How to Create Your Financial Plan on Purpose

Welcome back and welcome aboard, and so grateful to have you with us. I still got a nice turkey and gravy buzz going, and I’m going to ride it out. And we’re going to ride back into a busy week, as U.S. equity investors are digesting another helping of gains across all major indexes last week, with the Dow Industrials continuing to lead the way. In case you missed it, the Dow has rallied more than 5,000 points in just the past month, and is already up more than 19% off its lows from earlier this year. The index is at a six-month high, and the trend has been widening to other indexes and sectors. The S&P financial super sector is also at a six-month high. Rising interest rates have put the wind at the back of the banks, and borrowing is booming.

Looking for more market breath? Sixty-two percent of stocks in the S&P 500 are up 20% from their 2022 lows. The index itself is still down 15.5%, according to YCharts, but over half of the stocks are in a technical bull market. But as our pal J.C. Parets reminds us, individual stocks don’t have bull markets—the indexes and the averages do. Still, mind the momentum—this is typical of bear market cycle resolutions. Even though equity markets could slip from here, these multi-week rallies are when bases are formed, support is established, and conviction starts to reappear. To wit, the big buyers are back. According to the BofA research, big institutional investors and hedge funds have been net buyers of equities over the past couple of weeks. Retail investors, on the other hand—we’re still selling. Who’s the smart money this time?

Even though the S&P 500 is having its worst first 11-month start to the year since 2008, valuations still feel kind of high. As our pal Liz Young at SoFi points out, the total return CAPE Ratio, also known as the cyclically-adjusted price-to-earnings (P/E) ratio, sits at 29.6 times earnings. While that’s historically high, it’s still lower than during previous bubble pops. A reading of 29.6 implies ten-year annualized returns of 2.7% above inflation, and that is below the historical average of six to 7% since 1871. Translation: the stock market is still highly valued despite the selloff, and companies are going to be under a lot of pressure to produce profits and deliver returns that beat inflation. It’s a tall order, especially if we’re going into a recession.

According to Jurrien Timmer at Fidelity, share buybacks among S&P 500 companies are holding up at 6.8% of revenue, which is at an all-time high. He argues that if companies were not buying back their shares at this pace amid the current bear market, the downturn could have been a lot worse. But how long can companies sustain the pace? Remember—companies buy back their own shares when they think those shares are undervalued, when they have no better use for their cash, when they’re bullish about their prospects, and when they want to give a little boost to their earnings per share (EPS). Buying back shares off the open market reduces the amount of shares outstanding, making the ‘E’ in earnings per share look a little bit bigger. No matter why they do it, share buybacks do historically provide upside for shareholders. A 1995 paper in the Journal of Financial Economics says that companies that buy back their shares typically outperform companies that don’t by 12%, over four years.

Meet Jamie Hopkins

Jamie P. Hopkins is the Managing Partner of Wealth Solutions at Carson Group. He also serves as Finance Professor of Practice at Creighton University’s Heider College of Business.

A nationally-recognized writer and researcher, Jamie is a regular contributor to Forbes magazine, InvestmentNews and MarketWatch. A highly sought-after speaker in the financial services industry, Jamie has also been featured on Wall Street Journal podcasts, NPR radio and Fox radio, and has made multiple appearances for NBC10 Philadelphia, PBS and USA Today.

Jamie is the author of Rewirement: Rewiring The Way You Think About Retirement, which released its second edition in 2021. Additionally, Jamie has co-authored three text books and two ebooks on retirement planning: Retirement Success In 10 Steps: How To Stretch Your Dollar To Last Through Your Golden Years and Retirement Risks: How To Plan Around Uncertainty For A Successful Retirement.

What’s in this Episode?

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Financial freedom, retirement, the path to wealth and prosperity. These are the catch phrases that the financial services industry has leaned upon for generations to appeal to people like us, so that we will buy their products and services, and be lifelong customers. But what do these phrases really mean today, as we enter the homestretch of 2022? The truth is, the answers are personal to each of us, and that’s why we call it personal finance.

But wealth or prosperity without purpose seems hollow at a time when so many of us are seeking meaning, experience, connection, and safety. These are the themes that Jamie Hopkins of the Carson Group has made a career out of—planning with purpose. And he’s out with a new book coauthored by Ryan Carson, the founder of the Carson Group, and a multiple honoree in our Investopedia 100 list of the most influential financial advisors in the United States. That book is titled Find Your Freedom: Financial Planning for a Life on Purpose. And we are delighted to welcome Jamie aboard the Express. Thanks so much for being here.

Jamie: “Thanks for having me on today, Caleb. I appreciate it.”

Caleb: “You have an accidental path into financial services and advice, and planning. You were on your way to becoming a lawyer and going to school. What happened? What brought you into the industry?”

Jamie: “Maybe I made the right decisions along the way. I did become a lawyer and I started off in private equity, and I had a lot of really amazing experiences through there. But I got to work in the appellate division, and got to work on of one of Bernie Madoff’s cases, and that was really eye-opening on the flip side of where we want to be as a profession, right? It was the abuse of trust, it was the abuse of all those good terms that you said, where somebody took advantage of this.”

“And that was super disappointing to me, because we should have this industry that’s trusted and respected, and where people like my mom can go to and get advice, but it still doesn’t exist. And that kind-of put me on my purpose, and why, being in this industry, I want to make retirement more secure for Americans. I mean, that’s what I want to do, and that’s why I’m in this profession now.”

Caleb: “You also had some financial trauma, like a lot of people have early on in their life. I’ve had my share. But you actually lost your father when you were a young teenager, and you were with your mom, who was raising your family as a single parent. How much did that affect you and affect your decisions that you’ve made in your career?”

Jamie: “It started off with a little bit about my mom, but that’s my ‘why’ story, or my origin story, where you have that trauma in the past that you don’t know at the time is going to set you down a certain path. But I was eight years old when my father passed away, and I’ll tell you a little bit about that story.”

“My dad was a construction worker, and neither of my parents graduated college. It was wintertime in Baltimore, and he was doing a job as a construction worker. He did most of the roofing and gutters—everything up on a ladder. It started raining and temperatures dropped, and when he was finishing up the job and coming down the aluminum ladder, well, aluminum gets colder than roofs and freezes over faster, and it had formed ice. And so when he was coming down, he slipped and fell, and was gone. So I went to school that day as a typical eight-year-old with a dad and mom and a relatively stable household, and then came home from school that day without a dad, and without the person that was earning income.”

“My parents didn’t have a financial advisor, they didn’t have life insurance, even term insurance—we didn’t have any of those things. And even today I don’t think I’ve ever met an advisor that says their niche area of planning is construction workers. So that’s a group that doesn’t usually get advice, and they still don’t get advice even today. And my mom’s very distrustful of the financial world. She’s somebody who likes to hold her money in the bank and in cash. She doesn’t believe in the markets that much, and she’s never really had that positive experience with financial advisors.”

“My parents were the perfect example of people who should have had that basic advice: high-risk job, young kids, not college educated, and no term life insurance. And that’s just a basic thing, right?—they didn’t need a whole lot more than that. But that alone would have fundamentally changed the stress level in my mom’s life if they had that, but they didn’t.”

“So my ‘why’ is always just, you know, people like my mom waking up and trying to make themselves feel like they’re worthy of getting advice. Like I do a lot of things and people are like, “Oh, don’t you get tired?” and I was like, “Yeah, but since my mom’s my ‘why,’ I’m never going to wake up in the morning and be like, “you know, I don’t really like my mom anymore, so I’m just not going to do this,” so it’s a good driver.”

Caleb: “And you also had other influences in your life. I know Ron Carson’s been very influential, but you had a teacher that you write about in the book, Mr. Pendergast, if I’m saying it correctly, who is very influential in your ‘why,’ but also in the way you conduct yourself and the way you wanted to conduct yourself as a professional. Tell us quickly about who she is and why she was so important to you.”

Jamie: “So she was an amazing human being and she was a teacher at Saint Paul Resurrection in Ellicott City, Maryland. And, I think I had her for a couple of years, but for her whole life, she would check in, go to my mom, and check in on me. And she was somebody who loved teaching people—truly loved it—and if you didn’t get it, she would figure out a different way to teach it to you. Like, I still remember that classroom at the end of the school, and we’d all be in there trying to do math. And she would teach the same problems differently to like eight different people. And she truly cared.”

Caleb: “The personal touch—so important in school, and also so important in your profession. So the book: Find Your Freedom—freedom is a very big word in just about everything that we do. But what does it mean to you as somebody who works with a very big financial planning group, somebody who has come up in this industry? Freedom means different things to different people, but what does it mean for you as it relates to money?”

Jamie: “What freedom means to me is that I get to wake up and design my day, and it’s pretty straightforward. I think that freedom, that definition will change for me over time too, and I think that’s a good thing. That’s what it means for me today. I have three young kids—a six, four, and three-year-old. I travel a lot for work—I’ve got a lot of responsibilities that I’ve chosen to have in life, and I don’t get to wake up and design my day. You know, I think I have 13 meetings today, and I might add one more.”

“That’s not being able to design my day, but I love those things. But I’m at a different point in my planning and in my life cycle, right? Like, I’ve got young kids, I’m trying to build a career, I’m trying to make money, have an impact. And so, I am consciously trading off freedom for more foundational planning items.”

“And that’s something I talk about in the book—it’s perfectly okay not to feel that you have freedom where you are in your life. Now, when it comes to money, I think freedom to me, is a little bit different than my overall freedom. Freedom, from a money point of view, is not feeling that your relationship with money is controlled by trauma, and that’s a different thing. And that’s part of my path to freedom—like, I don’t think I can get there if my whole life I still have trauma attached to money.”

Caleb: “So the other part of the book is about purpose, and you have this expression or that saying in the book: “massive, transformative, purpose.” That’s a big collection of words, even though it’s only three. But what does that mean to you, and what do you want that to mean to the readers?”

Jamie: “Yeah, so that’s kind-of as it says, the MTP—that massive, transformative purpose. What are you here for? And you get really deep on that. Who are you today and who do you want to be? And it gets to that aspirational side, and that’s usually not a goal. And I think that’s one mistake a lot of people make with those things, is they set a goal: “I want to do X.” Well, that’s a goal, that massively transformative thing. It’s like you want to be the best philanthropist who’s ever lived and you want to be an explorer. Those are aspirations. For Carson Group—and Ron set this path—which is “we want to be the most trusted in financial advice.” That’s the MTP out there for Carson.”

“For me, it’s the—and I’ve kind-of set some numbers to this originally, and it ended up being too small and it wasn’t massive enough—but I used to say that I want to make retirement more secure for a million Americans. And then all of a sudden, I realize like, “Wow, I might have already hit that!” I’ve had some impact on a million people, so maybe it has to be 100 million. And then, I eventually took the number away because I was like, “I’m limiting it.” There’s no reason to limit it. It could be everybody. And now I just say “make retirement more secure for Americans.” And maybe one day I’ll even drop the ‘Americans’ and it’ll be “make retirement more secure for humankind,” so we can live in dignity throughout our lives and not have to worry about money.”

Caleb: “Let’s get into the tactics of planning. I want to go age 20s through 70s—we’ll do it quick, but we have listeners across all ages here. So when you’re in your 20s, what should you be thinking about in terms of having a financial plan, retirement planning, and saving versus investing?”

Jamie: “Yeah, that’s a great question, when you talk about when you’re in your 20s and early on, and I do the ages—the planning throughout the ages—in the book, and I walk through decades. But I also make the point that, “look, you can be in your 20s and already be super successful and past, you know, the foundational planning level.”

“But most people entering their 20s, or early on in their 20s—they haven’t had full families yet, they’re trying to figure out where they’re going to live, and whether they’re going to buy a house—they’ve got to manage debt, and you’ve got to work on that relationship with money early on. So that means setting good behaviors, like we just talked about. If you do something right for a day each month, you’re going to start building a habit, and you’re going to build good habits.”

“I use this quote in the book too, from my old coach, which is, “practice doesn’t make perfect—it makes habit.” If you practice the wrong thing over and over again, all you get really good at doing is the wrong thing. Practice doesn’t make perfect—it just makes habit. So in your 20s, you want to build those good habits. So managing debt appropriately, saving, investing, and just starting to figure it all out. You don’t have to change the world at that point; you don’t have to know exactly who you’re going to be, and it’s okay to give yourself that permission.”

“I also think that we probably overemphasize saving, from a lifestyle standpoint, in your 20s. And that might sound a little counterintuitive, but at that point, I think one of the things we have to think about is building up a good life—how are you going to live your life and enjoy it? Because if you’re spending your 20s just nickeling and diming everything, and not having any life experiences and investing back into yourself, I don’t think that you’re going to live the best life you could—you’re actually putting some limitations on yourself. And I think having life experiences, going on trips—I’m going to tell most people, “go on that trip, go to Europe for a week, and experience that; go to Africa for a week”—do those things because they’re probably going to matter more to you in the long run, and have a better ROI on your human capital, than nickeling and diming everything.”

Caleb: “Yeah, the value of experience is priceless. But we’re talking about practice—I’m just throwing that at you as a Philly guy, talking about…”

Jamie: “Talking about practice?!”

Caleb: “…as a Philly guy now. But, you know, practice does make habit. All right, let’s get into that—the life stages of the 30s and the 40s—that could be family building, moving up in your professional career. What should you be thinking about during your 30s and 40s?”

Jamie: “Yeah, well, I’m living in that phase now, so that’s one good thing I talk about from experience in those. So in your 30 and 40s, what we want to start seeing is some actual wealth accumulation. That doesn’t mean we have to go crazy, but it is, as you said, you might have kids by this point in your life, you might have got a marriage, and you might have purchased a property. So now you’re thinking about bigger debt issues and cash flow concerns. So, what am I paying for my mortgage? Have I paid off student loans at that point, saving for my kids’ college? And it’s a lot of balancing, and most of financial planning is balancing—we can’t do everything we want to do at every time, so we have to prioritize. So we’re figuring out a little bit more about who we are and what we want to prioritize.”

“So for me, I’ve decided that I don’t want to cover all of my kids’ college. I have three young kids—I want to cover, say, half of it. And so, I’ve set savings goals to get to the point that when they go to college, based off my own calculations, hopefully half of it will be covered, and I’m okay with that. I don’t want to stretch and cover all of it, because that will pull from other goals that I have. I think when you start getting into your mid-40s and into your 50s, those are going to be your highest-earning years. So those are actually your best savings years, and that makes sense.”

“If you save too much when you’re early on, it actually puts a big stress on your life. When you get to your late 30s, early 40s to 50s—that’s your high accumulation years, which means you probably have a lot more income than your base level of needs. I do think one thing that a lot of Americans fall into at that time period—and you see it especially with subscription models, which is why they work so well—is that we add on too many expenses. I don’t like calling it “keeping up with the Joneses,” but we just don’t right-size our spending for our life.”

Caleb: “Yeah. And I think people don’t do that financial reckoning, whether that’s quarterly or every year, or meet with a financial planner to say where the money is actually going and how much am I pulling in, and that’s so important. You know, I’m the Editor-in-Chief of Investopedia—I thought I knew a lot until I got a financial advisor, and then I didn’t know what I didn’t know, and there were so many important questions that came up that really reframed the way I’m thinking about my next 20 to 30 years.”

“So I’m in my 50s—I’m in the back nine of my career, so to speak, plenty of time, yet folks in their 50s and 60s have seen a very, very turbulent year in terms of their assets, in terms of what’s happened in the stock market. But for folks right now in that stage—late 50s, early 60s, what do you advise them, especially today?”

Jamie: “Your late 50s and 60s—you need to add in the word “retirement.” Now you have to start thinking about what that means to you. And, I don’t love retirement as a term, even though I’ve been a retirement professor, I write books on it, my Twitter handle is “retirement risks,” but I created the other term—actually trademarked it, “rewirement,” which was used in my first book. We have to change the way we think about retirement, and I use the phrase “work optional” to describe the point in your life where work becomes optional. And I think that’s okay—the gig economy, people working part-time, people working virtually—it’s fundamentally changing.”

“The notion of retirement is relatively new, that we would just stop working and go play golf. That wasn’t the history of the world. This is a relatively new thing, and even the term “retirement” is a terrible term, right? In the accounting world, it means the useful life of the thing has ended, like that’s the game. I don’t want the useful life of me to end at 65, I got another 40 years to go.”

“And so, it’s a work-optional time where you can work, and people who work part-time while in retirement actually live longer and they find more meaning—they’re happier. For the people who stop working entirely—there’s actually an increase in depression, in people in retirement, even though retirees overall are happier, but they actually have a higher percentage that are depressed because they lose that meaning.”

“So I think in your 50s and into your 60s, you have to figure out what are the things that you’re going to enjoy doing. So I love phased retirement. I think that’s a really important thing, and I don’t think enough people phase into it. I also think we have to, as financial advisors, start to show people how to spend earlier, because what we tell people forever is “save, save, save, stop spending, save, save, save, stop spending.” And then you get to retirement and you’re like, “Hey, Caleb, you got to spend now.” And you’re like, “But you told me that spending was bad. For 40 years you told me that spending was bad. Now you’re telling me to spend?””

“If you just think about that from a behavioral and a knowledge standpoint, it makes no sense. We tell somebody to do the complete opposite thing. Then one day you retire, snap your fingers, and you have to do the opposite to spend down this portfolio for the rest of your life. And that is emotionally very hard because seeing the portfolio come down feels like a loss to individuals. So a lot of people don’t spend as much as they could in retirement because they don’t have a good plan. They haven’t fixed that issue with “saving, not spending.””

Caleb: “Yeah, so important. And I think there is that psychological thing that happens in our animal spirits, that when we see the drawdown, it hurts and we have to rewire ourselves. I love that term—”rewirement”—we’re going to put that in on Investopedia and cite you for that. All right, let’s talk about investing. You have this great pyramid in the book, that I know you use in your practice: impact, strategic investing, stability, and foundational. Take us through that quickly. What are those four key steps? And folks, we’ll link to this diagram in the show notes and also to the book.”

Jamie: “So that’s actually something we built. Erin Wood, who funny enough, is who I was talking to on the phone earlier, is in charge of our planning and errands. She’s one of my favorite people, I talk about her in the book too—CFP professional, ran her own practice, runs our Advanced Solutions team. And her and I built that out; it’s kind-of like how we see people move through their plan—you see that impact at the top. Now, those can align to ages. But as we said, maybe you inherit money, you start a business, and you hit impact early in life—most people move through, and so you’ve got to build that base. Pyramids are cliche to some degree, but people can visualize them, and so they provide a useful illustration.”

“So you have to build up a base, and that refers to the cash flow, the savings, the basics of financial planning, and then you can move to another phase where you could start getting more strategic, right? You start figuring out, “Okay, I can put this in this type of account, and this in this type of account. I’m doing Roth 401(k)s, I’m doing tax-deferred, I’m doing after-tax.” And then you can get up to more, you know, tax planning and products and investment strategies, and maybe you’re thinking about how to be smarter with your cash, and you’re using ultra-short Treasury ETFs—just throwing a random product out there.”

“But I mean, that could be a really smart play as you start to move up, but you can’t really get to that when you’re at the foundational level. Like you can’t start thinking about, “Should I be shifting my cash around to get another 30 basis points,” because you’re just worried about the basics. And then you can get up to impact, which eventually is the charitable, it’s the legacy, and it starts going beyond just money at that point. And as the name says, the impact that you’re going to leave out there in the world, and align your values to your planning.”

“There’s a huge movement occurring right now, and you know this as well as anybody, but we are looking for that connection between our planning and our investments and our lives and our value. And it’s not just ESG. The example is always use is private prisons. I don’t know a whole lot of people with a big chunk of their portfolio in private prisons. If I asked them, they’d say “I probably don’t want to do that,” right? Some people are fine with it, but a lot of people would probably say “It doesn’t align with my values, and maybe I shouldn’t do that regardless of what the investment outcome is.” And I’m okay with that change, right? I’m not chasing more returns or trying to turn things down, but I’m okay with aligning my investing to the impact in the world.”

Caleb: “So important, and I know that’s so key to what you guys were talking about at the Carson Group. I know Ron Carson’s a big believer in that. And again, it could mean a lot of things to a lot of people—that’s why it’s so personal. That’s why personal finance is so personal. Quick advice for folks, especially folks really worried about the year that we’ve been through. If you pull the charts all the way back—we go through bear markets like this, we go through economic slowdowns, but a lot of people have had their confidence and their trust rattled. What’s your advice to people coming out of a year like this one?”

Jamie: “We knew we were going to go quote Ryan Detrick, right? We know it. So Ryan Detrick will tell you, “Look, you go out and look at midterm election years, and there’s a couple of things we know. One, we’re going to have an election, and the markets are going to be pretty turbulent. And we’ve pretty much seen it every single time since World War II. We’ve gotten pretty big market pullbacks intrayear in every single midterm election year. And then guess what? When you roll out a year after that day, which is typically, on average, around September, down around 15% to 17% intrayear in the S&P 500, you go out a year from that—up over 20% over the following year.”

“We’re not going to say this time could be different, and, you know, maybe the past doesn’t always predict the future—and those things are all kind of true. But this has followed, almost to a tee, what we have seen in other midterm election years. Inflation looks like it might have already peaked. We saw a come down a little bit, still a high number I saw. Mortgage rates just posted their biggest one-week drop since 1981. Now, this podcast might be coming out in a different week, but they came down to like 6.5%. Well, back in 2000, mortgage rates were at 9%. We kind-of forgot that in a very short period of time. We’re like, “Oh, man, they’re up at 7%.” Things are not as bad as they seem.”

“There’s a lot of really good things going out. Companies’ earnings are still pretty good out there—they’re not as leveraged with debt. And some of the inflation we saw over the past couple of years is actually good inflation—home properties went up a ton, rate earnings went up, there’s more people in the workforce, corporate profits went up—all of those things impacted the inflation numbers out there. And I think we’re going to see more stability in the market coming up, because historically, a Democratic president with a split Congress does pretty well. Again, that doesn’t mean it’s going to predict the future, but historically, it’s been a pretty good market in those environments.”

Caleb: “You’re so correct. And again, you and I are preaching from Ryan Detrick’s playbook, who is now your chief strategist at the Carson Group and a regular on the Investopedia Express. All right, J.B., let’s go out on this. You know that Investopedia was built on our investing and financial terms. What’s your favorite financial term? What’s the one that just speaks to your soul? I’m so curious.”

Jamie: “Can I do two? Am I allowed to do two?”

Caleb: “You’re absolutely allowed to, and you get “rewiring,” so you’re actually getting three for the price of two.”

Jamie: “Well, I was going to use “rewiring” as my second one. But the first one, and since we’re sitting in New York today, what is it, “bagel land?” When like a company is going to zero, right? Like, I love that term. I don’t know how it came about, but I love that bagel land term, because there’s lots of great bagel places here in New York. That’s a fun term. I’m sure you guys have that on one of your pages out there, so people can check that out. I don’t get to use that a lot in real life, though, right? Like at least like this past week there’s some crypto that went to Bagel Land, so I got to use it a little bit there.”

“But, outside of that, I love the term “rewirement.” As I said, I trademarked that term almost a decade ago now, or something like that. And that was the whole notion that we have to rewire and rethink the way we approach retirement. And funny enough, I trademarked that not because I planned on protecting it—I didn’t want somebody else to take it, like a big company, and then not let anyone else use it. Like I actually want people to use that term. I wrote the book on it and I love it when people use it, so I’d love to see us kind-of move away from that retirement term to a more positive way of looking at that work-optional part of life.”

Caleb: “Yeah, I love that term as well, and I like the framing of it because, again, retirement does have that implication. Either I’m going to walk off into the beach with my wife and my dogs and watch my grandkids play—and that’s just not reality for everybody—or it’s that end of work which scares people so much. The book Find Your Freedom: Financial Planning for a Life on Purpose, by Jamie Hopkins and Ron Carson. And Jamie, it was so good to have you on the Investopedia Express. Thanks for joining us.”

Jamie: “Thanks for having me on. I appreciate everything you do at Investopedia.”

Term of the Week: Counterparty Risk

It’s terminology time. Time for us to get smart with the investing term we need to know, this week. And this week’s term comes to us from Greg Ernie, who hit us up on Instagram. Greg suggests “counterparty risk” this week, and what a perfect term given the mess that is the collapse of FTX into bankruptcy. Well, according to my favorite website, counterparty risk is the likelihood or probability that one of the parties involved in a transaction might default on its contractual obligation.

Counterparty risk can exist in credit, investment, and trading transactions, and it extends to nearly all forms of transactions between borrowers and lenders. Your credit score is actually determined by your counterparty risk. That’s why it’s also known as default risk. Default risk is the chance that companies or individuals will be unable to make the required payment on their debt obligations.

So how does this apply to the FTX bankruptcy? Well, many of the venture capital (VC) firms, pension plans, and other crypto companies who invested or loaned money to FTX, received the FTX Coin as collateral with the promise—or at least the hope—that the coin would rise in value as FTX continued to grow and bring on more investors. The lender’s counterparty risk was CEO Sam Bankman-Fried, and his assurances that this would all happen according to plan. When investors started pulling their money out of FTX and dumping the coin, they soon realized that their collateral was worthless. Their counterparty risk was bigger than they could ever have imagined, and sadly for them, there is no regulator who can referee this fight. Great suggestion, Greg. Some of Investopedia’s finest socks are coming your way. Thank you.