financial education

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.

Reviewed by Lea D. Uradu
Fact checked by Suzanne Kvilhaug

Comparing progressive taxes to flat taxes is an ongoing debate, with both systems having supporters and critics. In the United States, the historical favorite is the progressive tax. Progressive tax systems have tiered tax rates that charge higher income individuals higher percentages of their income and offer the lowest rates to those with the lowest incomes. Flat tax plans generally assign one tax rate to all taxpayers.

Both of these systems may be considered “fair” in the sense that they are consistent and apply a rational approach to taxation. They differ, however, in their treatment of wealth, and each system may be called “unfair” according to who benefits or is treated differently.

Key Takeaways

• Advocates for a progressive tax argue it promotes economic equality by taxing higher incomes at higher rates.
• Flat tax supporters claim taxing all income at the same rate is fairer, simplifies the system, and encourages economic growth.
• Critics of progressive taxes contend they may hinder economic growth by discouraging investment and job creation.
• Detractors of flat taxes argue they can exacerbate income inequality by disproportionately benefiting the wealthy.
• A case could be made that either system is fair—or unfair.

Understanding Progressive Taxes

Progressive tax systems levy higher tax rates on individuals with higher incomes. In countries like the United States, a tiered structure consists of multiple tax brackets, each associated with its own marginal tax rate. As income rises, individuals move into higher brackets, incurring progressively higher rates on specific income thresholds. For example, someone earning $600,000 faces a higher overall tax rate than someone earning $60,000.

This progressive approach aims to distribute the tax burden equitably, with wealthier individuals contributing a larger share of their income. The rationale is those who have less should contribute less, and those with more income who have benefitted from economic prosperity should be responsible for perpetuating the growth cycle.

Argument for Progressive Taxes

Supporters of the progressive system claim that higher salaries enable affluent people to pay higher taxes and that this is the fairest system because it lessens the tax burden on low-income people. Since low-income people have the smallest disposable incomes and spend a higher proportion of their money on basic survival needs, such as housing, this system allows them to keep more of their money. Affluent taxpayers are better able to provide for their physical needs and therefore are charged more. A flat tax would ignore the differences between taxpayers of different means. Some argue that flat taxes are unfair for this reason.

Note

The United States has a progressive tax structure. Individuals are taxed at rates ranging from 10% to 37% based on their adjusted gross income, with the higher rate applicable for individuals with more taxable income.

Understanding Flat Taxes

With a flat tax, there’s one tax rate. Theoretically, taxes do not discourage higher earners from earning more. This system does, however, risk taking too much money away from people with lower incomes.

Argument for Flat Taxes

Supporters of flat taxes argue that they’re a straightforward and efficient way to handle taxes. Unlike more complicated systems with varying rates based on income, a flat tax applies the same percentage to everyone, making it easier to understand and comply with. The simplicity of flat taxes is also thought to encourage economic growth by providing a stable and predictable tax environment. Many flat tax supporters believe the flat tax is a more fair approach, as every taxpayer is treated the same.

Progressive Tax Benefits

• It reduces the tax burden on those with the least income

• Gives lower earners more income to pay for housing and other essentials

• Helps reduce income inequality

Flat Tax Benefits

• It doesn’t put a higher tax burden on those with a higher income

• Gives everyone the same percentage of their income to spend

• Encourages individuals to earn more without fear of tax repercussions

Limitations of Progressive Taxes

Sometimes, to best understand whether something is fair, you must look at its downsides. We’ll start by discussing the limitations of progressive taxes.

Critics of progressive taxes point out a couple of drawbacks. One concern is that when the wealthy face higher tax rates, it might slow down the economy. The idea is that if wealthy individuals and businesses have to pay more in taxes, they might be less likely to invest or expand, which could then limit overall economic activity, job creation, and consumer spending.

Last, critics of progressive taxes also highlight concerns about tax evasion and the use of legal loopholes as people try to minimize their tax payments. Individuals are incentivized to seek legislation and strategies that can further reduce their income. Therefore, those who should be taxed at a higher marginal rate may ultimately pay a much lower effective rate.

Limitations of Flat Taxes

Critics of flat taxes raise several concerns as well. The primary argument is that flat taxes can be regressive, placing a proportionately higher burden on lower-income individuals. Since everyone pays the same percentage regardless of income, those with lower earnings feel the impact more based on the proportion of their income they have to pay.

Another criticism is related to the potential reduction in government revenue. Since flat taxes often result in lower rates for the wealthy, there’s concern that the government might struggle to fund essential services and social programs adequately. When wealthier people have to pay more money in taxes, programs are better funded.

Last, critics also point out that the simplicity of flat taxes, while appealing, might oversimplify the intricacies of people’s financial situations. For instance, should the IRS still offer tax credits under a flat tax regime, individuals will naturally fall into a progressive system as some will get credits while others won’t.

Which Is More Fair: Flat or Progressive Tax?

The debate between flat taxes and progressive taxes centers on the fairness of distributing the tax burden. In truth, the answer of which is more fair resides in personal preference and individual ideologies.

In the end, this analysis won’t conclude what is most “fair.” A valid argument could be made that either tax is the more fair option.

How Are Tax Brackets Determined in Progressive Systems?

Tax brackets in progressive systems are determined by income levels. Policymakers set income thresholds for each bracket, and the income within each bracket is taxed at the corresponding rate. In the United States, the IRS often adjusts the tax bracket dollar amounts in response to inflation.

Can Progressive Taxes Reduce Income Inequality?

Progressive taxes are designed to reduce income inequality by imposing higher tax rates on those with higher incomes. The additional revenue generated is often used to fund social programs that aim to support lower-income individuals and address economic disparities. In theory, income inequality is reduced with progressive taxes as wealthier people support programs that are perhaps more useful to lower-income individuals.

Are Flat Taxes Regressive in Nature?

Yes, flat taxes can be considered regressive. They may result in a proportionately higher tax burden on lower-income individuals. Even though everyone has the same tax rate, those with less income will likely pay a higher percentage of their disposable income.

Can Flat Taxes Encourage Economic Growth?

Advocates of flat taxes argue that the simplicity and transparency of this system can reduce compliance costs, stimulate economic activity, and attract economic investment. By taxing the wealthiest a lower amount (compared to progressive taxes), more money from these people can theoretically be put into the economy to drive job growth and business development.

The Bottom Line

With a progressive tax, people with higher incomes pay a higher percentage of their income in taxes than people with lower incomes. A flat tax, on the other hand, levies a uniform tax rate on all income levels, with everyone paying the same percentage of their income in taxes. The choice between these systems often reflects societal values and personal beliefs, as each can be seen as “fair” in certain contexts.

Candlestick charts are a cornerstone in technical analysis and perhaps one of the earliest forms of technical analysis, having been developed in the 18th century in Japan by rice trader Munehisa Homma. They help traders and investors quickly assess price movements and short-term market sentiment.

Key Takeaways

• Candlesticks originated in Japan and are useful for recognizing market sentiment and the balance of power between bulls and bears.
• Key components include the real body, shadows, and color.
• Understanding bullish and bearish patterns helps predict short-term price movements.
• Candlesticks offer visual and analytical advantages over other chart types.
• Due to their limitations, they are best used alongside other technical tools.

History of Candlesticks

With its origins in 18th century Japan, candlestick charting was built on the idea that market prices are influenced by both trader psychology and the balance of power between the bulls and bears. By studying historical price changes, Homma identified patterns that signaled shifts in sentiment and market control, helping him anticipate price reversals and trends. His system became widely adopted among Japanese merchants and evolved into a structured approach to market analysis.

The use of candlestick charts remained confined to Japan until Nison introduced them to Western financial markets in the late 20th century. Nison’s research and teachings highlighted the power of candlestick formations in predicting price movements, leading to widespread adoption among traders across stocks, forex, and commodities markets.

Today, candlestick charts have been integrated into the architecture of technical analysis, offering traders a visually intuitive way to assess market sentiment.

Components of a Candlestick

Each candlestick represents a specific period and is made of three (3) components:

• Real Body or Body: This is the rectangular section of the candlestick and shows the range between the opening and closing prices. Long bodies indicate strong buying or selling pressure, while short bodies suggest indecision.
• Shadows or Wicks: These extend above and below the body, marking the highest and lowest prices reached during the period, offering insights into market volatility.
• Color: The color of the candle provides a quick snapshot of price direction. A bullish candlestick is typically green or white and means the closing price is higher than the opening price, indicating upward momentum. Inversely, a bearish candlestick, generally red or black, signals that the closing price was lower than the opening price, reflecting downward pressure.

How to Read a Candlestick

Similar to bar charts, candlestick charts comprise four price points: open, high, low, and close. The high is marked by the top of the upper shadow or the real body if there is no shadow, while the low price is represented by the bottom of the lower shadow or the real body if there is no lower shadow.

Finally, the closing price’s relationship to the open determines whether the candlestick is bullish or bearish. If the price closes above the open price, the candlestick is bullish. On the other hand, if the price closes below the open price, the candlestick is bearish. With colored candlesticks, you can recognize bullish or bearish candlesticks instantly.

By analyzing these four price points over multiple candlesticks, traders can identify market sentiment and how the bulls and bears are faring against each other, helping to predict potential price changes.

Common Candlestick Patterns

Bullish Patterns

Bullish Engulfing Pattern

This pattern consists of two candlesticks. The first is a small, bearish candle followed by a larger, bullish candle. As the name implies, the larger candle completely engulfs the previous candle’s body. That is, it opens below the lowest point of the smaller candle’s body, but the bulls take over and push the price to a close above the highest point of the previous candle’s body. This indicates a shift from bearish to bullish, reflecting strong buying pressure that may mark a potential reversal.

Bullish Harami Pattern

Another bullish candlestick pattern is the bullish harami. This is a two-candlestick reversal pattern. It consists of a large bearish candlestick followed by a smaller bullish candlestick that is completely contained within the body of the previous larger candle. This formation suggests that selling pressure is weakening, and on the second day, buyers are reasserting control. Confirmation is seen when the harami is followed by a strong bullish candle.

Bullish Harami Cross

This is a variation of the bullish harami pattern where the second candlestick is a doji, signifying very little difference, if any, between the open and close. Unlike the bullish engulfing pattern, which shows the bulls gaining the upper hand, the doji reflects a stalemate. This often means selling pressure has faded the bulls are about to take over for a while.

Rising Three Methods

This bullish continuation pattern signals a temporary consolidation before the prevailing uptrend resumes. The components include a strong bullish candlestick, followed by three or more smaller, bearish candlesticks that remain within the range of the first candle. Finally, another strong bullish candlestick closes above the most recent bullish candle’s close.

The smaller bearish candles reflect a brief period of profit-taking or a pause in buying without much selling pressure. The final bullish candle confirms that buyers have regained control and the price is likely to continue moving higher.

Morning Star

The morning star is a three-candlestick pattern that appears at the bottom of a downtrend. This first candle is a long bearish candle, while the second is a small-bodied candle that indicates a stalemate, much like the bullish harami cross. Lastly, there is a strong bullish candle that confirms the reversal. This pattern suggests that on the third day of the pattern, buyers have gained control. It often leads to an uptrend.

Bearish Patterns

Bearish Engulfing Pattern

This pattern consists of two candlesticks. The first is a small, somewhat bullish candle at the top of an uptrend, followed by a larger bearish candle that completely engulfs the previous candle’s body. The bearish engulfing pattern indicates a shift in market sentiment from bullish to bearish, suggesting an impending price decline. It typically marks the end of an uptrend.

Evening Star

This is a three-candlestick pattern that appears at the top of an uptrend. The first candle is a long bullish candle. It is followed by a small-bodied candle that signals market indecision. Finally, a strong bearish candle confirms the reversal. This pattern suggests buying momentum is weakening and sellers are taking control. It often leads to a downtrend.

Bearish Harami​

This is a two-candlestick pattern that signals an uptrend’s potential reversal. It comprises a large bullish candlestick that is followed by a smaller, bearish candlestick that is completely contained within the body of the previous candle. The bearish harami signals that buying momentum is weakening, and sellers may be starting to take control. A strong bearish candle would confirm the reversal.

Bearish Harami Cross

This is a variation of the bearish harami, where the second candle is a doji, showing near identical opening and closing prices. This signals strong indecision and weakening bullish momentum. A strong bearish candle would confirm the reversal.

Falling Three Methods

The falling three (3) methods is a bearish continuation pattern that indicates a temporary consolidation before the downtrend resumes. It consists of a strong bearish candlestick, followed by three or more smaller bullish candlesticks that stay within the range of the first candle, and finally, another strong bearish candlestick that closes below the first candle’s close. The smaller bullish candles represent a brief pause in selling pressure, but their inability to break higher suggests that bears remain in control. The final bearish candle confirms the continuation of the downtrend.

Comparing Candlestick Charts to Other Chart Types

Candlestick charts offer superior visual representation and pattern recognition, making them ideal for active traders. While bar charts provide similar data, they lack the intuitive visual signals offered by candlesticks. Line charts, though useful for spotting trends, do not provide detailed price action.

Feature	Candlestick Charts	Bar Charts	Line Charts
Price Points	Open, High, Low, Close	Open, High, Low, Close	Close Only
Visual Clarity	High	Moderate	Low
Pattern Recognition	Strong	Strong	Weak

Practical Applications of Candlestick Charts

Candlestick charts help traders analyze potential market turning points by more clearly illustrating what’s happening in the battle between the bulls and bears than bar charts or line charts. Practical applications include:

• Trend Identification: Traders and investors analyze candlestick patterns to determine whether a market is trending, though for this purpose they’re best used in conjunction with an indicator such as the Average Directional Index.
• Confirmation: Used with other technical analysis indicators as well as support and resistance levels, candlestick formations can flag and confirm short-term market turning points.

Limitations and Considerations

Candlesticks do have limitations. Their predictive power is limited mostly to the short term, and they are most useful to swing traders. Relying solely on candlestick patterns can lead to misinterpretations and suboptimal decision making. Incorporating additional indicators, volume analysis, support and resistance levels, and even fundamental analysis can help traders and investors make more informed and accurate decisions.

The Bottom Line

Candlestick charts help traders and investors analyze price movements, market sentiment, and trend reversals. Developed in Japan, they use opening, high, low and closing prices to form predictive patterns. Since patterns can produce false signals, confirming them with support, resistance and other technical tools is essential.

Fact checked by Suzanne Kvilhaug
Reviewed by Andrew Schmidt

Environmental, social, and governance (ESG) scores are an essential tool for investors to assess a company’s sustainability and ethical performance. These scores typically range from 0 to 100, with a score of less than 50 considered relatively poor and more than 70 considered good.

Below, we will guide you through the basics of ESG scores, their key components, who the main rating agencies are, and how to access them—as well as provide some insight into their implications for investors.

Key Takeaways

• ESG scores provide a measure of a company’s environmental, social, and governance performance.
• Various criteria are used to evaluate companies on these three dimensions.
• Third-party ESG rating agencies offer different methodologies and scoring systems.
• ESG scores can be found online via brokerage platforms, financial portals, and rating agency websites.
• Investors use ESG scores to make informed investment decisions and assess the sustainability of a company’s operations.

ESG Scores: The Basics

ESG scores are a measure of how well a company addresses risks and concerns related to environmental, social, and corporate governance issues in its day-to-day operations. These scores are important for socially responsible investors who want to invest in companies with strong ethical and sustainability practices, as they provide insight into a company’s long-term performance and resilience.

ESG scores can serve as a basis for comparing companies and funds across different factors, such as a company’s carbon footprint and labor practices. These individual factors are combined and weighted to come up with a single ESG score that can be found for a significant portion of publicly traded funds and securities.

However, it is essential to note that ESG scores come from different providers that have their own ratings scheme and evaluation metrics, which means they are not standardized. Moreover, some ratings firms place greater emphasis on the E, S, or G parts. This lack of standardization can lead to variations in scores for the same company across different rating agencies.

As a result, investors should use ESG scores as a starting point for their research and compare them across multiple providers to get a comprehensive understanding of a company’s sustainability performance. Furthermore, investors should also consider other factors, such as financial performance and industry trends, when making their investment decisions to ensure a well-rounded approach to evaluating potential investment opportunities.

What Do ESG Scores Measure?

ESG scores evaluate companies based on various criteria, which are classified into three main categories:

Environmental Issues

• Carbon footprint
• Energy efficiency
• Renewable energy usage
• Water usage
• Pollution
• Waste management
• Biodiversity impact

Social Issues

• Labor practices
• Pro-diversity efforts
• Human rights
• Community relations
• Health and safety

Governance Issues

• Board diversity and structure
• Executive compensation
• Shareholder rights
• Business ethics
• Risk management
• Supply chain management

ESG Rating Agencies and Methodologies

ESG rating agencies are third-party companies that create ESG scoring systems. Each agency has a unique methodology and set of criteria for evaluating companies. Some rating agencies use a 0 to 100 scale, while others, like MSCI, classify companies as leaders, average, or laggards.

There are more than 140 ESG rating agencies in the United States alone, and each agency has its own methodology, which can be found on their respective websites or on resources such as the IRIS Carbon beginner’s guide to ESG rating agencies and methodologies. Below, we list some of the most influential ESG rating agencies and a brief overview of their scoring methodology.

Some of the Most Relevant ESG Rating Agencies & Data Providers

• Bloomberg ESG Data: Bloomberg provides a variety of data and proprietary scores that investors can use to assess company or government disclosure and performance on a wide range of ESG and thematic issues. Bloomberg’s ESG and thematic scores can integrate into company research and portfolio construction. Bloomberg’s proprietary quant model is informed by sustainability and industry frameworks, research, and analysis to reduce noise, normalize data, address size bias, and reduce disclosure gaps.
• Dow Jones Sustainability Indexes: The Dow Jones Best-in-Class World Index represents the top 10% of the biggest 2,500 companies in the S&P Global Broad Market Index based on long-term environmental, social, and governance criteria. The Dow Jones Sustainability North America Composite Index comprises the top 20% of the largest 600 North American companies based on the same criteria.
• MSCI ESG Research: According to MSCI, a “leader” (rated AAA and AA) indicates that a company leads its industry in managing the most significant ESG risks and opportunities. “Average” (rated A, BBB, or BB) companies are described by a mixed or unexceptional track record of managing ESG risks and opportunities relative to industry peers. A “laggard” (rated B or CCC) trails its industry based on its high exposure and failure to manage significant ESG risks.
• Sustainalytics: Sustainalytics is a leading ESG research and analytics firm. It produces ESG scores on a scale of 0 to 100, with a higher score indicating better environmental, social, and governance performance. The scores are normalized by industry to allow for comparability between companies operating in the same sector. In addition to the overall ESG score, Sustainalytics provides scores for each of the three dimensions (environmental, social, and governance) on the same 0 to 100 scale. This granularity enables investors to gain a more in-depth understanding of a company’s performance in each of the three ESG categories.
• LSEG Data & Analytics: LSEG is another prominent provider of ESG scores. Its scores are presented on a scale of 0 to 100, with higher scores indicating better environmental, social, and governance performance. The scores are percentile-ranked—for example, a score of 80 would indicate that a company performs better than 80% of its peers in the same industry.
• S&P Global: S&P Global uses its “Shades of Green” methodology to assess how a company contributes to “a low carbon and climate resilient future.” The ratings are red, yellow, light green, medium green, and dark green, with red being the lowest rating and dark green being the highest.
• ISS ESG: ISS rates companies from a scale of A+ to D- with the letter rating corresponding to excellent, good, medium, or poor. It provides a holistic approach to rating sustainability, assessing the risk and impact on all stakeholders, including employees, suppliers, customers, ecosystems, and communities.
• CDP Scores: CDP (formerly known as the Carbon Disclosure Project) focuses on environmental impact, or the “E” in ESG. CDP scores focus on individual companies and their efforts to disclose, manage, and reduce their environmental impact. Companies participating in the CDP disclosure process receive a score (A to D-) based on their transparency, risk management, and climate change mitigation efforts. A higher score (e.g., A or A-) indicates better environmental performance and commitment to addressing climate change. CDP scores are designed to incentivize companies to improve their environmental performance and provide investors with valuable information on corporate sustainability practices.
• Climetrics: CDP also introduced Climetrics scores, the world’s first climate impact rating system for investment funds. This innovative rating system enables investors to make climate-conscious investment decisions by assessing the climate impact of various funds. Climetrics ratings use a scale of one to five green leaves, with one leaf representing a low climate impact score and five leaves indicating the highest climate impact score. The ratings take into account several factors, such as a fund’s portfolio holdings, its asset manager’s climate performance, and the company’s climate-related disclosures.
• Corporate Knights Global 100: Corporate Knights has been ranking the world’s 100 most sustainable corporations since 2005, based on a rigorous assessment of public companies around the world with revenue of at least $1 billion. Companies are scored on each of the key performance indicators relative to their industry peers, and the top 100 performers are included in the Global 100 ranking. The list aims to showcase best practices and serve as a benchmark for investors and companies seeking to adopt more sustainable business models.
• FTSE Russell ESG Scores: FTSE Russell’s ESG Scores and data model allow investors to understand a company’s exposure to, and management of, ESG issues in multiple dimensions measuring ESG risk and performance on 8,000 securities across 47 developed and emerging markets. The ESG Scores are composed of an overall rating that breaks down into underlying Pillar and Theme Exposures and Scores. The Pillars and Themes are built on over 300 individual indicator assessments that are applied to each company’s unique circumstances.
• RepRisk: RepRisk produces The RepRisk Index (RRI). The RRI dynamically captures and quantifies reputational risk exposure related to ESG issues. The scale ranges from 0 to 100 with 0 to 24 denoting low-risk exposure and 75 to 100 denoting extremely high-risk exposure.

Note

ESG ratings can be based on qualitative or quantitative data or a combination of the two.

How to Obtain a Company’s ESG Scores for Free

Obtaining ESG scores for free can be challenging, as many ESG rating agencies charge for access to their data and research. However, there are some resources and platforms where you can find ESG scores or related information for free:

• Yahoo! Finance: Yahoo! Finance provides sustainability scores for companies, powered by Sustainalytics. You can search for a specific stock or exchange-traded fund (ETF) on Yahoo! Finance and then click on the “Sustainability” tab to see the ESG scores.
• MSCI ESG Ratings: MSCI offers a free search tool that allows you to check the ESG rating of select companies or funds. Visit the MSCI ESG Ratings website, and enter the company or fund name in the search bar.
• Corporate sustainability reports: Many companies today elect to publish annual sustainability reports, which often include ESG-related data, policies, and achievements. You can usually find these reports on a company’s website in the “Investor Relations” or “Sustainability” sections.
• CDP: CDP runs a global disclosure system that enables companies, cities, and regions to measure and manage their environmental impacts. While CDP scores are not ESG scores per se, they provide valuable insights into a company’s environmental performance. You can access CDP’s public disclosure data for free on its website.
• Brokerage websites: Many online brokers today have ESG analytics and ratings available to their customers, although the metrics and scores featured may vary between platforms and may only be available to active customers.

Keep in mind that, while these resources can provide access to some ESG information for free, they may not offer the most comprehensive, in-depth data and analysis provided by paid ESG rating services.

What Is Considered a Good ESG Score?

Many ESG scores range from 0 to 100, with scores below 50 considered poor and scores above 70 deemed good. Other schemes feature a leaders-average-laggards scoring system that ranges from AAA to CCC.

Most scoring is carried out so that a company is comparable to peers in the same industry. Investors should research the specific rating agency’s methodology to understand how these scores are calculated and their implications.

What Can ESG Scores Tell Investors?

Investors use ESG scores to make informed investment decisions, evaluate a company’s long-term prospects, and assess the sustainability of its operations. High ESG scores indicate that a company is effectively managing environmental, social, and governance risks, which can lead to better financial performance and lower investment risk. Investors who are interested in socially responsible investing or who value ESG can use these scores to identify which potential investments are worthwhile and which should be avoided.

What Are Some Limitations of ESG Scores?

One limitation of ESG scores is the lack of standardization in methodologies and criteria used by the various rating agencies, which employ different approaches to assess and weigh ESG factors. This can lead to inconsistent results and make it difficult for investors to compare scores across different providers.

Another limitation is the potential for greenwashing, where companies may misrepresent or exaggerate their ESG efforts to improve their scores and attract SRI investors. Additionally, ESG data may be self-reported by companies, which raises concerns about data quality, accuracy, and reliability. ESG scores may also not capture all relevant aspects of a company’s sustainability performance, as certain issues may be overlooked or underestimated due to limitations in data availability or methodology.

Finally, ESG scores often focus on larger-cap companies and may not provide adequate coverage of small-cap and midcap companies, which could limit the investment universe for responsible investors.

In conclusion, while ESG scores can be a valuable tool for assessing companies’ sustainability performance, investors should be aware of their limitations and consider them as one of several factors in their investment decision-making process.

What Is the Most Popular ESG Reporting Framework?

For ESG scores to be calculated, companies must report and disclose relevant information and data. The Global Reporting Initiative (GRI) Standards are considered the most popular and widely adopted ESG reporting framework globally. Established in 1997, the GRI is an independent international organization that provides a comprehensive set of sustainability reporting guidelines for organizations of all sizes and sectors.

The popularity of the GRI Standards can be attributed to their flexibility, relevance across industries, and global recognition by various stakeholders, including investors, nongovernmental organizations (NGOs), and regulators. By adopting the GRI Standards, organizations can demonstrate their commitment to sustainability, identify and manage ESG risks, and communicate their progress to stakeholders.

Other notable ESG reporting frameworks include the Sustainability Accounting Standards Board (SASB) Standards, the Task Force on Climate-related Financial Disclosures (TCFD) Recommendations, and the United Nations Global Compact (UNGC).

The Bottom Line

ESG scores serve as a valuable tool for investors to assess companies’ environmental, social, and governance performance, enabling them to make informed, responsible investment decisions. By evaluating factors such as carbon footprint, energy efficiency, labor practices, and corporate governance, ESG scores provide insights into a company’s long-term sustainability and resilience.

However, due to the lack of standardization, potential for greenwashing, and other limitations, investors should consider ESG scores as one aspect of their investment decision-making process, rather than relying solely on them. ESG scores can be found online for free in some cases, or by subscription. Financial portals and brokerage websites may also contain ESG ratings and analytics.

By using ESG scores in combination with other financial and nonfinancial factors, investors can better identify companies that align with their values and contribute to a more sustainable global economy.

Reviewed by Somer Anderson

While the terms pre-qualification and pre-approval are sometimes used interchangeably, they have distinct meanings and purposes. Typically, getting pre-qualified is more of a preliminary step to determine the size of a mortgage you could get. Meanwhile, being pre-approved means receiving conditional approval for the loan amount you’re going to borrow.

Key Takeaways

• Pre-qualification is typically based on data you submit and is more of a preliminary estimate of the mortgage size you could qualify for.
• Pre-approval is usually the more involved step and signals what a lender can offer you, though it isn’t an actual guarantee.
• While both have their purposes, pre-approval tends to be more useful for showing sellers you’re ready to buy.

Pre-Qualified

“Pre-qualification is a less involved step, with less verification steps completed in most cases,” said Phil Crescenzo Jr., Southeast division president of Nation One Mortgage Corporation. “A pre-qualification may be given with information entered from an applicant but not yet verified, such as with income or assets.”

Using this information, the lender can determine the mortgage amount that you’d likely be eligible for, without doing a hard credit pull that could hurt your credit score. It might then issue a formal pre-qualification letter or simply state the amount it’s willing to lend you. This process can take anywhere from a few minutes to a couple of days.

Warning

Mortgage lending discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report with the Consumer Financial Protection Bureau (CFPB) or the United States Department of Housing and Urban Development (HUD).

A pre-qualification letter usually doesn’t carry the same weight to home sellers as a verified pre-approval letter. Still, sometimes buyers prefer to start with getting pre-qualified, as this can be useful for narrowing down lenders.

“If a buyer may not be ready to move forward immediately, but wants a preliminary review to get an idea of where they stack up financially while providing less information, they might only want or need pre-qualification,” Crescenzo said. “If a client didn’t want a credit inquiry, but wanted a soft pull, this could also be a reason to ask for a process that’s less involved.”

Pre-Approved

Pre-approval typically requires completing a mortgage application and the lender doing a hard inquiry to determine creditworthiness. With that information, the lender can give a more accurate estimate of what the borrower will be approved for once they’re ready to complete a mortgage application. This offer is usually good for a period of up to 60 days.

Important

A pre-approval doesn’t guarantee the final loan amount, as the lender may learn new information during the full underwriting process that changes what it’s willing to offer.

“A pre-approval is what I call ‘show me.’ What I mean by that is let me see the real documents that I—or underwriting—will need for an approval: pay stubs, W-2s, bank statements, credit report, tax returns, etc.,” said Kevin Leibowitz, president and CEO of Grayton Mortgage. “We’re not completely underwriting the file, but it is a thorough review of a borrower’s profile.”

This thorough review can be valuable for prospective buyers, and some borrowers may prefer skipping right to the pre-approval process rather than getting pre-qualified first.

“A pre-approved buyer is more likely to win an offer over a less prepared buyer or realtor,” said Crescenzo. “The more information and detail that can be confirmed in advance, the smoother the process will be once an offer is accepted and processing begins. I would recommend a full pre-approval process whenever it’s possible and time allows.”

By pulling your credit, the lender can also better tailor the interest rate to suit your creditworthiness. Additionally, a pre-approved borrower may be able to qualify for an interest rate lock under certain circumstances, potentially in exchange for a fee. Most of the time, however, the lender will offer you a floating rate that’s tied to market conditions. You can still lock in a fixed rate after you’ve secured your mortgage, though the original rate may have changed by the time you close on the loan.

You may be able to lower the interest rate you’re offered by taking certain steps before you apply for a mortgage. “I’ve seen way too many what I call ‘skeletons in the closet’ on credit reports. Many of these items can be incorrect, and some can be addressable,” Leibowitz added. “It’s better to start the process early so that there’s time to fix/address items that were unknown or not discussed.”

Key Differences

How the pre-qualification and pre-approval processes work can vary by lender. Typically, however, getting pre-qualified and being pre-approved will differ in the following ways:

	Pre-Qualification	Pre-Approval
Mortgage Application	Not required	Required
Application Fee	None	Varies
Credit Check	Soft inquiry	Hard inquiry
Financial Data	Self-reported	Lender review
Estimated Down Payment	Varies	Required
Loan Amount	Estimate	Specific
Interest Rate Information	Not provided	Provided

Special Considerations

In some cases, buyers can benefit from getting both a pre-qualification and pre-approval. If it’s still early in the homebuying process, a pre-qualification could be worth it in order to get a rough estimate of what you’ll be able to borrow. Then, once you’re ready for a more in-depth review of your finances, you could move forward with a pre-approval. In other cases, it could make sense to skip pre-qualification.

“From our process, we only issue pre-approvals. We want to do a bit of the heavy lifting upfront to make sure that our clients are set up for success and don’t have surprises later on in the process,” Leibowitz said.

Once you’re ready to make an offer on a home, the buyer and seller typically enter into a purchase agreement. Borrowers would then provide a copy of this and any other documents that the lender may request as part of the full underwriting process. Additionally, the lender will then hire someone to conduct a home appraisal to help them ascertain the value of the home. 

Finally, if all goes well, you’ll receive a mortgage commitment letter. This is a formal offer from the lender to loan you a certain amount, though this can be retracted if your financial situation changes or either you or the property are later found to have fallen short of the lender’s qualifications.

The Bottom Line

Getting pre-qualified and pre-approved can help you determine what kind of home you can afford. Pre-qualification is usually the simpler step, but it offers less certainty over how much the lender will actually approve you for. As such, consider getting a pre-approval before you start trying to negotiate with a home seller.

Reviewed by Ebony Howard

A Master Limited Partnership (MLP) is a hybrid between a partnership and a publicly traded company. There are significant tax advantages to owning MLP units. However, despite these benefits, MLPs may not be the ideal investment for an Individual Retirement Account (IRA).

Understanding Master Limited Partnerships

MLPs offer significant liquidity for investors. An investor can buy and sell units through a national stock exchange. Many MLPs operate capital-intensive businesses, such as oil and gas pipelines and storage facilities—the energy sector. Congress limited the use of MLPs to entities operating in certain sectors in 1987. This limitation includes those operating businesses associated with natural resources. MLPs issue units, as opposed to shares, as standard companies do. An investor who buys units in an MLP is considered a limited partner in the business. The business end of the MLP is operated by the general partner.

Distributions from MLPs to unit holders receive favorable tax treatment under the IRS code.An MLP is a pass-through entity, and partnership income is only taxed at the level of the partner. Distributions are not taxed when they are received, unlike stock dividends, which are taxed the year they are realized. Instead, the distributions are considered a reduction in the cost basis of the MLP investment. If you hold the MLP long enough and your cost basis reaches zero, distributions are taxed as capital gains in the year of distribution.

Tax Liability

The tax liability from the distributions is only realized when the interest in the MLP is sold. The delay in taxation causes the MLP to be a tax-deferred investment. When you eventually sell all of your shares, appreciation of the units will be treated as capital gains, not ordinary income.

Since MLP tax liability is deferred, it is not the best candidate to hold in an IRA. Income from an MLP is not taxed at the corporate level, which avoids the common problem of double taxation for corporations. At tax time, the investor receives a K-1 schedule from the MLP stating the investor’s portion of the MLP’s net income. This MLP income is not tax-deferred if the units are held in an IRA. Holding this security in an IRA account eliminates the tax benefits of an MLP investment.

A downside of holding MLPs is that many of them invest in pipelines that run through several states. You may have to pay state income taxes, but some states offer exemptions.

What Are the Tax Benefits of Owning an MLP?

MLPs offer significant tax advantages because they are pass-through entities. This means that income generated by the MLP is only taxed at the investor’s level, not at the corporate level.

How Are MLP Distributions Taxed?

MLP distributions are not taxed when received. Instead, they reduce the investor’s cost basis in the MLP. When the investor sells the MLP units, any appreciation of the units is taxed as capital gains. If the cost basis reaches zero, distributions are taxed as capital gains.

Do I Need to Worry About State Taxes With MLPs?

Yes, MLPs that operate across multiple states may trigger state income taxes, depending on the location of the MLP’s operations. Some states offer exemptions, so it’s important to be aware of state tax rules when investing in MLPs.

The Bottom Line

Master Limited Partnerships can offer attractive tax advantages, making them a popular investment choice for those seeking income-generating assets. Because of how taxes are structured, MLPs are not suitable for all investment accounts, especially IRAs. It’s important for investors to understand the federal and state tax implications before investing in MLPs.

Let’s just say they’re measured in quintillions. That’s a number followed by 18 zeroes

Fact checked by Timothy Li
Reviewed by Robert C. Kelly

Every year, the National Collegiate Athletic Association (NCAA) men’s and women’s basketball tournament whips fans into a frenzy, earning the event the nickname “March Madness.” Much of the interest stems from the ever-popular bracket challenge, where groups of individuals pay into a pool and attempt to pick the most winners. Whoever guesses the most games correctly wins the pool.

In 2014, Warren Buffett created a challenge for his Berkshire Hathaway employees: Whoever could correctly predict the outcome of all 67 games of the men’s bracket would win $1 billion. However, as Buffett doubtless knew, the odds of picking a perfect bracket are infinitesimally small.

Key Takeaways

• Each year, sports fans participate in March Madness bracket challenges, where they attempt to predict the winners of the NCAA basketball tournaments.
• In 2014, famed investor Warren Buffett promised $1 billion to any employee of his firm who correctly predicted every game of March Madness (for the men’s tournament).
• This offer has since been modified to $1 million for life for the winner, and the Berkshire Hathaway employee with the best bracket earns $100,000.
• The odds of picking a perfect bracket (all 67 games, including play-ins) are about one in 147.6 quintillion. For a 63-game bracket (excluding play-ins), the odds are one in 9.2 quintillion.

Understanding the NCAA Bracket

Early estimates indicated that $2.72 billion was expected to be wagered on the 2024 NCAA Men’s and Women’s Division I Basketball Tournaments through a mix of same-game parlays, prop bets, and bracket pools. Additionally, in 2024, ESPN’s Men’s Tournament Challenge set a new record with 22.6 million completed brackets.

The structure of the NCAA bracket is devised as a “loser-go-home” single-elimination format. Two teams play each other, and the winner advances while the loser is eliminated. The bracket consisted of 64 teams from 1985 on; however, the bracket was expanded in 2011 to include several early “play-in” games, and the field was expanded to 68 teams.

Because each team can either win or be immediately eliminated, the NCAA bracket consists of 67 games. At the end of 67 games, 67 teams will have lost and only one team, the NCAA champion, will remain.

Note

Some may state that the odds of guessing each game isn’t truly 50/50, as some teams will be favorites or have specific advantages. Throughout this article, the assumption is that each team has the same probability of winning any game they are in.

What Is Warren Buffett’s Bracket Challenge?

In 2014, legendary value investment guru Warren Buffett got in on the March Madness action when his investment company, Berkshire Hathaway, instituted its own bracket challenge. The challenge provided that any perfect-scoring employee—anyone who correctly predicts every game of the men’s tournament—would win $1 billion. Over time, this was modified to $1 million, every year, for life. The challenge promised smaller payouts for participants who came close.

In 2018, for example, the Berkshire Hathaway March Madness contest resulted in eight high-but-not-perfect scorers, who divided a $100,000 consolation prize, each pocketing $12,500.

What Are the Odds of Winning Buffett’s Bracket Challenge?

There are several different ways to calculate the odds of picking a perfect bracket. Some rely more heavily on math, while others allow for some looser assumptions.

Statistically, correctly picking all 67 winners is overwhelmingly unlikely. Consider the following mathematical facts:

• Each game has two possible incomes: Team A wins and Team B loses, or vice versa.
• To calculate the total number of ways that a player may fill out a bracket, you would need to take the total number of possible outcomes for each game (two) and multiply it out 67 times: (2 × 2 × 2…× 2, or 2^67).
• The odds of projecting all 67 winners is one in more than 147 quintillion.

Given how aggressively the odds are stacked against bettors, most bracket challenge participants don’t realistically expect to achieve a score of 100%. But many believe that they have a viable chance of predicting the teams that become known as the Sweet 16, which refers to the clubs that linger long enough to participate in the regional semifinal round.

Note

In the NCAA tournament, the teams of each region are assigned a seed number, ranging from 1 to 16, where the best team is given the first seed and the worst team receives the 16th seed. The opening games pit seeds against their numerical opposites. For example, the first-seeded team plays the 16th seed; the second seed plays the 15th seed; and so forth.

What Are the Odds of Partially Perfect Brackets?

Continuing with the assumption that each game has a 50/50 chance of being predicted correctly, there are still long odds to achieve even partially perfect odds through certain rounds. The table below outlines the odds of guessing all games correctly through each round (assuming a 68-team format in which each play-in game is predicted).

Odds of Correctly Predicting March Madness Games
# of Games	A Perfect…	Odds
36	first round	1 in 68.7 billion
52	Sweet Sixteen	1 in 4.5 quadrillion
60	Elite Eight	1 in 1.2 quintillion
64	Final Four	1 in 18.4 quintillion
66	Championship Game	1 in 73.8 quintillion
67	bracket	1 in 147.6 quintillion

If you or someone you know has a gambling problem, call the National Problem Gambling Helpline at 1-800-GAMBLER, or visit NCPGambling.org/Chat to chat with a helpline specialist. 

What About a 64-Team Bracket?

In some tournaments, the four play-in games may or may not count toward crafting a perfect bracket. Participants may not be required to submit their brackets until Thursday morning—the full first round of game play begins that afternoon. The good news is this means fewer games to predict; the bad news is there are still very long odds.

Running with the same mathematical assumptions as above, the task is to guess 63 games correctly. This results in a one-in-9.2-quintrillion chance of a perfect bracket. On the plus side, there’s a one-in-4.3-billion chance of guessing a perfect full first round after 32 games.

What Is Warren Buffett’s Bracket Challenge?

For several years, Warren Buffett’s company, Berkshire Hathaway, has offered to pay any employee who correctly calls the entire March Madness tournament $1 million a year for life. The tournament takes place over 63 games, plus four play-in games.

What Are the Odds of Having a Perfect March Madness Bracket?

The odds of scoring a perfect bracket across 67 games are about one in 147.6 quintillion. The odds of a perfect bracket across 63 games are roughly one in more than 9 quintillion. It is overwhelmingly unlikely that anyone will create a perfect bracket.

Has Anyone Ever Scored a Perfect March Madness Bracket?

No one has ever accurately guessed all games in a March Madness bracket. The closest brackets were in 2019, when one person accurately guessed the first 49 games in a row. Before that, in 2017, one person accurately guessed 39 consecutive games.

Who Has Scored the Best March Madness Bracket Ever?

With 49 games accurately predicted in a row, Gregg Nigl of Columbus, Ohio, scored the best March Madness bracket ever recorded, according to the NCAA. In 2019, the neuropsychologist was the first person to reach the Sweet 16, eventually breaking the streak in its second game when two-seed Tennessee lost to three-seed Purdue.

The Bottom Line

For millions of sports fans, filling out NCAA March Madness bracket challenge forms is an annual tradition. One of the biggest March Madness prizes available is at the investment firm Berkshire Hathaway, where Warren Buffett has offered any employee who creates a perfect bracket $1 million a year for life. No one has yet claimed the prize, although some employees with relatively high-scoring brackets have taken home some consolation cash for their efforts.

Six ways to legally pay less in taxes

Fact checked by Vikki Velasquez

Avoiding taxes completely isn’t legal or desirable; money has to come from somewhere to fund the social services and public works on which your community depends.

While you can’t avoid taxes entirely, it’s possible to lower your tax bill through strategic financial moves. You don’t have to be a top earner, either. Average, middle-class earners can use six strategies to lower their income taxes legally.

Key Takeaways

• The interest income from municipal bonds is generally free from federal income tax.
• You can use pretax dollars to contribute to certain retirement and employee benefit accounts.
• Business owners can deduct many expenses, including some health insurance costs.
• When you sell taxable assets, you can be taxed at a lower capital gains rate if you have held them for more than a year.
• Tax deductions and credits can lower both your taxable income and the amount of tax you owe.

1. Consider Investing in Municipal Bonds

When you buy a municipal bond, you are loaning money to the issuer in exchange for repayment with interest. Municipal bonds, which are issued by states or localities to fund things like roads and schools, tend to pay lower interest rates than corporate bonds. But they come with a distinct tax advantage: if you hold the bond until it matures, you don’t have to pay federal income tax on the interest you earn. In many cases, you also won’t have to pay state or local taxes if you live where the bond was issued.

Historically, municipal bonds have also had lower default rates than corporate bonds. From 1970 to 2022, the default rate for munis was 0.08%. By contrast, corporate bonds defaulted at a significantly higher rate of 6.9% in the same period.

Warning

In some cases, municipal bonds aren’t completely tax-free. If you purchase them at a discount equal to or greater than 0.25% per year until maturity, the bond is subject to a de minimis tax. This means that interest and gains from the discounted amount are taxed at ordinary income rates.

2. Take Long-Term Capital Gains

Investing strategically can lower your tax bill because income from long-term capital gains is taxed at lower rates than ordinary wages or job income.

Long-term capital gains apply to sales of assets that you’ve held for more than one year. This type of income is taxed at rates of 0%, 15%, or 20%, depending on your income bracket. By contrast, the tax rates for ordinary income go as high as 37%.

Capital Gains Tax Rates 2025
Filing Status	Income	Tax Rate
Single	up to $48,350	0%
	up to $533,400	15%
	above $533,400	20%
Married filing jointly	up to $96,700	0%
	up to $600,050	15%
	above $600,050	20%

Short-term capital gains, which apply to the sale of assets that have been held for less than a year, are taxed at ordinary income rates. If you plan to sell stocks, bonds, real estate, or other assets that generate capital gains, consider choosing assets that you have held for a year or more to lower your tax bill.

You can also use a tax-loss harvesting strategy to offset capital gains with losses. This involves deducting losses from gains to lower your total taxable income. If you plan to use tax-loss harvesting, talk with a tax professional to make sure you are doing it correctly.

3. Start a Business

Starting a side business can come with a variety of tax advantages. The IRS allows business owners to deduct many expenses that are necessary and regular in the course of operating their business. Possible deductions include:

• Home office
• Portion of home utilities and internet
• Vehicle use for business
• Business cell phone
• Self-employed retirement plan contributions
• Business travel

If you are self-employed, you can even deduct health insurance premiums if you meet specific requirements. When combined, these deductions can significantly lower your taxable income.

Important

To take these tax deductions, you must be operating your business intending to make a profit, not as a hobby. The IRS uses several factors to determine whether your work qualifies as a business, including whether you realize a profit in three to five years.

4. Take Advantage of Retirement and Employee Benefits

If your employer offers a retirement account such as a 401(k) or 403(b) plan, having contributions taken from your paycheck can reduce your taxable income by up to $23,500 in 2025. If you are age 50 or older, you can contribute an additional $7,500 for a total of $31,000. A 55-year-old who makes $100,000 per year and maxes out their 401(k) contributions can reduce their taxable income to $69,000 and pay significantly less tax for the year.

If you don’t have a retirement plan through your work, you can still contribute up to $7,000 per year to a traditional individual retirement account (IRA), which also reduces your taxable income. If you have both an employer-sponsored plan (or your spouse does) and a traditional IRA, you may be able to deduct all or some of your IRA contributions, depending on your total income.

Many employers also offer other benefits, known as “fringe benefits,” that can reduce your total taxable income. These can include:

• Reimbursement for adoption expenses
• Flexible spending account (FSA)
• Dependent care FSA or dependent care assistance
• Educational assistance
• Tuition reduction
• Commuting cost reimbursement
• Group term life insurance

These benefits are either taken out of your paycheck or reimbursed to you by your employer after you pay them. Some of these benefits are excluded (or partially excluded) from being taxed and not reported on your W-2; others, like reimbursement for adoption expenses, are excluded from income tax but not other taxes and are still reported on your W-2.

5. Contribute to a Health Savings Account (HSA)

If you have a high-deductible health insurance plan, you can choose to open a health savings account (HSA) to go along with it. Like a 401(k), an HSA is funded with deductions from your paycheck. Contributions reduce your taxable income by an equal amount.

In 2025, the maximum deductible contribution to an HSA is $4,300 for individuals and $8,550 for families. A family with a $100,000 income who maxes out their HSA contributions for the year can reduce their taxable income to $91,450.

The funds in an HSA never expire. You can keep your HSA after you have a different health plan or leave your employer, including investing the money it in so it grows until you are in retirement. You don’t have to pay tax on the earnings, and any withdrawals from the account aren’t taxed if you use them to pay for qualified medical expenses.

6. Claim All Your Deductions and Credits

Claiming all the deductions and tax credits to which you’re entitled can significantly lower your tax bill.

A deduction lowers your taxable income. Many deductions are only available if you itemize rather than taking the standard deduction. However, some deductions can be claimed whether or not you itemize, including:

• Alimony payments
• Student loan interest
• Work-related education expenses for some government, military, self-employed, and disabled individuals
• Moving expenses for military service members
• Teacher expenses up to $300

If you itemize, you can also deduct donations to charity, capital losses, home mortgage interest, property taxes, medical or dental expenses that total over 7.5% of your adjusted gross income, and more.

Tax credits are an even better way to lower your taxes because they are a dollar-for-dollar reduction in the tax you owe. Common tax credits for low-to-average earners include:

• Child Tax Credit: $2,000 tax credit for each qualifying child, stepchild, sibling, or descendant claimed as a dependent on your tax return. To claim the full CTC, you cannot earn more than $200,000 if you’re a single filer or $400,000 if you’re married filing jointly.
• Child and Dependent Care Tax Credit: A portion of expenses spent on care for an eligible child or other dependent while the legal caregiver works or searches for work. Care can be for young children as well as children and adults who are mentally or physically incapable of caring for themselves.
• Earned Income Tax Credit (EITC): Tax credit aimed at working, low-income taxpayers based on income, marital status, and number of children. In 2025, the EITC is worth $8,046 with three or more qualifying children, $7,152 with two, $4,328 with one, and $649 with no children.
• American Opportunity Tax Credit: Up to $2,500 per year for the first four years of higher education expenses for eligible students.
• Lifetime Learning Credit: Worth $2,000 per return or a maximum of 20% of up to $10,000 of qualified educational expenses.
• Savers Credit: Credit for savings set aside by moderate- and low-income taxpayers, worth up to half your contributions to a retirement plan, IRA, or ABLE account.

The Bottom Line

You have to pay taxes, but you don’t have to pay more than you legally owe. By maximizing your deductions, credits, and employee benefits, and being strategic with your investments, you can save hundreds or even thousands of dollars on your taxes.

If you aren’t sure which strategies you qualify to use, talk to a tax professional. They can help you maximize your savings without getting into trouble with the IRS.

AI can boost efficiency and accuracy in inventory planning, logistics, data analysis, forecasting, writing business plans, and more

Fact checked by Suzanne Kvilhaug
Reviewed by David Kindness

Artificial intelligence (AI) can be used across many aspects of business planning, improving the accuracy and efficiency of processes like inventory planning, logistics, financial and sales analysis and forecasting, and project management. Entrepreneurs looking to launch a new business can also use AI to their advantage in writing a business plan.

However, the specific roles and applications of AI in business planning can vary depending on the nature and requirements of the business or industry.

Key Takeaways

• AI can significantly improve the accuracy and efficiency of data analysis for business planning and help identify new sales and business growth opportunities.
• Incorporating AI in business planning can improve forecasting by offering predictive capabilities.
• Automation of repetitive tasks and processes, such as pulling data for analysis, is another benefit of using AI in business planning.
• Ethical considerations such as potential biases in AI algorithms, as well as technical limitations with AI algorithms, must be addressed in any AI-driven business planning.

Benefits of Using AI in Business Planning

Business leaders looking to use artificial intelligence for business planning can benefit from the insights and efficiencies it provides. Here are some of the ways in which businesses can use AI for different business planning applications.

Improved Accuracy and Efficiency of Data Analysis

As many machine learning algorithms are designed to recognize patterns and process a large quantity of data in relatively little time, they can spot trends and offer insights that might not otherwise be evident. This can help in analyzing and deriving insights from large volumes of customer, order, financial, or other business-related information.

Enhanced Forecasting and Predictive Capabilities

Also referred to as predictive analytics, the ability of AI to make inferences about future outcomes using existing data can be a huge asset across many different business areas. For example, the food service company Sysco uses AI for inventory management as well as warehouse and delivery logistics planning. Another impactful business application for predictive AI models is financial and inventory planning.

Automation of Repetitive Tasks and Processes

Any business planning workflow that currently includes a manual, rote, or repetitive task might be a good candidate for automation using AI. Examples might include pulling data into a spreadsheet for analysis, generating or formatting data, processing documents or information, or requesting approvals.

Identification of New Business Opportunities

AI can help identify new growth strategies and opportunities in marketing and sales. Using AI-enabled customer relationship management (CRM) software can offer insights on lead generation, upsell or cross-sell opportunities, and customer service strategies. It can also provide businesses with the data to better personalize their offerings and target different segments of their customer base.

AI Tools and Platforms for Writing Business Plans

Many generative AI tools and software platforms are available to assist entrepreneurs with the task of writing a business plan. Here is a list of popular AI-based business plan generators.

ChatGPT

Although not a dedicated business plan generator, ChatGPT is one of the most well-known and accessible generative AI tools. Users can prompt ChatGPT to quickly generate ideas, draft outlines or sections, and edit or make text suggestions.

However, any information that ChatGPT provides on things like market research may not be up to date or reliable. Any data and references should be double-checked to ensure both factual and contextual accuracy, and the writing should be reviewed to ensure it aligns with the writer’s desired tone of voice.

Although a free version is available, a paid subscription to ChatGPT Plus costs $20 per month.

Notion AI

Notion is an AI-enabled workspace and project management tool. Although it can be used for more than just generating a business plan, Notion offers both free and paid AI-supported business plan templates.

As an AI-powered productivity tool, Notion can help users quickly generate text as well as automate workflows and tasks. This makes it a useful option for those who wish to use it for individual and team project execution as well as planning.

However, for those who simply wish to generate a business plan, the platform may present a bit of a learning curve and require an investment of time to understand how to use it properly.

Notion has a free plan, but its paid plans start at $8 per month.

ProAI

ProAI is an AI platform specifically tailored to business planning, research, and strategy solutions. It has dedicated tools for generating business plans, financial models, and pitch decks, as well as an AI business advisor that users can consult. It can also guide users in raising capital, including suggesting investors, funding amounts, and approaches.

Users input their business information and goals and link their social media, analytics, accounting software, and other data to the program, and it learns and adapts accordingly. As such, ProAI is a good tool for those looking for accuracy and assistance with financial projections.

However, compared to other tools, ProAI can take considerable time to generate a business plan (up to several days, depending on the depth and level of customization required). There are also potential privacy concerns associated with the sensitivity of data being shared.

ProAI plans start at $114 per year.

Simplified

Simplified is another workflow and productivity tool, with a suite of AI-powered programs to help users create all kinds of content, manage social media channels, and more. Their AI writing tool can offer suggestions and includes templates for specific types of business plans, from food trucks to real estate services.

Simplified’s business plan generator is geared toward solo entrepreneurs, small businesses, and startups. As it is easy to learn how to use, it is a good option for those who don’t want to invest significant time in understanding a new software. It can also generate different types of content, integrate with other platforms, and allow multiple users to collaborate, making it a useful tool for project management and execution.

However, the tool as a whole is not specifically designed for business planning, so it can be limited in terms of data analysis and industry-specific details.

Up to 2,000 words can be generated for free; after that, paid plans start at $20 per month.

Upmetrics

As a dedicated business planning tool, Upmetrics promises to simplify business planning with its AI-powered insights. It includes an AI assistant, a business plan builder with over 400 customizable sample plans, and a pitch deck creator. It also offers financial forecasting and templates to suit different business models.

Upmetrics can both generate and edit text, and users can adjust the tone of the content. It also offers users the ability to collaborate on documents, design cover pages, and drag and drop sections into the template.

Potential downsides might include privacy concerns around sharing financial and other business data, as well as relatively limited template options and customization options.

Upmetrics plans start at $7 per month.

AI Tools for Business Plans
AI Tool	Pricing	Description	Text Generation	Text Editing	Collaboration	Business Plan Templates	Financial Projections
ChatGPT	Free; paid plan is $20/month	All-purpose generative AI chatbot	✓	✓
Notion AI	Free; paid plan starts at $8/month	AI-enabled workspace tool	✓	✓	✓	✓
ProAI	Paid plan starts at $114/year	Dedicated AI business planning tool and business plan generator	✓	✓		✓	✓
Simplified	Free for up to 2,000 words; paid plan starts at $20/month	AI-enabled workspace tool	✓	✓	✓	✓
Upmetrics	Paid plan starts at $7/month	Dedicated AI business planning tool and business plan generator	✓	✓	✓	✓	✓

How to Use AI in Business Planning

AI can be used for business planning at many different stages, starting from when the initial vision for the business is being created. Here’s how to incorporate AI into your business planning.

1. Write a business plan with an AI business plan generator. Whether you use one of the generators mentioned above or one of the many other tools available online, AI-enabled writing programs can provide anything from a draft outline to a comprehensive document to work from. However, don’t rely entirely on AI for a finished product; it’s important to review and check your business plan for things like accuracy, tone, and flow.
2. Use AI-powered automation to improve your business operations. To optimize the day-to-day operating processes of your business, pinpoint any workflows that include manual, rote, or repetitive tasks, such as note taking, data entry, or transcription. Then seek out AI automation tools to save time, make the tasks more efficient, and reduce errors.
3. Analyze your business data with AI. As your business starts to generate data, whether from leads, orders, sales, customer interactions, social media, or finances, AI can be helpful in capturing and analyzing it. In turn, this data can provide crucial information for making decisions about the future of the business in terms of both offerings and growth opportunities.
4. Capture insights with AI to forecast, plan, and set goals. Predictive AI models can be a huge asset in business planning, helping entrepreneurs draw conclusions about future states of business based on historical and current data. While this has obvious applications for business financials, it can also be useful for consumer trend forecasting, customer service, and logistics and inventory planning.

Ethical Considerations in AI-Driven Business Planning

As with any AI application, using AI for business planning is not without ethical concerns.

It’s important to be transparent about the use of AI to both stakeholders and customers in order to maintain relationships of trust and accountability. It’s good practice to make it clear to customers when they are interacting with AI, as with an AI chatbot or a piece of writing generated by AI, for example.

It’s also important to communicate with stakeholders, employees, and decision makers about the reasons for choosing to implement AI in the business and how it will be used, monitored, and maintained so that the appropriate policies and oversight are put in place.

Understanding and communicating how any AI model is programmed and why is also an important accountability and ethics consideration. Many AI models have been shown to reproduce patterns of bias and discriminatory behavior when it comes to gender, race, and other aspects of identity. For example, fintech software algorithms have been shown to replicate historical behaviors of discrimination against marginalized and racialized individuals because those algorithms learn from historical datasets.

Future Trends of AI in Business Planning

As AI models improve and their applications become more mainstream, expect to see AI becoming a feature in all kinds of programs, from financial software to go-to office productivity suites. This will offer both easily accessible information and automation.

Businesses will be able to create ever more personalized offerings for their customers, thanks to AI integrations in CRM software that can draw insights from large volumes of customer data.

AI tools are also changing the competitive landscape of business and entrepreneurship by making previously specialized creative and technical skills like writing, designing, and coding more accessible.

Companies that nimbly adopt and develop strategies to use AI may unlock a significant advantage, though soft skills and a human touch remain as important as ever. A 2023 survey by software company Redpoint Global found that although 73% of consumers believe there is a positive potential for AI in customer experience, 77% of consumers believe that positive customer experiences still require human interaction.

Can I Use ChatGPT to Write a Business Plan?

Among other types of content, ChatGPT can help users quickly generate a business plan by providing ideas, drafts, outlines, or suggestions. However, it’s advisable to review and validate any information that it provides to ensure it’s up to date and accurate.

Are There Free AI Tools for Writing Business Plans?

Many free generative AI tools, like ChatGPT, can assist in writing business plans. Notion and Simplified are examples that include business plan templates for specific types of businesses.

What AI Tools Can Be Used for Business Strategy?

Upmetrics and ProAI are two dedicated business planning AI tools that can provide research, strategy, financial forecasting, and presentation templates.

What Is the Future of AI in Business Strategy?

Areas where AI could further transform business strategy in 2025 include:

• Using decision intelligence to help companies augment existing business intelligence capabilities. Decision intelligence is the application of AI and other technologies to enhance decision making across all areas of a business.
• Using generative AI to transform content marketing and creative processes for businesses. Generative AI is a type of artificial intelligence that can produce content such as audio, text, code, video, images, and other data.
• Using swarm learning to improve performance across departments of a business. Swarm learning is decentralized machine learning that enables peer-to-peer collaboration without sharing data.
• Using embedded analytics to improve decision making across every business area. Embedded analytics is data analysis technology integrated directly into a business software application, platform, or web portal instead of being a separate tool.

The Bottom Line

AI can contribute to better efficiency in business processes, identify opportunities for growth, and provide insights by analyzing large volumes of data, making it a great asset to business planning. However, it’s worth taking a step back before implementing any AI tool in business planning to assess where and how AI can have the most impact.

Just like any other digital tool or technology, AI should be used to complement and bolster existing and future workflows, and should be implemented with an eye to both strategy and accountability.