Jonathan Clements's Blog, page 176
November 24, 2022
How About a Tutu?
AS ANYONE WHO HAS spent time around kids can attest, emotions often run high when things don't go according to plan. Recently, my three-year-old daughter, Carter Rose, refused to brush her teeth, wear clothes or go to school.
Rather than going head-to-head with an emotional toddler, I took the approach of listening, compassion and empathy to get things back on track. What was wrong—and what could make things better?
We could all use a little more empathy these days. With continued worries about the direction of the economy, house-buying dreams on pause indefinitely because of higher mortgage rates, and investment portfolios continuing to reflect red numbers, it's understandable if folks feel frustrated and uncertain.
It's times like these when my financial-planning clients turn to me to feel heard. They want me to provide reassurances that, despite life not always going as expected, we can still work together to make sure everything turns out okay.
For instance, I recently met with a client who’s a few years from retirement. He was curious how the current market may influence his planned retirement date and the timing of other spending, including a home remodeling. He wanted to know if he’d still be okay.
I first acknowledged his feelings and let him know he isn’t alone. I then punted on other items I’d planned to discuss, instead spending the majority of our meeting talking through his concerns and questions. Knowing he appreciates a visual approach, I shared my computer screen so we could revisit his plan. This allowed him to see how I was adjusting inputs and assumptions to make the plan more conservative and to play with some “what ifs.” This provided him with a dose of needed confidence.
Ditto for Carter Rose. Once I crouched down to her three-foot level, looked her in the eye, and showed her warmth and validation, a creative and effective solution became possible. The post-meltdown result can be seen in the accompanying photo.
Okay, maybe red cowboy boots, a tutu and a fourth of July headband aren’t what you need to turn your feelings of uncertainty into confidence. Still, we all stand to benefit from creative solutions—and finding those solutions often begins with giving folks a chance to be heard.
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Go Ahead, Spend It
PERSONAL FINANCE gurus and bloggers will tell you that lifestyle creep—the tendency for spending to rise along with income—is one of the greatest barriers to building wealth. While that’s sometimes true, I believe it can also be a source of joy and reward.
After all, while we might work hard to get a pay raise or earn a big year-end bonus, what a lot of people are really striving for is the ability to increase their spending. Consider a fistful of examples:
A teenager wants to get his first job so he can take his crush on a date. He’s been planning to ask her to dinner, and he wants to pay for the meal.
A young couple wants a bigger place to raise a family. They aspire to have as many kids as they can fit into their home.
A guy wants to buy the sports car from the poster that hung on the wall of his room as a kid. It’s one of his life’s ambitions to drive that car with the top down, listening to Springsteen.
A woman grew up with her family never ordering appetizers. Success to her means always getting an appetizer when she goes out to eat.
A man feels designer coffee is one of life’s greatest joys. Making that drink a part of his morning brings him outsized happiness for $4 a day.
A woman wants to see the pyramids of Egypt before it’s too late. Her best friend always wanted to go, but she passed away unexpectedly.
A couple wishes to donate enough money so they know their church’s work will live beyond their time. They grew up in the church, and want to give others the same upbringing.
A man just wants to enjoy life more now, in exchange for knowing he may have to cut back later. His father died at age 57.
Almost everyone has a reason to increase spending as their income rises. Often, these reasons are rooted in the way we view money. What do we remember about money from childhood? What is our definition of money success? What purchases bring long-term joy to our lives?
Lifestyle creep doesn’t need to be a negative concept. Many of us want to work hard and earn more so we enjoy a better standard of living. That doesn’t sound negative to me.
Of course, lifestyle creep needs to be weighed against saving for the future. How do we find the right balance? I like the 50-30-20 method. The basic premise is to break down your spending into three buckets: 50% for needs, 30% for wants, and 20% for savings or paying down debt.
The reason this method works so well is that lifestyle creep is built right in. As your income climbs, regular savings increase, but so too does spending on your wants and needs. By making your budget based on percentages, you’re allowing for your standard of living to climb with your income.
The more people I talk to about money, the more I find that our views are uniquely individual to each of us. Money success means something different to you than it does to me. One person’s most important purchase is another person’s wasteful spending.
Sometimes, personal finance enthusiasts get caught up in what people should or shouldn’t spend money on. My advice: We should be far more focused on what success with money means to each of us. Figuring that out is the crucial first step to a good financial plan.
Luke Smith is a CFP® professional and practicing financial planner. He creates customized financial plans for each family he works with around the country. Luke pursued financial planning to combine his two favorite passions: finance and people. He spends his free time with his wife Heather and their family in Maryland. Outside of work, Luke enjoys the outdoors, golf, reading and writing. You can reach him at
Luke.Smith@Wealthspire.com. Check out Luke's earlier articles.
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November 23, 2022
Giving Thanks
AS WE CELEBRATE Thanksgiving, I’m reflecting on what I’ve learned over the past year or so from HumbleDollar—both as a reader and as one of the site’s writers.
An article I wrote about claiming Social Security bounced back and forth a few times between me and HumbleDollar’s editor, Jonathan Clements. The breakthrough came when Jonathan referred me to a free online calculator built by financial blogger Mike Piper. I’d been trying to do my own calculation in Excel. Working through the calculator greatly reduced my anxiety about picking the right date to pull the Social Security trigger. I realized that a wide range of dates were pretty much equally good.
Meanwhile, an article by Charley Ellis helped me rethink my asset allocation. The key insight: Predictable income such as a pension and Social Security can be considered part of your bond allocation. This gave me the comfort to increase my allocation to stocks. Luckily, this past year has been an good time to add to my stock holdings, thanks to the market decline.
Other pieces on the site prompted me to rethink how I invest my cash. John Lim’s article was the first place I read about the handsome yield available from Series I savings bonds. His article led me to open a TreasuryDirect account, so I could purchase I bonds. That account came in handy when a reader, in response to one of my articles, suggested I consider Treasury bills as an attractive alternative for my cash investments.
Not every insight is life-changing. Finding ways to tweak my personal finances can be just as satisfying. Jonathan had an article on check washing that opened my eyes. I’ve had my own frustrations with the post office, but I didn’t fully appreciate the risk of sending checks through the mail.
Based on Jonathan’s experience, I’ve taken steps to isolate one checking account to use only for mailed checks. If it’s hacked, there won’t be much money there to steal. I also signed up for the online payment service Zelle, so I can transfer money without mailing checks. In addition, I plan to make more payments online.
HumbleDollar offers the chance to learn from one another. If you’ve only been a reader, consider writing about some of your financial adventures. The process of putting words to paper forces you to think through how and why you do what you do. Reader comments may challenge your assumptions. Taken together, you’ll come away with a better understanding of your own approach and how to do better in future.
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November 22, 2022
There Be Monsters
I'VE BEEN AWAY FROM the HumbleDollar community for a while. Jiab and I are working on a new book about media literacy, examining the effects of social media influencers on youth consumerism. It will teach kids about responsible web use and how to avoid the traps of the online world.
I’ve learned a lot myself, including lessons that apply both online and IRL, short for “in real life.” As part of our research, one of the seedier, more adult corners of the internet I’ve explored is the scam solicitations that come to just about every user of social media. All platforms have their cyber-pirates hunting for vulnerable prey. Let me recount my encounters on Instagram as representative of the type.
Most scammers begin with an innocuous hello and some questions about my location and job. I usually say I’m in Atlanta—rather than my real Texas home—just to obscure the trail a bit. The profiles almost always seem to show photos of provocative young women. A Google image search shows that the same pictures are used in a variety of accounts.
After the intros comes the flattery. When asked for a pic, I send one of a famous actor about my age. This often elicits, “You’re so hot, I want to party with you.” Then comes the pitch, such as asking for gas money so she can come to my house. Some tell me they’re multi-millionaires who want to share their good fortune by giving me money.
As a teacher, I’m both amused and a bit irked that these scammers don’t do better homework preparation:
A woman in Los Angeles told me she could drive to my Atlanta home “in just a couple of hours” if I spotted her gas money.
A Phoenix woman confirmed that she saw September’s surprise snowfall there, telling me it was beautiful. The surprise is it hasn’t snowed there in decades.
When I told one inquirer that I lived in Atlanta, Georgia, she enthusiastically said she was nearby in Batumi—a city located in the Republic of Georgia.
All this is amusing until you consider that people really are taken in by these scams. The Federal Trade Commission said consumers reported $770 million in social-media-originated fraud losses to the agency in 2021. Bear in mind that’s what was reported. The FTC estimates that only about 5% of fraud victims report the matter to a government agency, often because of embarrassment. Scammers succeed because they know our three vulnerabilities:
We let emotion get ahead of rational thought. Scammers try to catch people in a weak moment. Most people won’t respond to flattery or attention out of the blue. But it’s a numbers game. Somewhere out there are lonely people for whom kind words and compliments make them lower their guard. Some victims have been lured into sending intimate pictures and videos later used to blackmail them.
Desperation and worry over debts can silence our brain’s warnings that the “can’t-lose'' money opportunity is a trap. An online “financial advisor” lists tips for when you’re behind on the rent. Several include playing online games that “pay” you—but also encourage you to pay them to increase your odds of winning.
Many online brokerage firms are nothing more than investment platforms controlled by scammers. A victim’s account seems to show positive earnings at first, but that’s just to get the victim to increase his or her investment before it’s all pulled out. Other times, goods privately sold online go undelivered. It remains a rule that if a deal appears too good to be true, it probably is.
We forget that information is the key that opens the vaults. I have been told that I’m owed money or that a generous person wants to give me some. I just need to share my PayPal, Venmo or other electronic payment information so the deposit can be made.
People who have done so find themselves locked out of their account or with money withdrawn. Sometimes there’s not much gone, so the account holder doesn’t notice, but small sums are subtracted regularly.
A fake lottery winner sent me “her” information sheet to fill out, so she could share some of her newfound wealth with me. The form was clearly copied from the internet, still bearing the Publishers Clearing House watermark. Had I sent it in, my identity and all my account information would have been in the hands of a scammer.
We can be tricked into lowering our guard. Clicking links sent to us by people we don’t know—and even people we do—is like going down a dark alley. A phishing link or SMiShing text can open up your computer to being attacked by malware, your data stolen or your computer held for ransom.
Beware of emails purportedly from major companies such as Amazon, Apple and Facebook. Real companies never directly email you to ask for your account information. Upon examination, you may notice a slight misspelling or other problems with the sending email address that'll be a clue it’s not from the actual company.
These scams use the same sales techniques employed in real life—by door-to-door salesmen or phone solicitors—just adapted for the internet. Scammers gain false trust, get marks to lower their guard and then take advantage. Online may be a new world to many. But as explorers warned long ago on the maps they created, here there be monsters.

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Unhealthy Choices
I'M GOING TO SHOW you how to lose money. All you need to do is avoid some simple math, while embracing the widespread but illogical fear of health care costs.
Years ago, I designed employer health plans that gave employees several choices. Each option covered the same health care services. The differences among the options were the deductible, out-of-pocket maximum and premiums. The lower the deductible, the higher the premium you paid. Over time, the plan with the lowest deductible charged higher and higher premiums to the point where it wasn’t a good deal for employees and it was closed to new enrollment.
Nevertheless, many employees wouldn’t change to another option because they had the “best” coverage. It was dubbed the “Cadillac” plan. Actually, they didn’t have the best. When you considered the premiums they had to pay, it was mathematically impossible for them to come out ahead relative to the other plan options. Eventually, we simply eliminated the option because hundreds of workers couldn’t be convinced to drop it.
Overestimating the risk of health care costs is common. Aside from those with chronic conditions, many families go years without incurring expenses that exceed their plan deductible.
Seniors aren’t immune to this fear. Consider Medigap policies. Today, the most popular option is Plan G. Go back a few years and Plan F—which has been eliminated except for those who first became eligible for Medicare before Jan. 1, 2020—was the most popular. The only difference between the two plans is that F reimburses for the Medicare Part B deductible and G doesn’t.
I spoke with a senior who has Plan F and was convinced she had the best plan. I urged her to look at the premium difference between F and G, and compare that with the Medicare Part B deductible.
The Part B deductible in 2023 is equal to $18.83 a month. If the extra she was paying for Plan F relative to G was more than that amount, she was guaranteed to lose money each year. Indeed, when I checked the premium difference, I found that most Plan F premiums were more than $18.83 higher than Plan G. When I explained all this to the retiree, the response I received was, “Plan F works for me.” Result: She’s throwing away $20 to $30 each month.
As a retiree, I can buy dental coverage using a health care reimbursement account that’s funded by my old employer. But when I compared the premiums to the benefits, the coverage wasn’t worth it because it doesn’t cover the most expensive dental care, so I cancelled the policy.
But a friend loves his dental insurance. He pays $50 a month for $1,500 in annual coverage. But his insurance caps the reimbursement for each dental service, plus it only covers routine care, so it’s unlikely he’ll get the full $1,500 benefit. The upshot: Self-insuring is likely a better deal.
My advice: When picking health insurance for 2023, take the time to run the numbers. Remember, premiums are a guaranteed fixed cost—and the most expensive option probably isn’t the best one. Look at your actual spending over the past few years. How often do you and family members actually visit a doctor? You may find your best bet is a high-deductible health plan with its relatively low premiums and the ability to fund a health savings account.
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Not My Place
LIKE MANY RETIREES, I’ve thought about moving. My two children are living elsewhere, and I have no other family in the Florida city where I’ve resided for more than 17 years. For two years, I’ve researched buying a condo closer to the ocean or even moving to Mexico, where my modest fixed income would go much further. Perhaps I should return to my hometown up north—something two friends from high school have already done.
One thing I know for sure: I wouldn’t want to live in a retirement community, especially one like The Villages in Central Florida. On the few occasions I’ve visited this sprawling development just 90 minutes south of my current home, I could tell it wasn’t for me. A new documentary available on YouTube confirms my gut reaction.
The Bubble provides an inside look at life in The Villages through numerous interviews with residents—which were conducted despite efforts by the developers’ representatives to prevent them. They likely knew the filmmakers would also examine the development’s negative impact on native residents, whose rural communities have been transformed into endless streets lined with cookie-cutter homes, golf courses and commercial developments.
In some ways, it’s no different from what you see across Florida. The Villages’ developers have created a kind of utopia for retirees who want to lead extremely active lives surrounded by people much like themselves. The documentary shows people ages 55 and older—the community’s designated age group—seemingly living a perfect life of sunshine, golf, dancing and socializing. The streets are spotless, and the lawns are kept green with fumigants and lots of water drained from the Floridan aquifer.
It’s clear the developers have tapped into a large market. The Villages ranked sixth in the nation and first in Florida in new homes built between 2010 and 2020. During that decade, it was the fastest growing metropolitan area in the U.S., ballooning 39% to some 130,000 residents. The demographic is 98% white, with twice as many Republicans as Democrats. The median age in 2018 was 67.4, or 29 years older than the typical American.
It’s great retirees have found a place that encourages them to feel young with a plethora of activities and opportunities to socialize. We all need that in our old age. But such a homogenous place makes it more like a ghetto than a village. The documentary suggests residents don’t want to be around younger people because they don’t want to be reminded that they’re aging. One resident freely speaks of the extensive plastic surgery she’s had on her face.
The documentary suggests many residents are lifelong transients, with no particular home where they still feel wanted or needed. That struck me as sad, and yet it’s probably true. I’m glad these folks have found a home, however temporary, in what’s billed as “Florida’s Friendliest Hometown.”
But while it may be a great retirement spot for others, it certainly isn’t the place for me. I don’t want to live in an illusion, in a place where ambulances turn off their sirens once they enter the development, so residents won’t be reminded of neighbors ailing and dying. One resident speaks of the deaths all around her.
I’d rather see young people and children every day, even if I don’t know them. I like being around those who are younger, which is easy in the large university town I live in. Teaching as an adjunct and studying for my master’s degree in my 50s inspired me not to relive my youth, but to feel good about the present and the future.
Comments on YouTube about The Bubble are generally positive. Viewers say it provides a balanced perspective on The Villages, as well as a broader picture of ageism and older Americans’ mindset. One commenter wrote: “Really wonderful at showing the humanity of the Villagers. Not my cup of tea, to say the least, but am now more open and sympathetic to different choices that people make in regards to aging.” But another commenter said he now understands why his aunt who lived there described it as “dystopian and creepy.”
Comments on a website for residents of The Villages were less complimentary about the documentary. “It's just another hit piece about us and our community,” wrote one resident. “Is our community perfect? Of course not, we have our flaws and idiosyncrasies, but I think most will agree, there's not a better place to retire and enjoy our golden years.”

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November 21, 2022
Making Lemonade
YOU KNOW IT'S BEEN a rotten year for investors when it’s time to brush up on the rules for tax-loss harvesting. It’s one way to turn negative returns to your advantage, provided you act before year-end.
If you have taxable investments that have lost value this year—and who doesn’t? —the basic idea is to sell them in 2022 to lower the taxes you owe. Realized losses can be used to offset any investment gains you’ve realized this year. Excess losses can also offset up to $3,000 of regular taxable income each year, including dividends and interest payments.
If you don’t use up all your losses this year, they can be carried forward. My tax prep software somehow remembers my previous years’ heartaches and subtracts them from future years’ gains until the account is zeroed out. Tax-loss harvesting can be applied to stocks, bonds, mutual funds—and even cryptocurrencies, which are big this year, only in the wrong way.
If you’re selling a holding that you want to own again, know the wash-sale rule. The IRS will disallow a tax loss if you buy the same or a substantially identical investment within 30 days before or 30 days after you sold at a loss. The idea is not to allow a taxpayer to deduct a loss on an investment that he effectively hung on to.
Selling Johnson & Johnson at a loss and then buying Merck shares within 30 days won’t run afoul of the wash-sale rule because they’re similar but not substantially identical, according to the IRS. Selling AT&T 4% bonds due in 2028 and then buying AT&T 4.25% bonds due in 2027, however, would raise a red flag as the two investments are practically the same.
Mutual fund investors can also get tripped up if they have their dividend payments automatically reinvested. For example, if an investor sells part of her fund holdings at a loss on Dec. 10 and the fund then pays her a dividend that’s reinvested in new shares on Dec. 20, this is a wash sale for tax purposes and part of the tax loss would be disallowed.
Another unintended consequence can occur if you swap into a new mutual fund that then pays a taxable year-end distribution. This doesn’t violate the wash-sale rule, but it does mean you’ll have a bigger tax bill than you expected. Funds publish estimates of their year-end distributions in November, so you can avoid this outcome with a bit of sleuthing. Even a fund that’s down for the year can make a taxable distribution.
Harvesting tax losses won’t make an investment in Meta Platforms (symbol: META) or Peloton Interactive (PTON) any less painful. After a wreck of a year like 2022, however, it does offer the chance to reduce the taxes you owe, and perhaps for years to come. It’s not exactly a margarita on the beach, but it is lemonade from lemons.
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November 20, 2022
Not Contagious
THE FTX FALLOUT IS something to behold. It’s said that the now-bankrupt cryptocurrency exchange has liabilities that could end up being twice what Enron owed when it collapsed more than two decades ago. The hubris of Sam Bankman-Fried (also known as SBF), founder of FTX, is something all investors can learn from.
It was just a few months ago that Bankman-Fried was dubbed the next Warren Buffett and 2022’s version of the late 19th and early 20th century financier J.P. Morgan. Crypto’s former so-called white knight has given the digital currency market a major black eye, adding to this year’s cryptocurrency market turmoil.
What’s encouraging, though, is that stocks and bonds don’t seem to care much about SBF misusing customer deposits, making excessively risky wagers and violating just about every corporate governance rule in the book. Consider that the FTX house of cards began to fall on Wednesday, Nov. 2, when CoinDesk reported that SBF’s trading firm, Alameda Research, held primarily FTT—the FTX native token. The drama rapidly escalated from there, with much of the damage done by Wednesday, Nov. 9.
But the damage to the broader market has been minimal. Since Nov. 2, the S&P 500 is higher by about 3%, while foreign stocks have jumped 8%. Treasury yields are down slightly. Ditto for corporate bond yields. There has been no contagion. Even crypto prices, while down significantly over the past few weeks, are performing better than many pundits expected.
The FTX saga will probably result in more scrutiny of corporate governance and more regulation of the crypto market. Still, investors shouldn’t devote too much attention to SBF and FTX. It’s now just a fascinating, cautionary tale, rather than anything that’ll significantly impact your portfolio.
Perhaps the biggest lesson is to resist FOMO, the fear of missing out, and to always be skeptical when the financial press starts heaping praise on some purported market wunderkind.
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The Next Buffett—Not
A UNIVERSAL TRUTH about market bubbles is that they’re masters of disguise. Each new bubble appears different enough, at least on the surface, to reel in unsuspecting investors. While bubbles are almost as old as the market itself, the latest example—centered around the cryptocurrency exchange FTX—is particularly impressive. At this point, no one is 100% sure what happened, but this is what we know so far.
Back in 2017, a 25-year-old MIT graduate named Sam Bankman-Fried started a hedge fund to trade cryptocurrencies. He called it Alameda Research. A few years later, Bankman-Fried started another business, the cryptocurrency exchange FTX. For a while, everything seemed to be going very well.
After just two years in business, FTX reached $1 billion in revenue. In early 2022, FTX raised hundreds of millions from blue-chip venture capital firms, bringing its total funding to $2 billion. From there, its star kept rising. It signed a sponsorship deal for an NBA arena. It brought on Tom Brady and Gisele Bundchen to promote its products. And it received lavish praise in print and from its investors. At its peak, the company was valued at $32 billion, making Bankman-Fried a multi-billionaire.
But a few weeks ago, trouble started. In early November, some of FTX’s financial information was leaked to the public. Soon after, another crypto firm called Binance—spooked, apparently, by what it saw in FTX’s numbers—announced that it was liquidating its holdings in a cryptocurrency called FTT. While not widely known, FTT is FTX’s own cryptocurrency.
Binance’s announcement caused an immediate loss of faith in FTX. Investors reasoned that if Binance—a knowledgeable industry player—was worried about FTX, then everybody else should be, too. Almost overnight, FTX customers lined up to withdraw their funds.
Warren Buffett likes to say that when the tide goes out, you find out who isn’t wearing a bathing suit. That’s precisely what happened to FTX. When customers asked to withdraw their funds, it became clear that FTX was many billions of dollars short.
Where did the customers’ funds go? A fair amount, it appears, was shifted over—without authorization—to Alameda, Bankman-Fried’s hedge fund, which lost most or all of it. According to a court filing this week, large amounts were also loaned out to FTX’s leaders. Bankman-Fried received a $1 billion loan. Another employee received $500 million.
Despite the company’s roster of sophisticated investors, including Sequoia Capital, the court filing states that FTX never held board meetings. It lacked audited financials. It couldn’t even produce a reliable list of employees. You might wonder how this could happen.
As I said, bubbles are masters of disguise. Still, they often draw from the same playbook. Here are four reasons FTX succeeded in fooling so many.
Investor endorsements. Before the bankruptcy, Sequoia Capital had on its website a description of FTX and its founder that was so excessively complimentary that it’s hard to believe it was serious. (The original has been taken down, but an archive is still available.) Taking a different angle, investor and Shark Tank star Kevin O'Leary went on record describing why he was comfortable as an FTX shareholder: “He has two parents who are compliance lawyers. If there’s ever a place that I could be that I’m not going to get in trouble, it’s going to be at FTX.”
Media endorsements. Just a few months ago, Fortune magazine ran a story on FTX. On the cover was a picture of Bankman-Fried with a headline that read, “The Next Warren Buffett?” Later this month, Bankman-Fried was slated to speak at a New York Times conference alongside the president of Amazon, the mayor of New York City and the secretary of the Treasury, among others.
Celebrity endorsements. With its mountain of venture capital, FTX was able to buy endorsements from notable celebrities. In addition to Brady and Bundchen, there was Steph Curry, Shaquille O'Neal and Larry David. The company spent heavily on ads in magazines like Vanity Fair and Vogue. In one, Bundchen appears alongside a quote that read, “I’m in on FTX because we share a passion for creating positive change.”
Hero worship. Everything about Bankman-Fried communicated genius and success, and helped to reinforce that long list of endorsements. He had graduated from MIT. Both of his parents are on the law school faculty at Stanford. He showed up pretty much everywhere in a t-shirt and shorts, with a hair style reminiscent of Einstein’s. And, of course, he was one of the world’s youngest billionaires. Adding to this aura, Bankman-Fried donated tens of millions to charitable causes and to political candidates. All of this seemed to fit with his casual style. He didn’t look like a thief. To the contrary, he looked like a do-gooder.
With this playbook, FTX ultimately drew in more than a million investors. Whether it was a fraud or just incompetence—or some of each—what’s clear is that this bubble was very well disguised. How could investors have seen through it? More important, how can we spot the next FTX? While each market bubble looks different, I suggest asking these five questions:
1. Can you understand it? Does an investment appear overly complicated? This is probably the easiest litmus test to apply. Things that are complicated aren’t necessarily a problem. The challenge, though, is that it makes it hard to tell the difference. The implication: If you don’t know what you’re buying, it’s probably best to stand clear. This would have saved many of Bernie Madoff’s victims. His purported strategy sounded complicated, and those who asked questions were rebuffed.
2. Is it transparent? When you own a straightforward investment, like a stock, a bond or a mutual fund, the structure is clear. With FTX, it was the opposite. For starters, the company was based in the Bahamas, far from the reach of U.S. regulators. That anomaly alone should have given investors pause.
3. Does it have a track record? Some investments are complicated and lack transparency, but at least they have track records. That wasn’t the case with FTX. It was basically brand new, operating offshore and trading in asset classes—if you can call them that—that were also new and untested.
Here’s how one writeup described FTT, which was FTX’s “house brand” cryptocurrency: “Even if FTX created more FTT tokens, it would not drive down the coin’s value because these coins never made it onto the open market. As a result, these tokens held their market value, allowing Alameda to borrow against them—essentially receiving free money to trade with.”
4. Are critics dismissed as old fogeys? For years, Buffett and his partner, Charlie Munger, among others, have been critical of cryptocurrency. Buffett’s primary criticism, which I share, is that they lack intrinsic value. Munger has called bitcoin “stupid and evil.” As cryptocurrencies gained greater acceptance, and their prices rose, however, Buffett and Munger appeared out of step. They were dismissed as old guys who “didn’t get it.” This is another red flag that tends to be consistent from bubble to bubble. It occurred back in the 1990s as well. When traditional investors criticized money-losing technology companies, they too were dismissed as being behind the times. But, of course, they were right.
5. Can it be shorted easily? A friend who is a business school professor provided this insight: When investors are able to take short positions in speculative investments—that is, to bet that their prices will go down—that helps to keep prices in check. Without that downward pressure, it’s much easier for prices to keep rising. While it’s possible to short many cryptocurrencies, it isn’t easy.
That, incidentally, is why it was termed “the greatest trade ever” when a small handful of investors figured out how to short housing prices during the bubble leading up to 2008. If housing prices had been easier to short, more people would have done it, and that would have helped keep prices from rising as high as they did.

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November 19, 2022
Maximum Thinking
WHEN I PICK HEALTH insurance each year, my focus is twofold: What’s the monthly premium—and what’s the out-of-pocket maximum?
Sure, I want to stay with my primary care physician. But my doctor just announced that she’s leaving Philadelphia to return to her native Massachusetts, so that became a non-issue for 2023.
Meanwhile, I’ve long wanted a high-deductible health plan so I could fund a health savings account (HSA). But since 2014, when I started working for myself and had to buy individual coverage, either such plans weren’t on offer where I lived or they struck me as overpriced. I’ve come to suspect that some insurance companies, aware of the nifty tax benefits that come with funding an HSA, have concluded that they could overcharge for these plans.
The good news: When I went to pick a health plan for 2023, the pricing on one high-deductible policy looked compelling. That meant that, after eliminating plans with steep monthly premiums but often high out-of-pocket maximums, I found myself weighing two choices.
One option was my current plan, which wanted to charge me $590 a month in 2023 to cover my soon-to-be-60-year-old body. For that premium, I’d get a policy with an $8,500 deductible and a $9,100 out-of-pocket maximum. There were also relatively modest copays for various medical services, plus—as with all health insurance—I’d benefit from the price discounts that the insurance company had negotiated with medical providers.
But the reality is, if anything went seriously wrong, I’d be looking at forking over the $9,100 maximum. Combine that with the $590 monthly premium, and my possible health-care expenses in 2023 would be $16,180. That's the number I focus on when picking health insurance, and it's another reason to set aside some emergency money.
To be sure, a $9,100 out-of-pocket maximum is steep, but it wouldn’t be a catastrophe—and it’s far better than the bad old pre-2014 days, when out-of-pocket costs were often unlimited and medical expenses sometimes forced families into bankruptcy. (Note that there’s still no out-of-pocket maximum for those covered by traditional Medicare, which is a reason for the 65-plus crowd to buy Medigap insurance.)
But in the end, I didn’t renew my current coverage—and instead opted for the high-deductible policy I'd found. Why? I was pleasantly surprised to discover that this high-deductible policy had a lower deductible and lower out-of-pocket maximum than my current plan, plus the premium would be just $3 more per month. My new plan’s deductible and out-of-pocket maximum are both $5,800. Add the premium, and I’m looking at $12,916 in potential health care costs in 2023.
Admittedly, with the high-deductible policy, I may pay more for each doctor’s visit and prescription than I do under my current plan. But I also know that my total cost for 2023 will be lower in a worst-case scenario. The cherry on top: I get to fund a health savings account to the tune of $4,850 in 2023, which includes the $1,000 catchup contribution for those age 55 and older. That contribution will be tax-deductible, the money will grow tax-deferred and withdrawals will be tax-free if used for medical expenses.
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