a basket of assets that can include stocks across various sectors and industries, government and corporate bonds, commodities like natural gas or precious metals, and foreign currencies. The basket of assets held by an ETF is carefully selected and weighted to closely replicate the performance of a specific underlying index or benchmark.

For example, a total stock market ETF would hold hundreds or even thousands of different stocks in proportion to their weight in a broad stock market index. By buying a share of the ETF, an investor instantly gains diversified exposure to the returns of the entire equity market rather than buying each stock separately.

ETFs offer efficient, liquid, low-cost market access in a transparent, tax-efficient vehicle. Investors can also choose from various ETFs targeting more specialized market sectors based on their financial goals and risk tolerance.

Types of ETFs

ETFs track many different market segments. Here are the most common:

• Stock index ETFs: These track indexes like the S&P 500, Nasdaq 100, Dow Jones Industrial Average, etc.
• Industry/sector-specific ETFs: These focus on and track specific industries or sectors like technology or financials.
• Bond ETFs: These track government, corporate, or municipal bond indexes.
• Commodity ETFs: These track the prices of gold, silver, oil, grains, and other commodities. They either directly hold these commodities or use derivative products like futures.
• Currency ETFs: These track foreign currency exchange rates.
• Inverse ETFs: These furnish returns that move the opposite of benchmarks. This allows for short-market exposure.
• Leveraged ETFs: These want multiple returns, such as plus or minus two or three (or more) times the return of an underlying index or asset.
• Crypto ETFs: These track one or more major cryptocurrencies such as Bitcoin or Ethereum. They may directly hold cryptocurrencies or use derivatives contracts to gain exposure.

Difference Among ETFs, Mutual Funds, and Single Stocks
Feature	ETFs	Mutual Funds	Stocks
Pricing/Trading	Intraday pricing and trading	End-of-day pricing; trades once per day	Intraday pricing and trading
Costs	Lower expense ratios than active mutual funds	Typically higher expense ratios	May have commission fees on trades
Tax Efficiency	More tax-efficient in most cases	Can have capital gains distributions	Taxes on dividends and capital gains
Diversification	Holds basket of securities	Holds basket of securities	A single security
Risk Profile	Potentially lower volatility than individual stocks because of multiple holdings	Often lower volatility than individual stocks	Higher volatility as a single security
Transparency	Full portfolio holdings disclosed daily	Periodic portfolio disclosures	Public filings from a single company
Index Tracking	Follows underlying index	Actively managed or passive index tracking	Follows the performance of a single company

Other Types of ETPs

In addition to ETFs, other types of ETPs include ETNs and exchange-traded commodities (ETCs).

Exchange-Traded Notes (ETNs)

ETNs combine bond investing with the tradability of stocks. Unlike ETFs, which hold underlying assets, ETNs are structured as unsecured debt securities issued by financial institutions. These notes promise to pay the holder a return based on the performance of a market index or other reference measure, minus applicable fees, at maturity.

ETNs, however, have some unique risks and benefits:

• Credit risk: Since ETNs are debt instruments, their value is dependent, in part, on the creditworthiness of the issuing bank. If the issuer faces financial difficulties, the ETN could lose value, no matter the performance of the underlying index.
• Price tracking: ETNs aim to closely track the performance of their underlying index or benchmark. They do not experience tracking errors the same way that ETFs might.
• Liquidity risk: Some ETNs may have lower trading volumes than ETFs, potentially leading to wider bid-ask spreads and impacting the ease with which they can be bought or sold at desired prices.
• Tax efficiency: ETNs can offer unique tax benefits in certain situations. For instance, since they do not distribute dividends, investors might not incur taxes until the sale of the ETN or its maturity, potentially deferring tax liabilities.
• Market exposure: ETNs can provide exposure to many assets, including hard-to-reach markets and strategies. This includes commodities, emerging markets, private equity, or specific investment strategies that might be difficult or costly to access directly.

Exchange-Traded Commodities (ETCs)

ETCs offer exposure to commodities, including metals, energy, and agricultural products, without directly investing in physical commodities or futures contracts. ETCs track the commodity’s price or a basket of commodities, allowing investors to gain exposure to commodity markets through a security that trades on a stock exchange.

There are differences between ETCs and ETFs that track commodities. Commodity ETFs are structured as funds and regulated under the Investment Company Act of 1940 in the U.S. They hold either physical commodities (like gold or silver) or futures contracts on commodities. Commodity ETFs are considered equity products and are regulated like mutual funds and other ETFs.

Exchange-traded commodities, like ETNs, are structured as debt securities, even though they track commodity prices. They are not considered funds in the traditional sense, but are debt instruments issued by a single entity. This means there are credit risks involving the issuer.

ETCs can be broadly classified into two categories:

• Physical ETCs: These ETCs hold physical commodities, such as gold or silver bars, in secure vaults. Investors in physical ETCs have a claim on the underlying metal, and the value of the ETC is directly tied to the price of the physical commodity.
• Synthetic ETCs: Instead of holding physical commodities, synthetic ETCs use derivatives like futures contracts to replicate the performance of the underlying commodity. This approach can provide exposure to a broader range of commodities, including those difficult or impractical to store physically.

As with ETNs, ETCs also present unique risks and benefits:

• Direct commodity exposure: ETCs offer a straightforward way to invest in commodities, which can serve as a hedge against inflation or a diversification tool outside traditional stocks and bonds.
• Variety: Investors can choose from various commodities, from gold and silver to oil and agricultural products, depending on their investment goals and market outlook.
• Transparency: ETCs offer transparency in holdings and pricing, with the value of the ETC closely tracking the underlying commodity or commodities.
• Volatility: Commodity markets can be highly volatile, with prices influenced by various factors, including geopolitical events, weather conditions, and changes in supply and demand.
• Counterparty risk: Synthetic ETCs can involve counterparty risk since their performance depends on the ability of the issuer or counterparty to fulfill their obligations under the derivative contracts.
• Credit risk: Because they are structured as unsecured debt instruments from a single issuer if the issuer faces financial difficulties, the ETN could lose value, whatever the performance of the underlying commodities.

What to Consider When Choosing Between ETPs and ETFs

When deciding whether an ETP or ETF makes the most sense for an investment strategy, investors should weigh several key factors:

• Expenses and fees: ETPs and ETFs often have lower expense ratios than actively managed mutual funds, but fees vary between products. All else being equal, an ETP with a lower expense ratio is preferred. ETFs typically have lower fees than other ETPs since they have less complex structures. Consider the expense ratio, commission fees, bid-ask spreads, and premiums/discounts.
• Liquidity: ETFs tend to have higher daily trading volumes and tighter bid-ask spreads. Some ETPs have limited secondary market liquidity, which can impact prices. Assess the average trading volume and bid-ask spread for a particular ETP or ETF—the higher the volume and the tighter the spread, the better.
• Performance and tracking: ETPs are often highly efficient at replicating their benchmark index performance, but some have more tracking errors. Research historical returns and compare them with the ETP’s benchmark.
• Diversification: ETFs offer exposure to various indexes across all major asset classes. Some ETPs zero in on narrow commodities or niche assets. Other times, two or more ETFs may hold the same assets; for example, if a stock is represented as a significant part of the S&P 500 and a sector index. This could mean doubling the exposure to specific stocks. Assess how well an ETP or ETF aligns with your asset allocation and diversification goals.
• Reputation of issuer and regulatory compliance: The trustworthiness and track record of the ETP issuer matter. A well-regarded issuer with a history of regulatory compliance and transparency is likely to offer low-cost products managed in the best interest of investors. Investigate the issuer’s reputation, experience in managing investment products, and history of adherence to regulations.
• Tax efficiency: ETFs are generally known for their tax efficiency, especially those that track broad-market indexes because of their unique creation and redemption process, which can minimize capital gains distributions. Depending on their structure, ETPs might not offer the same level of tax efficiency. Understand the tax implications of each investment, including how distributions are taxed and the potential for triggering taxable events.

Costs and Fees Associated with ETPs and ETFs

All ETPs have costs that affect the total return on investment.

• Expense ratios: This annual fee, expressed as a percentage of assets under management, covers the operational costs of the fund, including management fees, administrative fees, and other operating expenses. ETFs often have lower expense ratios than actively managed mutual funds, and ETCs can vary widely based on the complexity of the commodity exposure and management.
• Trading costs: Investors also have trading costs, such as commissions when buying or selling shares, including brokerage commissions (if applicable) and bid-ask spreads. Some ETFs today may be part of commission-free trading programs offered by brokers.
• Premiums/discounts: ETPs can trade at a premium or discount to their net asset value (NAV), depending on market demand and the underlying securities. These differences can mean more costs or benefits when entering or exiting positions.

How Does Liquidity Differ for Different ETPs and ETFs?

ETFs generally offer higher liquidity than other ETPs due to their broader market appeal and higher trading volumes. ETF liquidity also depends on a unique creation and redemption mechanism that allows for the adjustment of supply in the market, helping to maintain the ETF’s price close to its net asset value (NAV).

Depending on their specific type and market demand, other ETPs may not have this mechanism and can experience wider bid-ask spreads and lower trading volumes, potentially lowering liquidity.

Are ETFs and ETPs Regulated by the Same Authorities?

Both ETPs and ETFs in the U.S. are regulated by the SEC. However, the specific regulations depend on the type of ETP.

Like mutual funds, ETFs are regulated under the Investment Company Act of 1940, with additional rules tailored explicitly to ETFs. Other ETPs, such as ETNs and ETCs, fall under different regulations based on their structure (e.g., debt securities). Despite these differences, all ETPs must follow SEC regulations to protect investors.

Can You Short ETPs and ETFs?

As long as your broker approves you for short selling, ETPs and ETFs can be shorted like shares of stock. In fact, short selling may be easier with ETPs and ETFs than individual stocks because of the improved liquidity. There are also inverse ETFs that deliver inverse returns for short strategies without having to sell short any security.

The Bottom Line

ETPs offer investors an efficient way to gain exposure to diverse assets pooled and traded on stock exchanges. ETPs have advantages like low costs, tax efficiency, liquidity, and transparency.

ETFs are a subset of ETPs regulated by the SEC under the 1940 Investment Company Act, while ETPs can fall under further regulations depending on their assets. Investors should weigh factors like expenses, tracking ability, liquidity, diversification, and risks when choosing between ETPs and ETFs.

Thorough research is vital to successfully incorporating these worthwhile investments in a portfolio. Both ETPs and ETFs can serve a valuable role in asset allocation when they match an investor’s strategy, goals, and risk tolerance.

How To Use These Metrics To Improve Returns

Reviewed by Thomas Brock

What is Options Trading Volume?

Trading volume and open interest are like the pulse and blood pressure of the options market. They give option traders vital signs about the health and direction of market activity. Trading volume refers to the number of option contracts exchanged during a given period, typically one trading day. Open interest, meanwhile, is the number of outstanding contracts that haven’t been settled.

Together, these measures offer clues about the strength of trends, the likelihood of price reversals, and the ease with which positions can be entered or exited. As we explore below the significance of these metrics, we’ll see how they can be leveraged to make better trading decisions and potentially improve your returns.

Key Takeaways

• Daily options trading volume is the number of options contracts bought and sold on a particular day.
• Open interest is the number of open positions in options contracts.
• Together, they provide a better understanding of a particular option’s liquidity, demand, and price moves.
• The greater the open interest and volume, the better the liquidity and efficiency of pricing.
• Trading volume is reset daily; open interest is calculated continuously over the life of the option.

Understanding Options Trading Volume

Each options transaction, whether a buy or a sell, contributes to the daily trading volume count. This metric is a significant indicator of the activity and liquidity of the options market for a particular security. Here is how options trading volume is used:

• Liquidity indicator: The daily trading volume is a primary indicator of options’ liquidity. Higher volumes often mean the option contract is more liquid, making it easier for investors to enter or exit positions at their desired price levels. A higher trading volume can also lead to narrower bid-ask spreads, reducing the cost of trading.
• Market sentiment: Analyzing daily trading volume can also provide insights into market sentiment. For instance, a sudden increase in trading volume might indicate that a new trend is starting, while decreasing volume could signal a potential reversal or the end of a trend.
• Volatility measurement: Increased daily trading volume can also be associated with higher volatility, especially if significant news or events are driving a large number of traders to buy or sell options contracts.
• Confirmation of price movements: Volume analysis is often used with price analysis and other indicators to confirm trends and chart patterns. For instance, an upward price shift with an increase in volume is often viewed as a stronger bullish (positive) signal compared with an upward movement with decreased volume.
• Historical comparison: Investors and analysts often compare the present daily trading volume with past volume levels to gauge the relative activity in the options market. This provides a context for interpreting the present volume levels.
• Institutional activity: Large trading volumes can sometimes indicate institutional activity, which may reflect professional opinions about the direction of the underlying asset’s price.

Why Is Trading Volume Important to Traders?

Trading volume helps traders understand market dynamics, liquidity, and potential prospects in securities. High trading volume for an option indicates strong market sentiment, but it can be either bullish or bearish, so you’ll need more information to see which.

In addition, a higher volume typically means better liquidity, allowing for easier entry and exit from positions, cutting trading costs with narrower bid-ask spreads. Also, a spike in trading volume generally precedes significant price shifts, making it helpful in determining volatility. Traders closely monitor volume to capitalize on these movements.

Volume can also be used to confirm the validity of market trends, such as breakouts or reversals, and can help prevent traders from falling for false signals when volume is low during price movements. Finally, traders look to options trading volume to develop and refine their tactics, employing volume-based indicators to help identify the best entry and exit points while managing risk.

High trading volume doesn’t always mean a strong trend. Sometimes, it can signal indecision as buyers and sellers clash, leading to a potential reversal.

What Is Options Open Interest?

Open interest is the number of outstanding options contracts traded but not yet liquidated or closed by either an offsetting trade, exercise, or assignment. As a measure of liquidity in options markets, it is the number of contracts that are still active.

Open interest increases when a new option order is executed and a new contract is added to the option chain. It’s lowered when an existing option contract expires, is exercised, or is closed through an offsetting trade. High and rising open interest suggests the option has active trading and interest, while a decline in open interest means traders are closing out positions (meaning a reduction in interest). More specifically, high open interest in call options signifies a bullish sentiment, while high open interest in put options suggests a bearish sentiment.

Open interest is tracked separately for call and put options.

Here’s how you can use open interest in your trading:

• Liquidity indicator: A higher open interest reveals there’s more liquidity for the options contract. This liquidity makes it easier for traders to enter or exit positions at fair market prices.
• Market sentiment: An increase in open interest might indicate new money coming into the market, suggesting that the trend is likely to continue. Conversely, a decrease in open interest can signal that the market is liquidating or a coming change in market direction.
• Support and resistance levels: Some traders analyze open interest at different strike prices to identify where the market may find support or resistance levels. High open interest at a particular strike price can serve as an area of resistance or support.
• Hedging and managing risk: Institutional investors and fund managers often use options open interest data to plan hedging strategies that protect portfolios against adverse price moves.
• Trading strategies: Options traders might use open interest to find potentially profitable trading opportunities. For example, they might look for options contracts with high open interest and volume since they can be easier to trade.

Why Is Open Interest Recorded?

Recording open interest ensures transparency in the options markets and shows they are still running smoothly. Open interest provides an appreciation for present and historical market activity, liquidity, and market sentiment. Participants can see the depth of the market, confirm trends, manage risk, and anticipate potential areas of volatility.

In addition, open interest helps regulators and participants monitor for market manipulation, boosting market integrity. Open interest also serves as inputs for many derivative pricing models market participants use.

How Does Open Interest Work?

Open interest increases when new contracts are created and decreases when existing positions are closed. Closing positions are typically when traders and market participants sell their contracts, exercise options, or let them expire.

In addition, open interest remains unchanged if a contract is transferred from one entity to another without closing any position. Exchanges report this data daily, reflecting the number of outstanding contracts at the close of each trading day.

How To Use Open Interest in Trading

Experienced traders use open interest to assess market sentiment, liquidity, and trend strength, which helps them refine their trading strategies. By analyzing open interest alongside price movements, traders can gauge whether the market is leaning bullish or bearish, with rising prices and increasing open interest often indicating strong bullish sentiment. In addition, experienced traders prefer options with high open interest for better liquidity, allowing for smoother entry and exit positions with minimal impact on prices.

Another use for open interest is to confirm trends and identify potential reversals. For example, increasing open interest with strong price movements suggests that the trend is likely to continue, while decreasing open interest may signal a weakening trend. Moreover, traders monitor open interest at specific strike prices to identify support and resistance levels, particularly when the expiration date approaches, where sizeable open interest can lead to significant price movements.

Combining open interest with trading volume can offer a clearer picture of market dynamics, helping traders confirm breakouts and anticipate volatility. Strategically, open interest can be used during expiration and around significant market events when traders anticipate price movements and adjust their positions accordingly.

Illustration of Options Volume and Open Interest

Above is the options chain for Tesla, Inc. (TSLA) with an expiration date of Sept. 6, 2024. The chain comprises call and put options with various strike prices ranging from $75 to $212.50. Also included are the last traded price, price change, bid and ask prices, trading volume, and open interest for each option.

At the time of this chain, call options showed large declines in last traded prices, while put options display mostly positive changes, indicating potentially bearish sentiment. The open interest and volume data suggest varying levels of activity across different strike prices, with some strikes showing high engagement, particularly in strike prices for $190.00 to $202.50 and above.

Example of Options Volume and Open Interest

Let’s drive these ideas home with a hypothetical scenario involving an imaginary company called TechFlow Inc. (fake ticker: TFL). Suppose it’s trading at $100 per share, and you’re interested in buying the $105 call option (options that become profitable when the price of TFL rises above $105) expiring in one month.

Now, you look at the options volume and open interest to get a sense of market sentiment and activity around these options:

• Today, you notice that the trading volume for the TFL $105 call options is 500 contracts when the normal average volume is less than 50 contracts. The high volume reveals a significant amount of new trading.
• You also see that the open interest for the TFL $105 call options is 2,000 contracts, which has grown steadily over time from under 100 contracts. This suggests that there are now 2,000 open contracts that have not been exercised, closed, or expired.

Analyzing these figures reveals the following:

• Increased activity: The high volume of 500 contracts traded in a day compared with previous days indicates a growing interest in TFL stock, possibly because of a recent positive earnings announcement or favorable market news about the tech sector.
• Sustained interest: The open interest of 2,000 contracts indicates a sustained interest in these specific options, which could indicate ongoing bullish sentiment among investors expecting the price of TFL to rise above $105.
• Good Liquidity: The increase in open interest also suggests rising liquidity for the TFL $105 call options, making it easier to enter or exit positions at desirable prices.

Based on this data and other research, you buy some TFL $105 call options, anticipating the price to go up. The high volume and open interest could be a positive sign, suggesting that other market participants might also expect TFL’s stock price to rise. Over the next few days, you continue to monitor the volume and open interest. If the volume and open interest continue to rise along with TFL’s stock price, that will reinforce your bullish outlook. Conversely, you’ll reevaluate your position if the volume and open interest decline.

In this scenario, the volume and open interest work together to provide a clearer picture of market sentiment regarding TFL’s potential price movement. A high trading volume coupled with substantial open interest suggests a heightened activity and a sustained interest in the TFL $105 call options. By analyzing both metrics together, you help confirm the prevailing market sentiment, which bolsters your confidence in deciding on the TFL $105 call options.

How Can an Option Have Volume But no Open Interest?

Volume resets daily, but open interest carries over. If an option has volume but no open interest, it means that all open positions were closed in one trading day.

Is Open Interest a Good Indicator?

Rising open interest shows an increase in activity, while falling open interest reveals that traders are closing their positions.

Should Volume or Open Interest Be Higher?

It depends. Volume can be higher than open interest on a given day. Volume resets each trading day, while open interest carries over. When trading volume is higher than open interest, this usually indicates that traders are closing positions (which reduces open interest).

The Bottom Line

Trading does not occur in a vacuum. Indicators that show traders what other market participants are doing can help you discern where a stock price might be headed. Daily trading volume and open interest can be used to identify trading prospects that you might otherwise overlook.

These indicators are also useful for making sure that the options that are traded are liquid, allowing you to easily enter and exit a trade at the best possible price.

Fact checked by Amanda Bellucco-Chatham
Reviewed by Somer Anderson

What Is Deflation?

Deflation is when prices decrease over time. It stands in contrast to inflation, which is when prices rise. Deflation can be driven by many different factors, including an increase in productivity and the abundance of goods and services, a decrease in total or aggregate demand, or a decrease in the supply of money and credit. Most of the time deflation is a good thing, but sometimes it can indicate a contraction of the economy.

When deflation occurs throughout an economy, this typically means there is a fall in the overall level of prices and an increase in the purchasing power of the currency.

Key Takeaways

• Deflation is when prices in a country are falling.
• Deflation can be caused by an increase in productivity, a decrease in overall demand, or a decrease in the volume of credit in the economy.
• Most of the time, deflation is unambiguously a positive trend for the economy, but it can also, under certain conditions, occur along with a contraction in the economy. 
• In an economy dominated by debt-fueled asset price bubbles, deflation can lead to a temporary financial crisis and a period of liquidation of speculative investment known as debt deflation.

Understanding Deflation

Changes in consumer prices can be observed in economic statistics compiled in most nations by comparing changes in a basket of diverse goods and products to an index. In the U.S. the Consumer Price Index (CPI) is the most commonly referenced index for evaluating inflation rates. When the index in one period is lower than in the previous period, the general level of prices has declined, indicating that the economy is experiencing deflation.

This general decrease in prices is a good thing because it gives consumers greater purchasing power. To some degree, moderate drops in certain items, such as food or energy, even have some positive effect on increasing nominal consumer spending. Beyond these basic staples, a general, persistent fall in all prices not only allows people to consume more but can promote economic growth and stability by enhancing the function of money as a store of value and encouraging real saving. 

However, under certain circumstances, rapid deflation can be associated with a short-term contraction of economic activity. In general, this can occur when an economy is heavily laden with debt and dependent on the continuous expansion of the supply of credit to inflate asset prices by financing speculative investment, and subsequently, when the volume of credit contracts, asset prices fall, and speculative over-investments are liquidated. This process is known as debt deflation.

Otherwise, deflation is normally a positive feature of a healthy, growing economy that reflects technological progress, increasing abundance, and rising living standards.

Deflation: Causes and Effects

If, as the common saying goes, inflation is the result of too much money chasing not enough goods in the economy, then conversely deflation can be understood as a growing supply of goods and services being chased by a constant or slower-growing supply of money.

This means that deflation can be brought about either by an increase in the supply of goods and services or by a lack of increase (or decrease) in the supply of money and credit. In either case, if prices can adjust downward, then this results in a generally falling price level.  

An increase in the supply of goods and services in an economy typically results from technological progress, the discovery of new resources, or an increase in productivity.

Consumers’ purchasing power increases over time. Living standards rise as the increasing value of wages and business incomes allow consumers to purchase, use, and consume more and better quality goods and services.

Note

The U.S. government targets an annual inflation rate of 2%.

At times, some economists have expressed fears that falling prices would paradoxically reduce consumption by inducing consumers to hold out or delay purchases in order to pay lower prices in the future. However, there is little evidence that this actually occurs during normal periods of economic growth accompanied by falling prices due to improvements in productivity, technology, or resource availability. 

Moreover, the vast majority of consumption is made up of goods and services that are not easily deferred to the future, such as food, clothing, housing services, transportation, and healthcare.

Beyond these basic needs, even for luxury and discretionary spending, consumers would only choose to reduce current spending if they expect the rate of decrease in prices to outweigh their natural time preference for present consumption over future consumption.

The one type of consumer spending that would suffer from falling prices would be items that are routinely financed by taking on large debts, since the real value of fixed debt will increase over time as prices fall.  

Debt, Speculation, and Debt Deflation

Under specific conditions, deflation can also occur in and after periods of economic crisis. 

In a highly financialized economy, where a central bank, another monetary authority, or the banking system, in general, engages in the continuous expansion of the supply of money and credit in the economy, the reliance on newly created credit to finance business operations, consumer spending, and financial speculation, results in ongoing inflation in commodity prices, rents, wages, consumer prices, and asset prices. 

Increased investment activity starts to take the form of speculation on the price appreciation of financial and other assets, rather than profit and dividend payments on fundamentally sound economic activity.

Business activities tend likewise to depend more and more on the circulation and turnover of newly-created credit rather than real savings to finance ongoing operations. Consumers also come to finance more of their spending by borrowing heavily rather than using their savings. 

Gold is usually considered to be a good hedge against inflation. It can also be a good hedge against deflation.

To compound the problem, this inflationary process usually involves the suppression of market interest rates, which distorts decisions about the type and time horizon of business investment projects themselves, beyond simply how they are financed. Conditions become ripe for debt deflation to set in at the first sign of trouble. 

At that point, either a real economic shock or a correction in market interest rates can put pressure on heavily indebted businesses, consumers, and investment speculators. Some of them have trouble revolving, refinancing, or making their payments on various debt obligations such as business loans, mortgages, car loans, student loans, and credit cards.

The resulting delinquencies and defaults lead to debt liquidation and write-downs of bad debts by lenders, which start to eat away some of the accumulated supply of circulating credit in the economy. 

Banks’ balance sheets become shakier, and depositors may seek to withdraw their funds as cash in case the bank fails. A bank run may ensue, whereby banks have over extended loans and liabilities against inadequate cash reserves and the bank can no longer meet its own obligations. Financial institutions begin to collapse, removing liquidity that indebted borrowers have become even more desperate for.

This reduction in the supply of money and credit then reduces the ability of consumers, businesses, and speculative investors to continue to borrow and bid up asset and consumer goods prices so that prices may stop rising or even begin to fall.

Falling prices put even more pressure on indebted businesses, consumers, and investors because the nominal value of their debts remains fixed as the corresponding nominal value of their revenues, incomes, and collateral falls through price deflation. And at that point, the cycle of debt and price deflation feeds back on itself. 

In the near term, this process of debt deflation involves a wave of business failures, personal bankruptcies, and increasing unemployment. The economy experiences a recession, and economic output slows as debt-financed consumption and investment drop.

What Is Deflation in an Economy?

Deflation is when the prices of goods and services decrease across the entire economy, increasing the purchasing power of consumers. It is the opposite of inflation and can be considered bad for a nation as it can signal a downturn in an economy—like during the Great Depression and the Great Recession in the U.S.—leading to a recession or a depression. Deflation can also be brought about by positive factors, such as improvements in technology.

Is Deflation Worse than Inflation?

It depends. Deflation can be worse than inflation if it is brought about through negative factors, such as a lack of demand or a decrease in efficiency throughout the markets. Deflation can be better than inflation if it is brought about by positive factors, such as improvements in technology that make the costs of goods and services cheaper.

How Do You Make Money During Deflation?

To hedge against deflation, investors can purchase investment-grade bonds, consumer-staple stocks, dividend stocks, and keep their money in cash. A diversified portfolio can protect against a variety of economic scenarios.

The Bottom Line

A little bit of deflation is a product of, and good for, economic growth. But, in the case of an economy-wide, central bank-fueled debt bubble followed by debt deflation when the bubble bursts, rapidly falling prices can go hand-in-hand with a financial crisis and recession.

Thankfully, the period of debt deflation and recession that follows is temporary and can be avoided entirely if the perennial temptation to inflate the supply of money and credit in the first place can be resisted. 

All in all, it is not deflation, but the inflationary period that then leads to debt deflation that is dangerous for a country’s economy. Perhaps, unfortunately, consistent and repeated inflation of this kind of debt bubble by central banks has become the norm over the past century or so.

At the end of the day this means that while these policies persist, deflation will continue to be associated with the damage it causes to the economy.

Fact checked by Suzanne Kvilhaug
Reviewed by Andrew Schmidt

The relative rotation graph (RRG) is a sophisticated tool in technical analysis that helps investors decide which sectors, stocks, and other assets to pursue. Investors can use the graph to visually compare the performance and momentum of securities and asset classes against a benchmark.

RRGs plot assets on a two-dimensional graph, with the x-axis representing the relative strength ratio and the y-axis for relative strength momentum. This allows traders and investors to visually assess the relative strength and trend line of different securities, making it valuable for trading, rotation, and asset allocation strategies.

Key Takeaways

• The relative rotation graph is a chart used in technical analysis to test the performance and momentum of securities or asset classes against a benchmark.
• RRGs provide a comprehensive view of the market, helping investors spot trends, compare multiple securities simultaneously, and make more informed decisions when rebalancing portfolios.
• RRGs should be used with other forms of analysis since they are a partial view of the market.
• Several tools and resources are available to create and analyze RRGs, including professional software from Bloomberg and Optuma and accessible platforms like StockCharts.com.

What Is a Relative Rotation Graph?

RRGs are used to identify which stocks or sectors are underperforming and outperforming a market index or benchmark. The RRG has four quadrants: leading, weakening, lagging, and improving.

Each quadrant is for different stages of an asset’s performance cycle, providing insights into the rotation of market leadership. This movement of securities through the quadrants helps to spot trends and potential reversals and could provide investors with a strategic advantage in both short- and long-term trading.

RRGs were created by Julius de Kempenaer in the early 1990s to visualize the relative performance of stocks and other securities against a benchmark and each other. His work has been valuable because it helps investors make more informed decisions about trading, rotation, and asset allocation.

RRGs are an excellent visual way of analyzing market trends and relative performance. However, like all technical tools, they should be used with other techniques for a more comprehensive approach to trading and investing.

Understanding the Parts of the Relative Rotation Graph

The key elements of the RRG and how they indicate relative strength and momentum are as follows:

• Axes: The x-axis is the relative strength ratio. This axis measures the performance of a security relative to a benchmark (hence, the strength is “relative”). A value more than 100 indicates outperformance, while a value less than 100 indicates underperformance. The y-axis represents the momentum of the relative strength. This axis shows the rate of change in the relative performance. It is essentially the momentum of the relative strength ratio.
• Top right quadrant: The top right quadrant in the RRG is the leading quadrant. Securities in this quadrant are outperforming the benchmark, and their momentum is positive. This indicates strong and improving performance.
• Bottom right quadrant: The bottom right quadrant is the weakening quadrant. Here, securities still outperform the benchmark, but their momentum decreases. Being here suggests that while they are strong, they might lose their edge.
• Bottom left quadrant: This is the lagging quadrant. Securities in this area are underperforming the benchmark with negative momentum. It is a sign of weakness.
• Top left quadrant: This is the improving quadrant. This quadrant contains securities that are underperforming the benchmark but show increasing momentum. Being here suggests the potential for a turnaround.
• Data points and movement: Each security or asset is represented as a data point on the graph. The position of a data point within the graph indicates its relative strength and momentum. The movement of these data points is tracked over time, usually in a clockwise direction through the quadrants, which illustrates the evolution of their relative performance.

RRGs help investors spot trends and compare several securities at once. However, RRGs should be used with other forms of analysis since they provide a relative, not absolute, view.

How to Interpret Relative Rotation Graphs

Interpreting RRGs involves analyzing the patterns and movements of securities on this chart to identify market leaders, laggards, and potential rotation opportunities.

Movements and Patterns in RRGs

Securities in the RRG generally move clockwise through the four quadrants. This rotation reflects the natural ebb and flow of securities’ relative strength and momentum relative to a benchmark. The further a security is from the center, the stronger its relative strength or weakness is compared with the benchmark. A security far out in the leading or lagging quadrant has a strong trend, whether positive or negative.

The speed at which a security moves through the quadrants can indicate the stability of its trend. Rapid movements might suggest more volatile or less stable trends. Indeed, many RRGs show tails behind the data points, representing their historical path. Longer tails provide more context on historical performance and trend stability.

Identifying Market Leaders and Laggards

Securities in the leading quadrant are outperforming the benchmark with positive momentum and are considered market leaders. A security with a presence or movement deeper into this quadrant suggests a strong and stable outperformance.

Meanwhile, securities in the lagging quadrant are underperforming and have negative momentum. These are the laggards of the market. A security that is continuously in or moving deeper into this quadrant has a strong downtrend relative to the benchmark.

Identifying Rotational Opportunities

A security moving from the improving quadrant into the leading quadrant can be an opportunity. This shift indicates a security is starting to outperform the benchmark with increasing momentum. Similarly, a security moving from the weakening to the lagging quadrant suggests that its previous outperformance is deteriorating, and it is now starting to underperform. This could signal a selling opportunity or a warning to avoid new investments.

Meanwhile, a move from lagging to improving suggests that a security begins to reverse its underperformance. This indicates an early stage of recovery, a potential buying opportunity for contrarian investors. Also, securities shifting from leading to weakening are still outperforming but are losing momentum. This could be a signal to take the profits or closely watch the situation to see if it continues to lose steam.

Using Relative Rotation Graphs with Other Technical Tools

RRGs can be more effective when used with other charts in the technical analyst’s toolkit. For example, once an RRG helps determine which sectors or stocks show relative strength, you can review stocks in those sectors in greater depth.

Candlestick patterns and volume analysis can give more details on the trading behavior for specific stocks, cluing you in about potential reversals in price trends. Indicators like moving averages, the relative strength index (RSI), and Bollinger Bands can also be used to assess the momentum and volatility of these stocks, helping you decide on entries and exits.

The RRG’s ability to depict sector rotation can also provide great help for those using a top-down investment approach. When showing the sectors moving into the leading quadrant, you might allocate more to sectors poised for growth and reduce your exposure to those going into the lagging quadrant.

This sector rotation strategy can be particularly useful during different phases of the economic cycle, as certain sectors tend to do better than others based on economic conditions. This then points to how fundamental analysis can be used with the RRG for a fuller picture of particular sectors and their prospects.

Benefits and Limitations of Relative Rotation Graphs

RRGs offer several advantages and limitations when used in trading, analysis, and portfolio management. Understanding these can help make better use of them for investing.

Benefits

• Easy visualization of market dynamics

• Comparison tool

• Helps identify trends

• Helps with timely decision making

• Complements other analysis

• Helps with deciding asset allocation

Limitations

• Shows relative, not absolute rotation

• Lagging indicator

• Requires a benchmark

• Not a stand-alone tool

• Provides no indication of value

Benefits of Relative Rotation Graphs

Here are some benefits of RRGs:

• Easy visualization of market dynamics: RRGs provide a clear, visual representation of the relative strength and momentum of various securities or sectors, making it easier to understand complex market moves.
• Comparison tool: With RRGs, you can compare several securities simultaneously against a benchmark, which can be valuable for portfolio diversification and sector rotation strategies.
• Helps identify trends: RRGs help pick out leaders, laggards, and emerging trends by observing the movement of securities through different quadrants.
• Helps with timely decision making: The dynamic nature of RRGs aids investors in making timely decisions by highlighting changes in momentum and strength before they become evident through price movements alone.
• Complements other analyses: RRGs can be used alongside other technical, fundamental, and quantitative analysis tools, providing a more holistic view of the market.
• Helps with deciding asset allocation: RRGs are particularly useful for sector analysis and distributing assets since they help identify industries or asset classes likely to outperform or underperform.

Limitations of Relative Rotation Graphs

Here are some limitations of RRGs:

• Shows relative, not absolute, rotation: RRGs illustrate the performance relative to a benchmark, not the absolute performance. A security in the leading quadrant could still be losing value in a bear market.
• Lagging indicator: RRGs inherently lag. They reflect past performance and trends, which may not always predict future movements.
• Requires a benchmark: The effectiveness of RRGs depends on the choice of an appropriate benchmark, which can vary based on the assets.
• Not a stand-alone tool: RRGs should not be used by themselves. They do not deliver insights into company fundamentals, macroeconomic conditions, or market sentiment.
• Provides no indication of value: RRGs do not provide information about the value of securities. A stock might be moving into the leading quadrant but still be overpriced.

Note

While RRGs are powerful for visualizing and analyzing market trends and relative performance, they are most effective when used as part of a broader, diversified approach to investment analysis and decision making. Understanding their limitations is crucial to avoid overestimating their relevance.

Differences Between the Relative Rotation Graph and the Relative Strength Index

	Relative Rotation Graph (RRG)	Relative Strength Index (RSI)
Scope	Compares several securities against a benchmark	Analyzes the price momentum of a single security
Dimensions	Provides a two-dimensional view	One-dimensional oscillator
Interpretation	Better for relative performance and identifying trends	Illustrates momentum and potential price reversals
Usage	Typically used for asset allocation and sector rotation	Commonly used to identify potential entries and exits

The RRG and the relative strength index are both used in technical analysis but serve different purposes and provide different kinds of information. RRGs are used to compare several securities against a benchmark, while the RSI is used to analyze the price momentum of a single security. In addition, RRGs offer a two-dimensional view (strength and momentum), while the RSI is a one-dimensional oscillator (it constructs high and low bands and provides a trend indicator).

The RRG is best used for relative performance and identifying trends. Meanwhile, the RSI is best for ascertaining momentum and potential price reversals. Another set of differences is that the RRG is often used for asset allocation and sector rotation, while the RSI commonly helps identify potential entries and exits.

As such, the RRG is a tool used to visualize and compare the relative strength and trends of multiple securities while the RSI sets out the momentum of individual securities and can help identify when there are overbought or oversold conditions.

Resources for Creating Relative Rotation Graphs

Making your RRGs requires specialized tools and resources, as these graphs involve complex calculations and dynamic visuals. Here are some great tools to use:

• RRG Research: Founded by Julius de Kempenaer, the creator of RRGs, the firm’s site provides tools and insights related to RRGs. The website offers educational resources, analysis, and access to RRGs.
• Bloomberg Professional Services Software: This software is a leading financial data and analytics platform and offers RRG charts as part of its services. It provides functions for creating and customizing RRGs, making it a popular choice among professional investors and analysts.
• Refinitiv Eikon: This platform is another leading financial data and analytics provider that offers RRG charts as part of its services.
• StockCharts.com: This online platform offers various chart tools, including RRGs. It has a user-friendly interface for creating RRGs, suitable for professionals and individual investors.
• Optuma: Optuma is a professional-level technical analysis software that includes RRGs among its features. Known for its advanced analysis tools, Optuma caters to professional traders and analysts.

The tool you choose depends on your needs, skill level, and access to resources.

Which Technical Analysis Indicators Work Well with Relative Rotation Graphs?

Combining RRGs with other indicators can provide a more comprehensive view of the market and help refine investment strategies. Some indicators include moving averages, the RSI, the moving average convergence/divergence, Bollinger Bands, support and resistance levels, and other chart patterns.

What Asset Groups Work Well with Relative Rotation Graphs?

RRGs are best used to analyze asset groups when relative performance is key. These can include equity sectors and industries, exchange-traded funds (ETFs), indexes, benchmarks, fixed-income securities, commodities, and currencies.

RRGs’ ability to compare several assets simultaneously makes them invaluable for a wide range of investment strategies, from picking individual stocks to deciding on broad asset allocations. However, like all financial and investment tools, they should be used as part of a broader, diversified approach to market analysis and not relied upon in isolation.

Which Benchmarks Work Well with Relative Rotation Graphs?

The benchmark chosen is critical in interpreting RRGs, setting the standard against which the other securities or asset classes are measured. The benchmark to use depends on the type of assets being analyzed and the specific goals of the analysis. Some commonly used benchmarks include broad market, sector, fixed-income, commodity, regional, country-specific, currency, real estate, and thematic indexes.

How Can the Reliability of Relative Rotation Graphs Be Improved?

Increasing the reliability of RRGs involves choosing the right benchmarks, using quality data, understanding the tool’s limitations, and integrating it with other forms of analysis. Regular reviews, adaptation to changing market conditions, and ongoing education are essential for effectively using RRGs in trading and investments.

The Bottom Line

RRGs help technical analysts visualize the relative performance and momentum of different securities against a chosen benchmark. Its design allows traders and investors to grasp market shifts and identify assets gaining or losing strength against others. This makes RRGs useful for strategies involving sector rotation, asset allocation, and portfolio diversification.

For traders, RRGs provide a strategic edge by enabling a clear understanding of various market segments’ relative trends and strengths. By integrating RRG analysis with other technical indicators and fundamental insights, traders can identify potential entry and exit points more effectively.

Warren Buffett is widely regarded as one of the greatest investing minds of all time. The “Oracle of Omaha” earned a bachelor’s degree from the University of Nebraska and a master’s degree in economics from Columbia University, where he studied under legendary investor Benjamin Graham.

But despite his own education, the Berkshire Hathaway Inc. (BRK.A) CEO has said he doesn’t care where someone went to school—or whether they attended college at all. “I never look at where a candidate has gone to school. Never!” he wrote in a February 2025 letter to shareholders.

Instead, Buffett believes successful business leadership stems from innate talent and real-world experience rather than prestigious diplomas.

Key Takeaways

• Warren Buffett values innate business talent and practical experience over prestigious degrees.
• He has cited successful entrepreneurs, like Pete Liegl and Bill Gates, as examples of business leaders who thrived without graduating from elite schools.
• Buffett has said he considers a $100 public-speaking course to be the most valuable education for his business career, despite also earning a bachelor’s degree from the University of Nebraska and a master’s degree from Columbia University.

What Buffett Says About Finding Good Business Talent

In his 2025 letter, Buffett said that while great managers can come from prestigious schools, there are many successful business leaders who didn’t attend elite institutions or even complete their formal education.

“I was lucky enough to get an education at three fine universities,” Buffett wrote. “And I avidly believe in lifelong learning. I’ve observed, however, that a very large portion of business talent is innate with nature swamping nurture.”

Buffett mentioned three examples of successful business minds who didn’t graduate from elite schools:

• Pete Liegl founded Forest River, a manufacturer of recreational vehicles that had $1.6 billion in annual sales when it was acquired by Berkshire Hathaway in 2005. Liegl received a bachelor’s degree from Northern Michigan University and an MBA from Western Michigan University. In his 2025 letter, Buffett praised Liegl as “a man unknown to most Berkshire shareholders but one who contributed many billions to their aggregate wealth.”
• Bill Gates dropped out of Harvard College to start Microsoft (MSFT) and became one of the world’s wealthiest people, though he hasn’t encouraged other students to do the same. “Although I dropped out of college and got lucky pursuing a career in software, getting a degree is a much surer path to success,” he wrote in 2015.
• Ben Rosner founded Associated Retail Stores, a retail chain that had 75 women’s apparel stores when it was acquired by Berkshire Hathaway in 1978. Buffett described Rosner as “a retailing genius,” despite having only a sixth-grade education.

Does a Diploma Still Matter?

While Buffett attended three universities, he has said that he considers a $100 public-speaking course to be “the most important degree I have.”

“It’s certainly had the biggest impact in terms of my subsequent success,” he said in an interview for Getting There: A Book of Mentors. He said he does not display his diplomas from the University of Nebraska or Columbia University in his office, but he keeps the public-speaking certificate on display.

“Some people are going to get a lot out of advanced education, and some people are going to get very little,” Buffett said in a 2019 interview with Yahoo Finance. “It depends on the person, much more than it depends on the school.”

Research shows that a college education does carry significant value for students, as people with higher educational attainment tend to earn more money. In 2022, the median earnings of those with a bachelor’s degree were 59% higher than the median earnings of those who had only completed high school. People with only a high school education also face higher rates of unemployment compared to people with either an associate’s or a bachelor’s degree.

It’s worth noting that the outcome of higher education can vary significantly depending on the type of school a student attends. Most colleges produce graduates who earn more than the typical high school graduate a decade after enrollment, according to a 2024 analysis by the HEA Group examining data from about 5 million former students. But at the majority of for-profit schools, most former students earned less than high school graduates 10 years after enrolling, the report found.

Meanwhile, public perception could be shifting to align more with Buffett’s view on the value of higher education. A 2023 Pew Research Center survey found that about half (49%) of those surveyed say a four-year college degree is less important for attaining a well-paying job than 20 years ago.

The Bottom Line

Buffett’s comments cut through the credentialism that dominates many hiring practices today. While education can provide valuable knowledge, Buffett emphasizes that natural talent, practical experience, and proven results ultimately matter more to him than where—or if—someone went to college.