In the wake of the FTX/BlockFi crypto custodial catastrophe, allow me to present a quick-and-easy guide on how you, too, can lose money. And more importantly, how to cope with it.

For background, you should know that here at Impersonal Finances DOT COM, we like to experiment with and learn about the fringes of the financial landscape by tinkering around with some goofy shit. While primarily investing in VTSAX for the long haul in a quest for semi-early retirement, we’ll sprinkle in some crypto, NFTs, ETF incinerators, and other speculative nonsense. Well, as it turns out, we’re a little overweight on goofy shit these days. And we’ve lost some money. And by WE, I of course mean I, individually, lost some money. It feels better to pretend that these were group decisions and not a direct reflection of my own tulip-buying proclivities.

To quote the youths: we down bad.  

How I lost money

Like many, the risk assets in my portfolio have been absolutely slaughtered over the past year, leading to the kinds of unrealized losses that make you quickly realize why you don’t tend to get involved in such shenanigans in the first place. The broader market is obviously down this year, so nearly everyone is dealing with paper losses of some sort during this angry bear. But virtually everything I’ve done outside of my traditional index fund investments–outside of I-Bonds–has been hacked to bits.

To be clear, the portion of my portfolio wherein said assets are contained is relatively small as a percentage of my net worth, though increasingly not so small in terms of a real dollar amount. Anything I’ve irresponsibly played around with has come after the privileged position of maxing out my Roth IRA and 401(k) contributions, and after additional monthly automated purchases of VTSAX in a brokerage account.

All that to say in limerick form, while some of my decisions have been shitty, I deserve none of your pity—especially compared to the non-FIRE blogger demographic. Speculation, if it must occur, should always be done with “boat money” rather than “house money.” In other words, money that you don’t NEED need to fulfill the basic necessities of life. For a reference point as far as my own losses are concerned, we’re probably talking about used car money. Maybe a mid-sized sedan. Like a nice Honda Accord that drops about 80% in value immediately off the lot. And it’s missing the floor mats (I got rugged is what I’m saying there).  

BlockFi  betrayal

I’ve already cemented my status as a certified Cathie Woods bagholder—and sure it’s plenty painful to see some relatively ginormous red numbers in my portfolio. I’m in it for the content at this point, or so I tell myself. But the most recent implosion of crypto custodians has turned my speculative report card from bad to worse. It’s one thing to invest in an asset that drastically (and predictably) underperforms, but to hold that underperforming asset (Bitcoin & Ethereum in this case) in a theoretically trusted institution that goes bust elicits a whole different set of emotions.

With BlockFi ceasing withdrawals for the foreseeable ever, the assets that I had been dollar cost averaging small amounts into for the long run are effectively worthless. This comes through no immediate fault of the assets themselves—poorly performing as they may be. That whole FDIC insurance thing—or lack thereof—is nothing to sneeze at. While there’s technically a slim but theoretical chance that these assets aren’t completely kaput, the realist in me sees the writing on the blockchain.

In a way, the presumed FTX-induced BlockFi blowup has helped to snap me out of a speculative coma and back to my regularly scheduled penny-pinching, Buffet-quoting, red-blooded American lifestyle. It’s been difficult for me to reconcile my traditional day-to-day thrift and level-headedness with an unfulfilled appetite for risk and the slim prospect of instant riches, but we all have our crosses to bear.  

How to cope with losing money

So, you’ve lost this rather large sum of money. You broke Warren Buffet’s one, nay, two oft-cited rules. Nice going. But you’re still here. You have 10 fingers and 10 toes. And you still have that money that you didn’t lose, don’t forget about that. Unless by remembering that money you’re going to turn around and use it to do some dip-buying, in which case do forget about it, please, for the love of God.

Here’s what to do next:

Acknowledge it

Face the facts. Don’t sugar coat it. Don’t blame anyone else (excluding this SBF weirdo). Bust out that spreadsheet and put an exact figure to it. What’s the damage? Are there any action items? Can you stop the bleeding? Be honest with yourself and your financial situation.

I’d also try to avoid the sweet comfort that comes from blaming others. While there may be a gnawing sense of betrayal and budding hate in my heart for BlockFi’s CEO Zac Prince, whose sultry podcast tones led me to trust his company, I made my own decisions and knew most of the risks involved. Even if I dismissed the possibility of some of these risks with a flippant “it won’t happen to me” attitude. By deflecting blame, it will only be more difficult to learn the necessary lessons from the experience.

Don’t dwell on it

Own your mistakes, but also recognize that people have been making mistakes since some naked dude in a garden wanted to try some fruit. Ignore the “I told you so” victory lappers and Schadenfreuders. Yeah, Twitter Man, you did tell me so. And I didn’t listen to you. That makes me feel super awesome and better about the whole thing, so thank you for the reminder.  

A lot of times, it’s the pride that hurts more than the price.

Talk about it

If you manage your family’s finances, your unfortunate scenario may necessitate a hard conversation with your spouse. Or you may choose to let this newfound burden consume you and instead focus on concocting schemes to dig out from under it yourself with nary a word of the ordeal to anyone. As an unmarried relationship expert, it’s easy enough for me to recommend the hard conversation.

Whether you’re disappointing your loved ones or merely yourself, it’s still helpful to talk about it. Maybe that’s in the form of trading emails with the financial advisor you thought you didn’t need, or maybe it’s with an angry, rambling blog post. Pick your poison. Word vomit is part of the healing process.

Learn from it

Sometimes you need to experience the downside of risk to guarantee years of future risk avoidance. A small—or even large—loss could be worth tens of thousands of future dollars invested responsibly.

My index fund-fortified defense mechanisms have historically been able to resist the onslaught of rising manias as others gleefully profit around me. But the heights of some manias grow too high for my wall of risk resistance. And they disguise themselves as opportunities. While my VTSAX-dam doesn’t break, there’s often spillage at the top, and damage to the bottom line. (Here’s what I wrote in January 2021 about missing out on Tesla, self-advice that I soon neglected).

To mishmash and potentially misattribute a pair of iconic quotes from one Dr. John Bridges and The Main Ingredient: A fool and his money are soon parted, and everybody plays the fool, sometimes. There’s no exception to the rule. Not even little ole impersonal me.

What say you? What’s the most money you’ve ever lost? How did you handle it? Drop a line in the comments and we’ll commiserate together!