By Anthony Ellis, WCI ColumnistPeople take all sorts of risks with their money, with their health, and even with their life. Mountaineering guides say that getting away with a risky decision once or twice can trick climbers into believing that their success was due to good decisions. Pushing your luck a third or fourth time can be what kills you. You do not always get the chance to make necessary adjustments to the risks you take. At the edge of adrenaline and dopamine, you can get a terminal surprise.
Sometimes, though, you do get a message to reevaluate these risks. I got two recently.
In 2014, a leukemic “blast crisis” killed one of the best men I had ever known in a week. My father-in-law’s death was unanticipated, and I agreed with my wife when she said at the time that “it cracked her mind open” with its suddenness and ruthlessness. One week, Sam was digging a four-foot-deep trench in his backyard to fix the drain tiles, and the next week, he was simply gone.
I canceled my triathlon series and hunkered down with the family to grieve the passing of the family patriarch. I had to assume that role since I was the next patriarch in line. After navigating the immediate aftermath for months, I was restless and felt like I needed to do something that was life-affirming to feel alive again. I found my “mountain to climb”—a 5,000-meter swim across a chain of connected lakes. The long-distance Swim to the Moon near Hell (Michigan) caught my attention.
Swimming Across Hell
I had previously completed my longest open-water swim around Harrington Sound in Bermuda in 2009. I knew the training required to go from pool “fitness swimming” to open-water swimming would take months. At age 50, I felt more like 40. I trained for five months and hit the chain of lakes in the best shape of my life. I finished Swim to the Moon without incident and felt like I had a delightful story for my future nursing home years:
“I swam across four lakes near Hell.”
I went back again at age 55 and found it to be more difficult despite similar training. I finished about 12 minutes slower, as five years of time passing made itself known in my body. I also had a foot cramp that required me to drag the foot dorsiflexed the last 500 meters. That was new.
Fast forward to 2024 and my semi-retired “60 is the new 50” self. My New Year’s resolution was to go back and do it a third time. I trained again from February to August. My average waking heart rate dropped every month, eventually to about 48, as I increased the distances and made it to 4,000 meters in training, just as I had in 2019. I figured that was good enough. It had already worked twice to train up to 80% of the distance and wing it on race day for the actual 5,000-meter swim. My wife thought it was a bad idea and said “it would make [her] mad if [I] died.” I never considered it much of a possibility and laughed it off. Of course, at 60 years old, 2.5 hours of swimming in 76-degree water did not have to go well:
“Past performance is no guarantee of future results.”
I was up at 4:30am; on the road at 5:30; and in the water, excited, at 7:30. The first mile was easy and fun. I looked at my watch and saw 33 minutes and thought, “Too fast.” It's funny now that I thought I might do better than I did at age 55 based on this split time. The second mile was harder, and I was getting tired. It was not much fun. The water was about six degrees cooler (76 degrees) than the pool I had trained in, and I was getting cold.
Then, I made a mistake.
At the pontoon aid station at about the two-mile mark, I drank a half cup of Gatorade as usual, but I also squeezed a packet of “Gu” in my mouth hoping the sugar would give me a needed boost for my flagging energy. I paid no heed to the fact that, in my practice swims, I ate and drank nothing. I took off swimming again and my stomach rejected the Gu within 300 meters as my GI tract had shut down with the effort to that point.
You have not lived until you are treading water in the middle of a lake retching with a mile of the race left to go. Other swimmers stopped and asked if I was alright. That was not a confidence booster.
The last half-mile was gritty. I really wanted the swim to be over. I was a little scared despite all the aid kayaks that were usually within 100 meters. Nauseated, tired, and cold, I worried I had bitten off more than I could chew. In the last 500 meters, I started dry-heaving which made breathing difficult, and my stroke broke down. My left hand was tingling, and I turned onto my back and floated for a minute of rest at times. I got the same foot cramp again, and I was dragging my flexed foot. I had to grab the back of an aid kayak and hang on to catch my breath as I considered quitting within sight of the finish line. I barely finished the race 20 minutes slower than my time at age 55.
As I walked onto the shore, I saw a fellow fall on the ground in the shallows and then struggle to stand back up. Luckily, he too made it on, and we exchanged a glance that said, “It whooped me too, friend.”
More information here:
The Heroes of My Life — Part 2
Taking Too Much Risk in Life and with My Money
I learned from the experience. For me, 60 is not the new 50. I was under-trained and I did not have the reserve of my younger self. My body composition is different with 17% body fat, and I weighed in at 212 pounds, not my prior 202. I also have less muscle despite swimming twice a week and hiking vacations with up to 120 kilometers of distance in a week. Taking anything by mouth when physically stressed and cold was a big mistake. I also learned that I have nothing to prove anymore and did not really need to take this risk. I was scared in the last 500 meters and thought of my family. On the way back home, I was thinking about the race and got emotional. I decided that I am not going to do it again at age 65. I will still swim miles in the pool, but three miles in open water is not my game anymore.
As you move up the risk ladder, the chance you can have a negative outcome increases. I found this out in another way last summer by chasing cash yields. The past year had been a wonderful time to have cash. Interest rate hikes to cool inflation allowed high-yield savings accounts to pay about 5% and shorter-term CDs to pay up to 5.75%.
High-yield cash options that I had not seen in years could obtain this return with minimal or no risk. I used them all. I had notable amounts of my emergency fund cash stash invested at a platform that offered short-term notes, supply chain finance loans, and other alternative investments. I thought I was being careful. I made sure the “wallet funds” were in FDIC-insured banks. I mostly invested this “safe” money in “short-term notes” and “supply chain finance” debt that the platform offered. They varied, but we were paying about 1% better rates than one-year CDs and up to 2% better than liquid high-yield savings accounts or money market funds. The platform was paying an illiquidity premium for the six- and nine-month notes. The yield tracker in the platform calculated my eventual average return on these at 7.2%.
I was not paying close attention to my “wallet funds,” and when the short-term or other notes matured, I would normally move this money back to my high-yield savings account at Empower at 4.7% or pick another offer. To his credit, my financial advisor told me in early 2024 that he felt it was not worth the differential payout risk, and this led to the accumulation of funds in the wallet where I thought the balance was safe. He said that one should take their risk in the equities basket and not in the “debt instrument basket.” I had planned to move those funds to CDs, but I let my wallet account balance grow thinking it was safe . . . and I am busy . . . and I will get to it later.
I kept pushing my luck . . .
In May, I got a notice from the platform that my “wallet funds” could not be withdrawn and were frozen because of some problem with the “program banks” that held these wallet funds. The details are boring, but it seems one of these banks engaged in a bankruptcy issue. The platform implied it knew where my money was and it was “working diligently” on “getting this resolved.” Individual emails were not answered in a timely manner, and I began to worry that I might have to file an FDIC claim. The company never told me which of its program banks had the money and simply expected me (and thousands of others) to wait for months.
The spring and summer months ticked away, and the company said the wallet funds were no longer functional and that payouts from any notes would bypass the wallet and go directly to my bank. The platform asked me to make sure my bank transfer numbers were up to date despite having sent prior interest payments directly to my bank for years. I found the “in a crisis” customer service to be lacking and rarely got anything but group emails about the issue. My trust level dropped significantly. I started looking up details on the internet and saw the platform was named in an SEC suit.
Finally, after about four months of worrying that I might have lost the equivalent of two years of children’s college tuition money, the funds appeared in my bank account by direct transfer. It was strange to me that the platform’s app still showed the amount in my defunct wallet account for about two weeks. None of this was inspiring, and I have only two short-term notes left to mature there. I have stopped using the platform.
More information here:
All the Money Mistakes I’ve Made (and How It Cost Me an Even Earlier Retirement)
Lessons Learned
I learned from this event. First, my idea of how “FDIC insured” works was wrong. The company never even told me which “program bank” had my funds. I asked how to file a claim and never got an answer. Since it was working on “getting the funds back from these banks,” there was likely no FDIC claim to make as the money was not really gone. I lost sleep over this. I emailed Jim Dahle about this. I worried for months about this—as is my nature, it seems.
The 1%-2% over CD and HYS rates were not worth the risk and the worry. The interest from this type of cash investment gets taxed at your federal marginal rate, making the difference even smaller. While this issue was “being resolved,” my funds were unavailable, and I was not paid any illiquidity premium on this money.
Two lessons in risk in one summer. Lucky me. Since these two lessons, I have been thinking more about risk. My “risk profile” has changed to swimming in the pool and really taking no risk with my “no risk” money. I do not need to have a heart attack in a lake to prove anything, and I do not need the risk of small financial platforms.
I prefer a long life and good sleep. If you push your luck too often, you might get a lesson you would rather avoid.
What risks have you taken that you later decided weren't worth it? Has that risk-reward ratio changed as you get closer to retirement? What else can be learned from these lessons?
Financial blog founder has near death fall while mountain climbing. Guest blog contributor nearly dies in long distance open water swim. I hope this doesn’t become a blog of “Wait, I can top this!”. To quote Sgt. Esterhaus on Hill St. Blues, “Let’s be careful out there”.
That’s funny sir. The two incidents have several things in common. I think a lot of people, myself included, think that doing something physically difficult as you age up shows resilience and fortitude. It’s life affirming, until it’s not, and it can be dangerous.
I’ve decided to calm this aspect of my psyche as I do not want to get hurt or worse, and leave money on the table. One can move and stay in shape without taking on this type of risk. Our “walking vacations” are a good example. We walk 10-20km per day on ancient paths, but it’s not a race. Slow and steady, like investing.
I mostly have my cash in high-yield savings accounts paying around 4% as well as some emergency funds in the Vanguard Money Market fund. I don’t know what these “wallet funds” are that the author is describing. What are these? How does one recognize them? They look like something to avoid! Thanks!
The “wallet funds” in the post were a resting place prior to investing in the platform’s private debt products. Many private investment companies choose to keep your funds somewhere in their “wallet account”. Generally, they out-source this function to actual banks and in this case, one or more of the “program banks” had trouble with tracking and liquidity.
As you say, it’s better to keep safe money in FDIC insured HYS accounts, reputable CD’s, or a money market fund of a large company (like Fidelity or Vanguard). That’s where all my safe money is now. Chasing yield, you might catch some known or unknown risk.
So if I have no idea what you’re talking about (e.g., “the platform’s private debt products”), it’s unlikely I’ll stumble into this particular trap, I’m guessing. Probably best to just keep my head down and keep moving…
Andrea, definitely you will avoid as long as you don’t chase yield like Anthony was. Always dangerous when you’re chasing yield you don’t get something for nothing so you are getting more risk automatically with that increase yield.
Dr. Ellis, I think you invested in, not at, the “platform” whatever that entity may be. You are lucky you are simply no longer a customer and not a creditor in its bankruptcy, or defending what you invested against preference or fraudulent conveyance claims in some insolvency or law enforcement proceeding. This is actually a great example of the principle Bernstein describes as “after you’ve won stop playing the game”. How do those CD rates compare to VFMXX or T-Bills? What difference would the additional yield make in your personal or financial life? Be thankful the intellect you have been granted enabled you to become a doc and make WCI money, and also wary the same intellect makes you chase the extra yield, making you prey for the financial predators that understand how your brain works.
Always enjoy your posts and writing style, and this one was no exception. Like Andrea D, I would like to know more, so I could avoid the product/platform. Failing that, I’ll stick to money market funds and high-yield savings accounts.
I agree with others – it would be helpful to know the name of the platform that you’re describing as this may be something we run into and not even realize!
If there’s a worry about disparaging a company on the internet and possible repercussions of that, maybe list 3-4 companies that are generally in its category?
The are many private debt and alternative investment programs that use banks to hold uninvested funds. Any of these companies could choose smaller, less well capitalized banks to get a better deal…with your money at risk.
I haven’t named the company that had the “wallet funds” problem because of liability issues for WCI. I can say it’s not any of the private debt or real estate companies endorsed by WCI.
The individual company is not the focus. Using smaller “alternative asset” apps is really what I’m trying to get people to look at. These “pumped up yields” have risk, and sometimes it’s unquantifiable. In my case, the uninvested funds that were sitting in the “wallet” of the company were “frozen” and could not be withdrawn until the “program banks” released the funds back to the main company. It took about five months.
The extra 1.5% yield over CD’s or large safe fully liquid money market funds was not worth the risk in hindsight. As another comment mentioned, when you have “won the game”, you can stop playing…especially with your “safe money”. All my cash is now in CD’s, money market funds, or high yield savings at reputable banks.
I had to laugh when I read your article especially the reference to Hell Michigan. When I was 16 a couple friends and I did the ride to Hell and back. It was a century ride and my first long distance ride. I was riding a Sears 10 speed that weighed about 60 pounds and was two sizes too small. My friends were on Schwinn Varsities which were a vast improvement over my bike. We caught onto a group of older cyclist on Peugots and Gitanes wearing spandex and the whole kit. We were in cut off jeans shorts. We could tell they were annoyed but because we were track athletes, we were able to keep with them for 30 miles. At that point, we encountered our first hills and the bike weight and sizing took its toll. I collapsed in a ditch and road the SAG wagon back. The moral of the story is you don’t have to be 60 to have athletic failure. Proper training and preparation is key. I am almost 70 and can easily do a century ride now but my equipment and training is better. Likewise, as an investor, I’m still learning and training to do a better job with my investing and WCI had been a big help.
That’s a great story. Thanks for sharing.
When I started doing sprint triathlons in 2009, I bought a $250 road bike from Amazon. It weighed twenty-six pounds. I could get it to average 19 mph, but that’s it.
I finally ponied up some real money in 2012 or so and bought a used 2007 full carbon Kestrel triathlon bike from eBay for $900. I think it was about seventeen pounds. I could make that one go 21mph average on the same bike course. I only trained on the bike once a week. It was my least favorite discipline.
Now, I just look at my old Kestrel wistfully and think back to my triathlon days which ended in 2018. I should probably sell it.
why are your triathlon days over? I’m 55, haven’t done any racing for a couple of years, after doing a few half-Irons, but keep training for an imaginary race, my QR PR-five carbon bike is on a bike trainer…
They are over by virtue of me choosing to hike, walk, run on pavement less, swim in the pool instead of in lakes, and not relishing the “aero” position on the bike anymore.
I could train for and do another sprint distance triathlon in with only six hours a week of training , to just “finish it”. But I prefer spending time with my wife and children. I hike with my wife and our dog. My wife and I go on walking vacations (120 km in a week) together. My kids go to the YMCA with me when they are home from college.
Part of the reason I cut down to part time was to spend more time with my family. Triathlon doesn’t help me much with that. I think I keep the bike in case I go back to finish another race, but it’s time consuming and I’d rather hike, then go to a local vineyard these days.
Anthony you are a superior human being than I am! I also got a cramp doing 5000 m… Driving on my way to Wegmans! As it was my right foot my eyes also flashed before my eyes but luckily I was able to bring my left foot to do the Gas and brake 🙂
But seriously, do you think the appetite for risk translates from what you think you can do physically to investing? in my experience, it doesn’t seem like it. For myself I’m 100% equities yet I am not an entrepreneur which has a lot of risk nor do I rock climb or do triathlons.
I think the misalignment stems from not recognizing the risk, such as your case where you never knew how your 60yr old body would react, or how these new fangled debt instruments would react. I recognize I am would likely drown doing a triathlon, but being 100% equities I can outlast a bear market since I’m not retiring for 22 years
Rikki, I’m not much of a physical risk taker. I don’t skydive, scuba dive, or ski. The only mountains I climb, you use no equipment. I don’t take selfies near the edge of anything. But, triathlons and open water swimming do have some risk despite training and experience.
Comparing equity allocation is one way to gauge risk tolerance. I had 100% equities, mostly mutual funds, in my retirement accounts from age thirty to about age forty seven. I then gave my accounts to a management company from 2012 to 2017. I had a “moderate risk allocation” at that time.
From 2017 to 2022, I managed all of my own accounts. My allocation was closer to 65/35 by then. As you know from my posts here, I’ve done a lot of “not that smart” with my accounts, mostly after a shock of some sort, like the pandemic swoon, when my accounts dropped 24% quickly in March of 2020. I day traded “bond money” from 2020-2021.
I’m sixty one in a month or so. My allocation has bounced around a bit too much the past five years. At times, I’ve had about 5% in “alternatives” like REIT’s or private debt products. I skipped Bitcoin…
As I have mentioned before, I don’t like bonds. I haven’t since 2020. If cash is paying 4.5-5.75%, that’s similar to bonds historically, but you incur reallocation risk. Money markets returns are now lower by about one percent as are CD’s. Of course, a 60/40 equity to bond portfolio beats a 60/40 equity to T-bill ratio across many decades.
At present, I have 69% equities (split 80/20 US to International), 5% bonds, and the 25% is cash, money market, and shorter term T-bills. I like cash. Not having 35% bonds has worked well since the pandemic swoon because of 2022. The last two years were spectacular for equities.
The biggest risk of mine is the inability to “set it and forget it” and count on long term returns. I read too much. Sometimes I also think I know something. I give too much attention to the shorter term market risks. Good thing one can make mistakes and still do well. Best wishes to you in the “100% equity years.”
Dude sounds like you are still in stage 3 of Rick ferri’s development of an investor, Complexity. Do you think you will eventually go into stage 4, Simplicity? Or do you think that some people never reach stage 4 depending on their personality?
That’s spot on. I just listened to the Excess Return podcast featuring Rick Ferri. I’m Definitely sort of stuck at “complexity”. Perhaps I’ll make it to simplicity in my sixth decade.
The funny thing is that I have done fairly well despite myself, but some of it was luck. Example: I earned a pension at a hospital working there eleven years. All I had to do was take the job and work there, then not take the lump sum of $140K in 2011 when I left that job. In 2023, they offered me a buyout and I took it and that is now 13% of my net worth leaving out my home. Luck.
As you know, I downsized in 2022 at a time when homes were at relative highs. Luck. We bought the NC retirement retreat in 2016 when houses and land were cheap. Mostly Luck.
The past two years have been beyond great for stocks and cash (and gold and Bitcoin that I don’t own). Luck.
I’ll watch a few more of the Rick Ferri videos and maybe I can inch past complex to simple. Thanks for the reference.