Money Management

Sam Bankman-Fried was convicted on seven counts of fraud, but that doesn’t make cryptocurrencies any safer. Here’s how crypto investors can reduce risk. 

After a month of dramatic scenes and revelations in the courtroom, FTX co-founder Sam Bankman-Fried has been found guilty on all seven counts of fraud, conspiracy, and money laundering. Formerly hailed as the Crypto King, Bankman-Fried pleaded not guilty to all the charges against him. He will be sentenced at the end of March.

FTX’s dramatic collapse almost a year ago caused the price of Bitcoin (BTC) to fall to under $16,000. Since then, crypto prices have started to recover, with Bitcoin now trading at over $34,000, according to CoinGecko data. That’s still significantly down from its high of over $67,000 in 2021, but it has still sparked hopes that the crypto winter may be over.

Can crypto put the FTX saga behind it?

Many people in the crypto world want to draw a line under the FTX disaster. They hope that Bankman-Fried’s conviction marks the end of what has been a sorry chapter for the industry. Their argument is that fraud can — and does — happen in many industries and that crypto itself is not to blame here. Unfortunately, it isn’t that simple.

Bankman-Fried clearly broke the law, whatever currency he used. And it’s true that plenty of fraud has also happened outside the world of crypto. But equally, the lack of crypto regulation made it easier for FTX to misuse billions of dollars of client funds. That same lack of regulation meant FTX customers had fewer protections when things went wrong. Unlike money in a bank, FDIC insurance does not protect crypto investors against platform failure.

If you’re thinking about buying crypto only because the storm has now passed, think again. Sure, prices have started to come back, but prices don’t tell us what’s going on behind the scenes. The crypto industry will only fully be able to put the FTX saga behind it when there are guardrails in place that stop something like this from happening again. There have been various proposals by lawmakers in Washington, but there’s no solid framework in place yet.

In the meantime, the SEC is pursuing cases against several key players. It argues that a number of popular cryptos, including Solana and Cardano, are unregistered securities that should come under the SEC’s remit. It also accuses crypto giant Binance of misleading consumers and engaging in “manipulative trading” practices. The outcome of the SEC’s cases could have serious implications for crypto investors, particularly in the U.S.

How crypto investors can reduce risk

Cryptocurrency is a volatile and high-risk investment. Put simply, there’s a lot we don’t know about how it will unfold. Bitcoin might achieve its potential and become the digital currency of the future. But, putting the FTX trial to one side, crypto still has a lot of hurdles to overcome, including the SEC charges I touched on above.

Don’t assume that Bankman-Fried’s conviction makes it any safer to invest in crypto. That doesn’t mean you shouldn’t invest. I hold a number of cryptocurrencies in my portfolio. It’s just important to understand the risks and take steps to mitigate them.

1. Ensure crypto only makes up a small portion of your portfolio

Don’t go all-in on crypto. There are many other investments that carry less risk, such as stocks, bonds, property, and even commodities such as gold. Open a brokerage account and build a portfolio that contains a mix of assets with different levels of risk. You might for example, hold a small percentage of crypto, alongside a safer investment such as bonds.

2. Use a crypto wallet to store your crypto

If you keep your crypto on an exchange rather than a crypto wallet that you control, it could be at risk if that platform collapses. In the case of FTX, the new management has tried to recover a lot of the cash and there’s a proposal to return a percentage of it to the platform’s users.

Consider moving your crypto to a crypto wallet. There is a learning curve involved and wallets carry their own risks. For example, if you lose your security phrase, you could lose access to your assets completely. But if you take the time to understand how they work and are comfortable with the added responsibility, a wallet could protect you against exchange failure.

3. Use a reputable crypto exchange

I’ll put my hand up here and admit that I thought FTX was a reputable exchange. That’s one reason why I don’t think Bankman-Fried’s conviction solves all of crypto’s problems. It’s hard to recover from the loss of confidence caused by the repeated lies of a major player. That said, some cryptocurrency exchanges are certainly more reputable than others.

Look for firms that carry out third-party audits of their deposits and keep your assets offline in cold storage. I’m a big fan of New York’s BitLicense as the requirements are more rigorous than most, so check here to see if the platform is licensed in New York. Stock brokers that also sell crypto have more legitimacy, as they already follow SEC broker-dealer rules.

Key takeaway

The collapse of FTX highlighted one of several risks associated with crypto investing. But Sam Bankman-Fried’s conviction doesn’t actually solve the issues faced by the industry. These include investor confidence, limited protections and regulatory controls, and questions about whether digital currency will achieve its potential.

If you’re considering investing in crypto, don’t be distracted by the Bankman-Fried circus. Research the risks involved, consider how these assets might perform in the long term, and plan how you will store your cryptocurrency. Bear in mind that crypto is just one of many asset classes. As such, try to consider what role it will play in your portfolio and how it will help you reach your wider investment goals.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Emma Newbery has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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Thinking of signing a personal loan? Read on to see why you may want to wait until January 2024 — or even beyond. 

When you want to borrow money, there are different options you can consider. If you’re not yet at the top of your credit limit, you could always rack up or add to a credit card balance. But you may prefer to sign a personal loan for a few reasons.

First, the interest rate on a personal loan might be considerably lower than what a credit card will charge. Also, credit card interest tends to be variable, whereas with a personal loan, you’ll get the benefit of fixed, predictable monthly payments.

Also, if you make your personal loan payments on time, it shouldn’t negatively affect your credit score. It may even have a positive impact. When you take on credit card debt, you risk damaging your credit score by virtue of having too much of it — even if you’re making every single minimum monthly payment on time.

But while it’s easy to see why a personal loan might appeal to you in general, you may not want to sign one for the rest of 2023. Here’s why.

1. You may be tempted to overspend on the holidays

Personal loans let you borrow money for any purpose. You may be looking to take out a $5,000 loan to fix up your home or repair your car. But if you’re able to qualify for a $7,000 loan, you may be tempted to take it on so you can go all out on the holidays.

That’s not necessarily a great thing, though. It’s OK to spend freely on the holidays when you can afford to. If you’re already borrowing for other purposes, you really don’t want to take on more debt just to buy more gifts and throw more parties.

You might end up struggling to pay off your debt after the fact. And while it’s one thing to land in that boat because you needed to make your car drivable, it’s another thing to land there because you didn’t want to skimp at all on holiday spending.

2. You don’t want to start the new year with debt

Many people try to maintain a positive financial outlook at the start of the new year. But a nagging loan balance might make that difficult.

It can be a tough thing mentally to know you owe money and have monthly payments to contend with. If you’re able to avoid borrowing with a personal loan in the coming weeks, you can at least kick off 2024 with a cleaner financial slate.

3. Borrowing rates aren’t favorable right now

Personal loans are often hailed as an affordable way to borrow money. But right now, borrowing is expensive in general thanks to the multiple interest rate hikes the Federal Reserve has implemented over the past year and a half.

The Fed has been eager to cool inflation, so it has raised interest rates in an effort to get consumers to slow their spending. It’s more expensive to sign just about any type of loan right now, whether it’s a personal loan, an auto loan, or a home equity loan.

Come 2024, the Fed may be in a position to cut rates, which could result in lower borrowing costs. So if you’re able to delay your personal loan, you might benefit in the form of a lower interest rate.

Before you make plans to sign a personal loan this month or next, consider the upside of waiting at least a bit. You may find it’s the better financial decision.

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Sometimes, when it rains, it pours. Read on to see how I coped financially with two emergencies in the same week. 

When you have kids and pets, things can go wrong. And sometimes, things can go very wrong in short order.

Such was the case for me during a particularly stressful week in October. During a seven-day span, both my dog and daughter wound up in the emergency room.

Thankfully, both are okay (well, except for the fact that my poor daughter is now recovering from a broken arm). But needless to say, it was quite a doozy. And I’m grateful for the fact that I didn’t really have to stress the financial end of things as I was dealing with all the logistics.

When unattended chicken and a rough soccer game make for back-to-back emergencies

One night last month, my dog managed to get into a plate of cooked chicken I thought I’d left out of reach. Being his meat-loving self, he chomped it all up in a matter of seconds, leaving not a scrap of food on the plate.

The problem is that he took down not only the meat of those cooked chicken thighs, but also the bones. Cooked bones can be dangerous for dogs because they can splinter once swallowed and cause obstructions and other unfavorable outcomes. As such, I had no choice but to take my dog to the animal hospital for an x-ray.

Thankfully, my dog didn’t need surgery — just a scolding and a special diet for a number of days to help the bone fragments sitting in his stomach pass through his digestive system naturally. But all told, it wasn’t exactly a fun situation.

Exactly one week later, my daughter got pushed down during an aggressive game of soccer and fell at just the right angle to break two bones in her arm. We couldn’t get her in to see an orthopedist right away, so we had no choice but to take her to the ER for an x-ray and splint. We then followed up with the orthopedist, who wants her in a cast for five weeks.

My daughter is adjusting to her injury, but she’s bummed about not being able to do any sports this month. We’re thankful, however, that the break did not require surgery.

My pet insurance and emergency fund came to the rescue financially

During both of these episodes, my main concern was the well-being of my pup and child. But there was also the financial aspect to consider. Thankfully, I was covered in both regards.

Though I did have to shell out the money for my dog’s care on the spot, I submitted a claim to my pet insurance company and expect to be reimbursed without an issue. This is a classic case of what my insurance is there for, and there’s no reason for my pet insurance company to reject that claim.

Meanwhile, my health insurance won’t pick up the entire cost of my daughter’s care, so I’ll need to dip into my savings account to pay whatever portion of her bill I’m responsible for. But thankfully, I have money in my emergency fund for that purpose.

Also, for better or worse, we already met our health insurance deductible for the year thanks to my other daughter breaking a bone in the spring. So there’s that.

An estimated 63% of Americans don’t have enough emergency savings to cover a $500 expense, says SecureSave. But I’ll tell you that my dog’s emergency treatment cost at least that much, and I won’t be surprised if my portion of my daughter’s care comes in even higher.

If you don’t have money set aside for emergencies, try your best to start building up a balance — even if it means saving $5 or $10 a week and working your way up from there. This is an especially important thing to do if you have pets and kids, because you never know when you might face sudden bills related to both at pretty much the same time.

And if you have a pet, I highly suggest buying pet insurance, even if it’s just a basic policy that covers major medical events. Had my dog needed surgery a few weeks ago, I would’ve easily been looking at a $4,000 or $5,000 procedure, the vet told me. It didn’t come to that, but it could’ve. So don’t put yourself in that situation if you can avoid it.

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Service animals, gambling losses, and jury duty may not be at the top of your deductions list, but they might qualify. Read on to find out how. 

I have yet to meet a human being who enjoys doing their taxes. I don’t think they exist, and if I ever met someone who told me they enjoyed the process, I would assume they were an alien from another planet disguised as a human being who has no understanding of what taxes are.

But despite the near-universal contempt for taxes, there are a few things you can do to make the process slightly less terrible. Specifically, you can claim the appropriate tax deductions.

If you’re searching for a few tax deductions you may not have investigated before, here are five to look into.

1. Expenses for certified service animals

If your pet is a certified service animal, like a guide dog, you may be able to deduct some of the expenses for them. If you have a certified service animal to help you with a physical disability or a hearing or visual impairment, you may be able to deduct the cost to buy, train, and groom them, as well as veterinary services.

It’s worth mentioning that HR Block says that therapy animals are not considered certified service animals, according to the IRS.

2. Reinvested dividends

TurboTax says that this technically isn’t a tax deduction and is instead more like a subtraction, but the tax prep software company notes on its website that many taxpayers overlook it. The company says that if you have a mutual fund account and your stock dividends are automatically reinvested in new shares, then each reinvestment increases the “tax basis” in the mutual fund.

When you sell some of your shares in the mutual fund, the reinvested dividends reduce your taxable capital gains. So keep track of your dividend reinvestments and fill out the necessary sections on your tax forms.

3. Military reservist travel expenses

If you’re a member of the U.S. Armed Forces reserve, then you may be eligible for a tax deduction on out-of-pocket travel expenses for drills, training, or meetings.

If you traveled more than 100 miles from your home and stayed overnight for reserve training — and weren’t reimbursed for it — you may be able to claim the deduction on your taxes, including for lodging, meals, and transportation.

4. Gambling losses

Believe it or not, you can sometimes deduct your gambling losses on your tax return. The IRS says the amount of the losses you deduct can’t be more than your gambling income — and yes, you have to report your winnings as income.

The losses can be for gambling at a casino, but can also be for things like lottery tickets or raffles. Just make sure you keep very detailed records of money won and lost.​​ The IRS says you must keep “an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records” of your winnings and losses.

5. Jury duty pay paid to your employer

If you were lucky enough to score jury duty last year, this one might apply to you. Some companies will continue to pay your salary when you serve on a jury, but may ask you to hand over the money you received for jury duty.

According to TurboTax, you can avoid paying taxes on jury duty money as part of your taxable income if you claim the deduction and show that you passed the money along to your employer.

How to make tax season less painful

Whether you usually have to pay additional taxes or get a sizable return each year, there are a couple of things you can do to make the process a little easier:

Get organized: I usually throw any receipts and other records I may need for my taxes into a folder throughout the year. Then, a few weeks before I do my taxes, I sort through it and get organized. I find sorting the paperwork ahead of time, instead of the day I do my taxes, is less stressful and gives me time to hunt down any missing paperwork.Use tax prep software or hire a professional: This one might seem obvious, but you can save yourself a lot of time and hassle by either using tax prep software or hiring a professional accountant or tax preparer. I’m a self-employed writer and have gone both routes, and found each to be beneficial in its own way. Tax prep software is very comprehensive these days — some software options are even free — but a professional may be best to handle complex tax situations.

I usually give myself at least two days to complete my taxes. Spreading it out makes me feel less pressure to cram it all into one terrible Saturday afternoon. Instead, I’ll ruin two days. But it still seems less overwhelming that way.

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People often raid their emergency savings to cover home or car repairs. Read on to see why there’s another unfortunate reason you might need cash in the bank. 

When a good friend of mine told me last month that she was headed across the country to see her old roommate from college — someone she spoke of often — I knew the news wasn’t great. Her friend had been ill for quite some time and had taken a turn for the worse. And, as my friend put it, she wanted to fly out to see her friend rather than fly out to attend her funeral.

The situation was, of course, heartbreaking. But my friend’s one salvation was that she didn’t have to risk landing in credit card debt to see her friend (whose health was declining by the day). Instead, she was able to tap her emergency fund and make one aspect of that trip a little less stressful.

The importance of having emergency savings

When we think of having an emergency savings account, we often assume we’ll need that money for things like home repairs, car repairs, or medical bills. And the truth is that we’re often told to amass a large enough emergency fund to cover three months of essential expenses at a minimum in case we’re laid off and have to go without a paycheck for a period.

But unfortunately, there’s another reason you might need emergency savings — someone you love could go through a health crisis. So if your personal savings balance could use work, let that be another motivating factor.

You may not necessarily need emergency savings to visit a dying friend so much as to help out a friend or family member following a medical episode. Years ago, my father had quadruple bypass surgery. I spent hundreds of dollars in the days following his surgery to drive into New York City and park my car there just to visit him in the hospital.

My friend’s expenses to see her extremely ill friend were a lot higher because there was a cross-country flight involved, and she didn’t have a lot of time to make arrangements. Her friend had been very ill for months but went from that to absolutely dire condition in a matter of days. So my friend had to act quickly — even if it meant shelling out close to $1,000 to fly out on a whim.

She also did not want to burden her friend’s family upon her arrival, so she opted to rent a car. And she rented a hotel room because the last thing the family needed was a houseguest. All told, her trip cost her upward of $1,500. Thankfully, she had the money.

You never know what sort of emergency you might encounter

Having to pay to fix a car that won’t start or a water heater that won’t heat is stressful in its own right. But my friend’s situation was well beyond that level of stress. And it’s a good thing she had the money to be able to travel when she needed to.

An estimated 63% of Americans don’t have enough savings to cover an unplanned $500 expense, says SecureSave. But you might spend well more than that to travel to see a loved one who’s ill and needs the comfort of having you there.

So do your best to build up an emergency fund if you’re lacking in that regard. Automating contributions of even as little as $10 or $20 a week could go a long way toward helping you build up a financial safety net so that money, or a lack thereof, doesn’t have to get in the way of being there for a friend when they need you.

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Travelers often talk about the benefits of business class. Learn about a seldom-discussed downside you could encounter if you always fly this way. 

I flew business class for the first time a little over five years ago, on an eight-hour flight back to the United States. While I had flown first class on domestic flights before, this was a whole new level of travel for me. A seat that turned into a bed? I was hooked. My immediate reaction was “This is how I always want to fly.”

And that’s what I’ve done. Travel is one of the things I don’t mind spending money on, so flying in business class is worth it to me. I’ve also used quite a few travel credit cards to cover the cost of some of that airfare in miles instead of cash.

There’s a lot to like about flying business class. The seats are definitely much more comfortable, especially when they’re lie-flat seats. The meals can be pretty impressive, at least for something served on an airplane. Most people would probably assume there aren’t any real downsides, besides the higher cost.

It’s mostly as good as advertised. But when you always fly business class, there is a potential downside that doesn’t get talked about much.

Your travel standards go way, way up

A single flight in business class might not change the way you look at travel. It’s nice, but you may consider it a one-time thing, or a way to treat yourself on special occasions.

On the other hand, if you always fly in business class, then it’s almost certainly going to raise your travel standards. You get used to that level of service and luxury. Now, this isn’t necessarily a bad thing, but it does have consequences.

For one, it becomes normal for you. It’s hard to go back to flying economy once you’ve gotten used to the perks of business class. And even business class loses some of its magic. Don’t get me wrong, I still love it. But it doesn’t wow me nearly as much as it did the first couple of times. At this point, I know the drill.

It doesn’t just raise your standards for air travel, either. It will probably raise them across the board. When you always treat yourself to a nice flight, you may feel like you should do the same with your accommodations. No more hostels, questionable Airbnbs, or budget hotels. If you’re going to get to your destination in style, shouldn’t you stay in a nice hotel, too?

There’s a good chance you’ll start expecting more from your travels. To get more, you usually need to pay more. Between airfare and hotels, you could end up spending much more than you used to.

Embrace the change — or don’t

To reiterate, there’s nothing wrong with having high standards when you travel. Many people go from budget travel as young adults to more expensive trips as they get older. If you want to fly business class for every trip and stay in premium hotels, you shouldn’t feel bad about it. Everyone has their priorities with how they spend their money.

You should, however, be ready for the costs involved. It’s not worth going into debt just so you can travel in luxury. Here are a few ways to finance those business-class flights, fancy hotel stays, and meals at Michelin star restaurants.

Set up a travel fund and contribute to it every month. Open a high-yield savings account to serve as your travel fund. If you already have a savings account, you can also set up a sub-savings account specifically for travel. Then, decide how much you’ll transfer to it every month.Cut back on other expenses so you have more money to spend on travel. If travel is a priority for you, that may mean spending less on other, less important expenses. For example, I haven’t had a car for years because I can get around fine without one. Instead of an expensive car payment, I’d rather have more money I can spend on vacations. Part of improving your personal finances is deciding where you can spend and get the most out of your money.Get a travel credit card and use it to pay for all your purchases. Travel cards earn rewards that you can use to cover travel expenses. If you love to travel, it makes sense to have one of these credit cards. You can use it to pay for your regular expenses, and then use the rewards you earn to save on your travel costs.

You may also discover that you’re fine with any type of trip. Some travelers don’t care about all the bells and whistles. There’s no right or wrong way to travel. Just know that if you start making higher-end travel a regular part of your life, it can be hard to go back.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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