When FTX, the cryptocurrency exchange founded and run by Sam Bankman-Fried, filed for bankruptcy, big and small investors experienced significant losses.
Some of these investors had money in FTX and, to some extent, knew they were taking on risk by doing so. Other investors simply were invested in funds or even pensions and honestly had no clue of their exposure to such a toxic business.
One large group of investors who likely had no clue they were invested in FTX, or even cryptocurrencies of any kind, where those who are beneficiaries of the Ontario Teachers' Pension Plan.
After FTX filed for bankruptcy, the Ontario Teachers' Pension Plan announced that it would write down its entry stake in FTX to zero. The pension fund had $95 million invested in FTX, which is now essentially gone.
Furthermore, what makes this situation even slightly more painful, is that the Teacher's Pension manager just started investing in FTX in October of 2021 with an initial investment of $75 million and then added another $20 million in January 2022.
The date of the investments is important for two reasons. The first reason is that the whole investment has been lost just over a year from the initial investment. The second reason, and probably more important, is that the teachers who are part of the Pension fund didn't have much time to even realize they were invested in FTX.
I know what you are thinking, "they had a year to figure out their pension fund was invested in FTX." Yes, I understand the investment was a year old. However, funds don't have to disclose their holdings right when the purchases are made.
Furthermore, while most funds disclose their holdings quarterly, they are only required to do so yearly. I don't know how often the Ontario Teachers' Pension Fund announces its holdings, but if they disclose yearly, investors may have only been told about the initial $75 million invested in October 2021 and had not even been informed of the additional $20 million invested in January 2022.
None of that matters because I'm just using the Ontario Teachers' Pension Fund as an example. There are tons of private and publicly traded funds that you as an investor could have money tied up in, which may be investing in businesses that you wouldn't touch with a 10-foot, sorry, 100-foot pole.
Whether it is FTX and cryptocurrencies, marijuana stocks, alcohol stocks, or even just lowly-rated ESG businesses, when you turn your money over to another person to invest and manage for you, they may buy companies on your behalf that you would not personally feel comfortable investing in.
While I constantly hear the argument that the individual investor doesn't know enough to properly handle their own money, before you blindly turn your hard-earned cash over to someone else, remember that managing your own money may be better than "trusting" a so-called professional.
While every money manager has the same goal in mind, to give you back more money than you gave them, they may not all have the same 'morals' and-or risk tolerance that you have.
If you don't like to invest in the "Sin" stocks or new technologies that carry high risk, it may be better for you to invest your own money yourself. Or, it would help if you were super precise with your money manager about what you are and are not comfortable with owning.
But, even if you do go the route of investing your money yourself, you need to be very diligent with your research about what even you are buying.
For example, if you buy the SPDR S&P 5500 ETF (SPY), you will own a number of the so-called 'Sin" stocks. Stocks like Altria (MO), Constellation Brands (STZ), MGM Resorts International (MGM), and a number of defense stocks that make weapons of war are all held in SPY.
If you want to avoid the sin stocks, start investing in Socially Responsible (SRI) Exchange Traded Funds or Environmental, Social, and Governance (ESG) Exchange Traded Funds. It is easy to find these newer groups of ETFs, but you can start with the iShares ESG Aware MSCI USA ETF (ESGU) or the Harbor Corporate Culture ETF (HAPI).
However, just because they have ESG in their name or state that they only invest in certain types of companies, you still need to perform your due diligence and confirm that they adhere to your standards. Just like you would if you handed your money to a financial advisor.
You will never be able to avoid fraud situations, but you can do an excellent job at controlling what types of business your money is being invested in if you do just a little work.
Matt Thalman
INO.com Contributor
Follow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
