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AI, Bubbles, and Markets

IN AN INTERVIEW a little while back, the technology investor Peter Thiel drew an uncomfortable comparison. Today’s frenzy around artificial intelligence, he said, parallels the tech stock bubble of the 1990s. To illustrate his point, Thiel pointed to Amazon. By any measure, it’s been an extraordinary success. But, Thiel points out, it hasn’t been a straight line. At one point early on, Amazon shares lost more than 90% of their value. “My suspicion is that that’s roughly where we are in AI. It’s correct as a technology, but extremely bubbly and crazed…” Thiel explained that he doesn’t doubt the importance of artificial intelligence as a technology. What he’s questioning is how these technologies are being financed. Of particular concern are financing deals in the AI ecosystem that are seemingly circular. Nvidia, for example, has invested as much as $100 billion into ChatGPT maker OpenAI, at the same time that OpenAI has committed to spending billions on Nvidia’s chips. Similarly, OpenAI signed an agreement with AMD, another chip maker, to buy tens of billions of dollars of its chips while also buying a stake in the company. Transactions like this call into question whether these companies can continue to generate earnings at the same rapid pace. Compounding this concern, market valuations are elevated. On a price-to-earnings (P/E) basis, the S&P 500 is trading at 21 times estimated earnings. That’s quite a bit above the long-term average of 16 and thus represents a risk. If investors cool on AI, both earnings estimates and P/E multiples would likely drop at the same time, causing share prices to take two steps down.  How unusual is this situation, and how concerned should we be about it? It turns out these are questions economists have been studying—and struggling with—for years. Probably the most well known research on the topic dates to the 1970s, when economist Hyman Minsky developed what he called the Financial Instability Hypothesis.  This is how Minsky described it: “A fundamental characteristic of our economy is that the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycles.” Booms and busts, in other words, are inevitable. Why? Paradoxically, Minsky said, financial stability causes financial instability. That’s because periods of financial stability lead people to become overconfident and to assume that the good times will last forever. But that overconfidence leads to complacence and to a lack of financial discipline, especially among lenders. That then causes debt levels to rise. What happens next? Writing in Manias, Panics and Crashes, Charles Kindleberger explains that there’s typically a canary in the coal mine that causes investor sentiment to shift. Often, it’s the unexpected failure of a bank or other institution. That’s why it caught people’s attention in February when Blue Owl Capital, which operates private credit funds and has helped finance AI data centers, announced that it was halting redemptions from one of its funds. Looking at more recent research, economist Bill Janeway agrees with Minsky on the causes of bubbles but argues that they’re not all bad. He talks about “productive bubbles.” As an example, he points to the market bubbles surrounding the development of the British railway system in the 1830s and 1840s. Much like the 1990s tech bubble in the United States, investors piled into railway stocks, causing prices to spike to irrational levels. Overbuilding ensued, and that led to a number of bankruptcies. Despite the financial losses, Janeway believes the railway bubble was productive. That’s for the simple reason that, at the end of the day, the tracks were laid. Yes, there were excesses, but Janeway sees no alternative. Investor enthusiasm acts as a sort of subsidy for early-stage, uncertain technologies that the market wouldn’t otherwise finance. The evidence certainly supports Janeway’s argument. The market does a very poor job picking winners. Janeway notes that essentially the same thing happened in the 1920s, when investors piled into companies working to build out the electricity grid in the U.S. There was massive over-investment, which led to bankruptcies. But in the end, electrification projects were completed much more quickly than they might have been otherwise. The key lesson: When market bubbles roll around, we shouldn’t be surprised. They’re inevitable. And over the long term, they’re arguably a good thing, enabling technology to move forward. Nevertheless, when bubbles burst, it’s unnerving. And indeed, in Janeway’s view, the same thing will likely happen with AI stocks. If Janeway is right, how can you prepare? The solution, in my view, is straightforward: Instead of trying to guess when the AI—or any other—bubble might burst, investors should take the view that the market could drop at any time. Then structure your portfolio accordingly.  There’s more than one way to approach this, but in my view, it’s a simple two-step process: First, make sure you’re diversified at the asset class level, with enough stowed in short-term bonds or cash to carry you through a multi-year market downturn. Then go one level deeper, auditing your stock holdings for individual stocks or funds overly exposed to any one corner of the market. And if you’re in a private fund—especially a private credit fund—I’d identify the nearest exit.   Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
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Retirement in America is not a pretty picture…and not getting better.

"The huge salaries are not significant because what is called pay in reality total compensation 60% or more of which is stock not cash. Take the pay of a CEO and divide it by the number of employees and see the impact. Millions of average Americans have IRAs 401k, etc. their investments are relative to their incomes and the performance of their investments are even more important than the wealthy. While only 15% or so of workers in the private section have a pension far more retirees do as do nearly 90% of government workers. They all depend on stock market performance. Also, all those 529 plans out there. Around 17.4 million accounts with $588 billion in assets. Also dependent on stock performance. I doubt they are mostly held by the top 1%. The corporate tax breaks are designed to promote investment and other growth strategies. Needless to say profits and growth are what keep people employed. Corporate America is not the enemy."
- R Quinn
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The Bear Market Survival Kit (Pharmaceuticals Not Included)

"I think it's wonderful advice. You should be proud that your son is grounded enough to provide it. On a lighter note, a burger beside a pool sounds like an excellent idea!"
- Mark Crothers
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$3 Trillion S&P 500 Gatecrashers

HAVE YOU GIVEN any thought to what's about to happen to your S&P 500 tracker? Three enormous IPOs are expected later this year: SpaceX, OpenAI, and Anthropic. Based on their most recent private transactions, SpaceX appears to be valued at around $1.25 trillion, OpenAI at roughly $800 billion, and Anthropic at approximately $380 billion. Combined, we could be looking at close to $3 trillion in private market value that wants to go public. To put that in perspective, the entire S&P 500 is worth roughly $60 trillion. That's not a routine year for markets. That could be a very large event indeed. I suspect the vast majority of people with money sitting in a tracker fund have absolutely no idea it's coming. Those that do might have read some of the more sensational claims I've seen about immediate, disruptive wholesale change to the S&P 500. I think those articles are getting ahead of themselves. These companies might not automatically land in your S&P 500 tracker the day they list. The index has hard rules, and two of them seem particularly relevant. A company generally needs to have been profitable for four consecutive quarters before it qualifies. OpenAI and Anthropic are both, as far as we can tell, burning through enormous amounts of capital. They may well not meet that bar at IPO. There's also a float requirement, where roughly half of a company's outstanding shares typically need to be publicly tradeable. These businesses will almost certainly debut with tiny floats, possibly somewhere between 5% and 10% of shares in public hands. That could disqualify them from day one. SpaceX is possibly the closest to profitability of the three, but the float issue likely applies across the board. One area of uncertainty is the selection committee. This has some discretion around the inclusion of larger IPOs. They could choose to move faster than the rules imply. So the story might not be your tracker being immediately and dramatically restructured. The story could be more drawn out than that, and perhaps more interesting for it. What does this mean in the short term? I can only offer informed speculation. To my mind, volatility seems likely around the listings themselves. Not necessarily because of forced index rebalancing, but because the float issue creates its own kind of pressure. Enormous companies carrying enormous implied valuations, but only a sliver of shares in circulation. Limited supply, near-unlimited institutional demand, and a market full of retail investors who've been reading about these companies for years and finally get their shot. I would guess we should expect wild price swings during those early trading days, though I could be wrong about the scale of it. Rotation risk is worth watching too, I think. Investors might pull money out of existing AI bets, the likes of Nvidia and Microsoft, and move it directly into OpenAI and Anthropic the moment they're publicly available. If that happens, the stocks that have driven your tracker's returns for the last three years could face sustained selling pressure, not because anything's wrong with those businesses, but simply because a shinier, newer version of the same trade has just arrived. A throwaway thought for anyone holding individual shares rather than trackers. The companies most at risk of ejection are those sitting at the bottom of the index. When a business loses its S&P 500 membership, every passive fund becomes an automatic seller. That can hit the share price hard, nothing wrong with the company, just forced selling as a side effect of something big happening at the very top. Worth knowing if any of those smaller names are in your portfolio. Medium term it could get more interesting still. If and when these companies do meet the profitability and float requirements, which could, I think, be years after their IPOs rather than months, every S&P 500 tracker on the planet becomes an automatic buyer. Hundreds of billions flowing into SpaceX, OpenAI and Anthropic whether fund managers want it or not. The mechanics of passive investing would turn every tracker holder into an investor in these three companies with absolutely no say in the matter. That's the bit people rarely stop to think about. Passive investing isn't neutral. It just means someone else is making your decisions for you. Then I come to the big question: do these businesses actually deserve these valuations? It's worth noting that every major IPO of recent years has tended to trade down from its private valuation once the public gets a proper look at the books. The venture capital guys who set those private prices aren't always right, and public markets have a habit of finding that out fairly quickly. If the same happens here, your tracker should hopefully be buying them at a fair price by the time they filter into the realm of inclusion within that tracker. It has to be said, that's not guaranteed. I'm not trying to be alarmist. These aren't penny stocks being hyped and I think that matters. OpenAI's revenue had already surpassed $20 billion by the end of 2025. SpaceX is targeting what could be the largest public offering in history. Anthropic has BlackRock, Blackstone, Microsoft and Nvidia on its books. These are real businesses generating real money with the biggest and most sophisticated names in global finance and technology behind them. That doesn't make them cheap at these prices, but it does make them a very different proposition from the usual IPO hype cycle. The bottom line for the average investor? We probably don't need to do anything dramatic. But it doesn't hurt to understand that the passive, set-and-forget vehicle you own may look quite different over the next few years, not necessarily in a single sudden lurch, but gradually, as these companies either earn their way into the index or don't. The index you bought into always changes but the next few years will definitely see bigger changes than normal. If nothing else, it'll be interesting to see what happens going forward…Eyes open.
Mark Crothers is a retired small business owner from the UK with a keen interest in personal finance and simple living. Married to his high school sweetheart, with daughters and grandchildren, he knows the importance of building a secure financial future. With an aversion to social media, he prefers to spend his time on his main passions: reading, scratch cooking, racket sports, and hiking.
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America Doesn’t Just Do Layoffs. It’s Fallen in Love With Them

"Let me share some good news. I was downsized or better term fired in 1994. HR did a poor job, but tried to be nice, after telling me to leave, they offered help in finding a new job, an agency. What happened next was delightful, other employees that found a way to compete with our company founded a small 10 person company. They asked me to join, and I tripled my wage over a few years and never looked back. Sometimes you can make Lemonade out of Lemons."
- William Dorner
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My Favorite Rx

"I have used TurboTax for a number of years and familiar with using it. I typically use the self guided approach instead of interview. In past years I had to enter multiple K1’s and this was very clunky and seemed to change significantly one year to the next and often led to minor corrections in Forms mode. I always run the check for accuracy multiple times and purchase the audit defense for peace of mind, small cost in the big picture."
- Grant Clifford
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Tax Smart Retirement

A POPULAR JOKE about retirement is that it can be hard work. That’s because financial planning is like a jigsaw puzzle, and retirement often means rearranging the pieces. In the past, I’ve discussed two key pieces of that puzzle: how to determine a sustainable portfolio withdrawal rate and how to decide on an effective asset allocation. But there’s one more piece of the puzzle to contend with: taxes. Especially if you’re planning to retire on the earlier side, it’s important to have a tax plan. When it comes to tax planning for retirement, there’s one key principle I see as most important, and that’s the idea that in retirement, the goal is to minimize your total lifetime tax bill. That’s important because a fundamental shift occurs the day that retirement arrives: In contrast to our working years, when taxes are, to a large degree, out of our control, in retirement, taxes are much more within our control. By choosing which investments to sell and which accounts to withdraw from, retirees have the ability to dial their income—and thus their tax rate—up or down in any given year. The challenge, though, is that tax planning can be like the game Whac-A-Mole. Choose a low-tax strategy in one year, and that might cause taxes to run higher in a future year. That’s why—dull as the topic might seem—careful tax planning is important. To get started, I recommend this three-part formula: Step 1 The first step is to arrange your assets for tax-efficiency. This is often referred to as “asset location.” Here’s an example: Suppose you’ve decided on an asset allocation of 60% stocks and 40% bonds. That might be a sensible mix, but that doesn't mean every one of your accounts needs to be invested according to that same 60/40 mix. Instead, to help manage the growth of your pre-tax accounts, and thus the size of future required minimum distributions, pre-tax accounts should be invested as conservatively as possible. On the other hand, if you have Roth assets, you’d want those invested as aggressively as possible. Your taxable assets might carry an allocation that’s somewhere in between. If you can make this change without incurring a tax bill, it’s something I’d do even before you enter retirement. Step 2 How can you avoid the Whac-A-Mole problem referenced above? If you’re approaching retirement, a key goal is to target a specific tax bracket. Then structure things so your taxable income falls into that same bracket more or less every year. By smoothing out your income in this way from year to year, the goal is to avoid ever falling into a very high tax bracket. To determine what tax rate to target, I suggest this process: Look ahead to a year in your late-70s, when your income will include both Social Security and required minimum distributions from your pre-tax retirement accounts. Estimate what your income might be in that future year and see what marginal tax bracket that income would translate to. In doing this exercise, don’t forget other potential income sources. That might include part-time work, a pension, an annuity or a rental property. And if you have significant taxable investment accounts, be sure to include interest from bonds. Then, for simplicity, subtract the standard deduction to estimate your future taxable income. Suppose that totaled up to $175,000. Using this year’s tax brackets, that would put your income in either the 24% marginal bracket (for single taxpayers) or 22% (married filing jointly). You would then use this as your target tax bracket. Step 3 With your target tax bracket in hand, the next step would be to make an income plan for each year. The idea here is to identify which accounts you’ll withdraw from to meet your household spending needs while also adhering to your target tax bracket. This isn’t something you’d map out more than one year in advance. Instead, it’s an exercise you’d repeat at the beginning of each year, using that year’s numbers. What might this look like in practice? Suppose you’re age 65, retired and not yet collecting Social Security. In this case, your income—and thus your tax bracket—might be quite low. To get started, you’d want to withdraw enough from your tax-deferred accounts to meet your spending needs but without exceeding your target tax bracket. This would then bring you to a decision. If you’ve taken enough out of your tax-deferred accounts to meet your spending needs and still haven’t hit your target tax rate, then the next step would be to distribute an additional amount from your pre-tax accounts. But with this additional amount, you’d complete a Roth conversion, moving those dollars into a Roth IRA to grow tax-free from that point forward. How much should you convert? The answer here involves a little bit of judgment but is mostly straightforward: You’d convert just enough to bring your marginal tax bracket up into the target range. Some people prefer to go all the way to the top of their target bracket, while others prefer to back off a bit. The most important thing is just to get into the right neighborhood. What if, on the other hand, you’ve taken enough from your pre-tax accounts to reach your target tax rate, but that still isn’t enough to meet your spending needs? In that case, you wouldn’t take any more from your pre-tax accounts, and you wouldn’t complete any Roth conversions. Instead, you’d turn to your taxable accounts, where the applicable tax brackets will almost certainly be lower. Capital gains brackets currently top out at just 20%. Thus, for the remainder of your spending needs, the most tax-efficient source of funds will be your taxable account. What if you aren’t yet age 59½? Would that upend a plan like this? A common misconception is that withdrawals from pre-tax accounts entail a punitive 10% penalty. While that’s true, it isn’t always true, and there’s more than one way around it. One exception allows withdrawals from a workplace retirement plan like a 401(k) as long as you leave that employer at age 55 or later. In that case, as long as you don’t roll over the account to an IRA, you’d be free to take withdrawals without penalty. If you’re retiring before age 55, you’ll want to learn about Rule 72(t). This allows for withdrawals from pre-tax accounts at any age, as long as you agree to what the IRS refers to as substantially equal periodic payments (SEPP) from your pre-tax assets. The SEPP approach definitely carries restrictions, but if you’re pursuing early retirement, and the bulk of your assets are in pre-tax accounts, this might be just the right solution.   Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
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Forget the 4% rule.

"A few years ago I concluded I was under withdrawing. I begin with the RMD calculations but shifted to a modified guardrails approach. I evaluated just about every approach Christine Benz writes about at Morningstar. I ran a few scenarios and decided the MGA was best for me.  I have both traditional and Roth IRAs. My largest single annual withdrawal was 10% of the total value of these accounts. However, these accounts recovered and currently indicate a peak value. That’s been generally true on December 31 of each year. Because of circumstances we haven’t spent all of our withdrawal in recent years. That’s likely to be so in 2026. We are fortunate and don’t have to exercise caution with our spending. We’ve increased our charitable giving and G is currently on the east coast caring for an elderly relative. We have no concerns about the cost of her trips, which number 3-4 each year.  I’ll probably take a larger withdrawal this year. It is really more about tax management at this point. I’m allowing our taxed accounts to increase in value although I want to avoid going up a bracket with withdrawals. I have no intention of taking additional withdrawals from the Roth IRA in the foreseeable future."
- normr60189
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When Luck Rises, Be Ready to Dig

"One of my favorite Jimmy Buffett-isms, "yesterday is over my shoulder, so I can't look back for too long...""
- Dan Smith
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What happens to Medicare Supplement coverage when moving to a different state?

"Very helpful, James. I took everyone's advice and looked up Boomer Benefits, and I am impressed."
- Carl C Trovall
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Medicaid Asset Protection Trusts (MAPTs)

"My parent did pay for a portion of his care- all of his monthly income including SS, Pension and RMD paid for his care, before Medicaid paid their portion to the NH. We were only utilizing government benefits to the extent allowed by the program. In my parent's case, his monthly obligation probably paid for about 75% of the actual NH billing. The SNT allowed us to provide additional resources to my parent such as a private room and additional agency help. I don't feel you should necessarily judge the use of a government program without fully knowing the details of the family situation- each one is quite different."
- Bill C
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AI, Bubbles, and Markets

IN AN INTERVIEW a little while back, the technology investor Peter Thiel drew an uncomfortable comparison. Today’s frenzy around artificial intelligence, he said, parallels the tech stock bubble of the 1990s. To illustrate his point, Thiel pointed to Amazon. By any measure, it’s been an extraordinary success. But, Thiel points out, it hasn’t been a straight line. At one point early on, Amazon shares lost more than 90% of their value. “My suspicion is that that’s roughly where we are in AI. It’s correct as a technology, but extremely bubbly and crazed…” Thiel explained that he doesn’t doubt the importance of artificial intelligence as a technology. What he’s questioning is how these technologies are being financed. Of particular concern are financing deals in the AI ecosystem that are seemingly circular. Nvidia, for example, has invested as much as $100 billion into ChatGPT maker OpenAI, at the same time that OpenAI has committed to spending billions on Nvidia’s chips. Similarly, OpenAI signed an agreement with AMD, another chip maker, to buy tens of billions of dollars of its chips while also buying a stake in the company. Transactions like this call into question whether these companies can continue to generate earnings at the same rapid pace. Compounding this concern, market valuations are elevated. On a price-to-earnings (P/E) basis, the S&P 500 is trading at 21 times estimated earnings. That’s quite a bit above the long-term average of 16 and thus represents a risk. If investors cool on AI, both earnings estimates and P/E multiples would likely drop at the same time, causing share prices to take two steps down.  How unusual is this situation, and how concerned should we be about it? It turns out these are questions economists have been studying—and struggling with—for years. Probably the most well known research on the topic dates to the 1970s, when economist Hyman Minsky developed what he called the Financial Instability Hypothesis.  This is how Minsky described it: “A fundamental characteristic of our economy is that the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycles.” Booms and busts, in other words, are inevitable. Why? Paradoxically, Minsky said, financial stability causes financial instability. That’s because periods of financial stability lead people to become overconfident and to assume that the good times will last forever. But that overconfidence leads to complacence and to a lack of financial discipline, especially among lenders. That then causes debt levels to rise. What happens next? Writing in Manias, Panics and Crashes, Charles Kindleberger explains that there’s typically a canary in the coal mine that causes investor sentiment to shift. Often, it’s the unexpected failure of a bank or other institution. That’s why it caught people’s attention in February when Blue Owl Capital, which operates private credit funds and has helped finance AI data centers, announced that it was halting redemptions from one of its funds. Looking at more recent research, economist Bill Janeway agrees with Minsky on the causes of bubbles but argues that they’re not all bad. He talks about “productive bubbles.” As an example, he points to the market bubbles surrounding the development of the British railway system in the 1830s and 1840s. Much like the 1990s tech bubble in the United States, investors piled into railway stocks, causing prices to spike to irrational levels. Overbuilding ensued, and that led to a number of bankruptcies. Despite the financial losses, Janeway believes the railway bubble was productive. That’s for the simple reason that, at the end of the day, the tracks were laid. Yes, there were excesses, but Janeway sees no alternative. Investor enthusiasm acts as a sort of subsidy for early-stage, uncertain technologies that the market wouldn’t otherwise finance. The evidence certainly supports Janeway’s argument. The market does a very poor job picking winners. Janeway notes that essentially the same thing happened in the 1920s, when investors piled into companies working to build out the electricity grid in the U.S. There was massive over-investment, which led to bankruptcies. But in the end, electrification projects were completed much more quickly than they might have been otherwise. The key lesson: When market bubbles roll around, we shouldn’t be surprised. They’re inevitable. And over the long term, they’re arguably a good thing, enabling technology to move forward. Nevertheless, when bubbles burst, it’s unnerving. And indeed, in Janeway’s view, the same thing will likely happen with AI stocks. If Janeway is right, how can you prepare? The solution, in my view, is straightforward: Instead of trying to guess when the AI—or any other—bubble might burst, investors should take the view that the market could drop at any time. Then structure your portfolio accordingly.  There’s more than one way to approach this, but in my view, it’s a simple two-step process: First, make sure you’re diversified at the asset class level, with enough stowed in short-term bonds or cash to carry you through a multi-year market downturn. Then go one level deeper, auditing your stock holdings for individual stocks or funds overly exposed to any one corner of the market. And if you’re in a private fund—especially a private credit fund—I’d identify the nearest exit.   Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
Read more »

Retirement in America is not a pretty picture…and not getting better.

"The huge salaries are not significant because what is called pay in reality total compensation 60% or more of which is stock not cash. Take the pay of a CEO and divide it by the number of employees and see the impact. Millions of average Americans have IRAs 401k, etc. their investments are relative to their incomes and the performance of their investments are even more important than the wealthy. While only 15% or so of workers in the private section have a pension far more retirees do as do nearly 90% of government workers. They all depend on stock market performance. Also, all those 529 plans out there. Around 17.4 million accounts with $588 billion in assets. Also dependent on stock performance. I doubt they are mostly held by the top 1%. The corporate tax breaks are designed to promote investment and other growth strategies. Needless to say profits and growth are what keep people employed. Corporate America is not the enemy."
- R Quinn
Read more »

The Bear Market Survival Kit (Pharmaceuticals Not Included)

"I think it's wonderful advice. You should be proud that your son is grounded enough to provide it. On a lighter note, a burger beside a pool sounds like an excellent idea!"
- Mark Crothers
Read more »

$3 Trillion S&P 500 Gatecrashers

HAVE YOU GIVEN any thought to what's about to happen to your S&P 500 tracker? Three enormous IPOs are expected later this year: SpaceX, OpenAI, and Anthropic. Based on their most recent private transactions, SpaceX appears to be valued at around $1.25 trillion, OpenAI at roughly $800 billion, and Anthropic at approximately $380 billion. Combined, we could be looking at close to $3 trillion in private market value that wants to go public. To put that in perspective, the entire S&P 500 is worth roughly $60 trillion. That's not a routine year for markets. That could be a very large event indeed. I suspect the vast majority of people with money sitting in a tracker fund have absolutely no idea it's coming. Those that do might have read some of the more sensational claims I've seen about immediate, disruptive wholesale change to the S&P 500. I think those articles are getting ahead of themselves. These companies might not automatically land in your S&P 500 tracker the day they list. The index has hard rules, and two of them seem particularly relevant. A company generally needs to have been profitable for four consecutive quarters before it qualifies. OpenAI and Anthropic are both, as far as we can tell, burning through enormous amounts of capital. They may well not meet that bar at IPO. There's also a float requirement, where roughly half of a company's outstanding shares typically need to be publicly tradeable. These businesses will almost certainly debut with tiny floats, possibly somewhere between 5% and 10% of shares in public hands. That could disqualify them from day one. SpaceX is possibly the closest to profitability of the three, but the float issue likely applies across the board. One area of uncertainty is the selection committee. This has some discretion around the inclusion of larger IPOs. They could choose to move faster than the rules imply. So the story might not be your tracker being immediately and dramatically restructured. The story could be more drawn out than that, and perhaps more interesting for it. What does this mean in the short term? I can only offer informed speculation. To my mind, volatility seems likely around the listings themselves. Not necessarily because of forced index rebalancing, but because the float issue creates its own kind of pressure. Enormous companies carrying enormous implied valuations, but only a sliver of shares in circulation. Limited supply, near-unlimited institutional demand, and a market full of retail investors who've been reading about these companies for years and finally get their shot. I would guess we should expect wild price swings during those early trading days, though I could be wrong about the scale of it. Rotation risk is worth watching too, I think. Investors might pull money out of existing AI bets, the likes of Nvidia and Microsoft, and move it directly into OpenAI and Anthropic the moment they're publicly available. If that happens, the stocks that have driven your tracker's returns for the last three years could face sustained selling pressure, not because anything's wrong with those businesses, but simply because a shinier, newer version of the same trade has just arrived. A throwaway thought for anyone holding individual shares rather than trackers. The companies most at risk of ejection are those sitting at the bottom of the index. When a business loses its S&P 500 membership, every passive fund becomes an automatic seller. That can hit the share price hard, nothing wrong with the company, just forced selling as a side effect of something big happening at the very top. Worth knowing if any of those smaller names are in your portfolio. Medium term it could get more interesting still. If and when these companies do meet the profitability and float requirements, which could, I think, be years after their IPOs rather than months, every S&P 500 tracker on the planet becomes an automatic buyer. Hundreds of billions flowing into SpaceX, OpenAI and Anthropic whether fund managers want it or not. The mechanics of passive investing would turn every tracker holder into an investor in these three companies with absolutely no say in the matter. That's the bit people rarely stop to think about. Passive investing isn't neutral. It just means someone else is making your decisions for you. Then I come to the big question: do these businesses actually deserve these valuations? It's worth noting that every major IPO of recent years has tended to trade down from its private valuation once the public gets a proper look at the books. The venture capital guys who set those private prices aren't always right, and public markets have a habit of finding that out fairly quickly. If the same happens here, your tracker should hopefully be buying them at a fair price by the time they filter into the realm of inclusion within that tracker. It has to be said, that's not guaranteed. I'm not trying to be alarmist. These aren't penny stocks being hyped and I think that matters. OpenAI's revenue had already surpassed $20 billion by the end of 2025. SpaceX is targeting what could be the largest public offering in history. Anthropic has BlackRock, Blackstone, Microsoft and Nvidia on its books. These are real businesses generating real money with the biggest and most sophisticated names in global finance and technology behind them. That doesn't make them cheap at these prices, but it does make them a very different proposition from the usual IPO hype cycle. The bottom line for the average investor? We probably don't need to do anything dramatic. But it doesn't hurt to understand that the passive, set-and-forget vehicle you own may look quite different over the next few years, not necessarily in a single sudden lurch, but gradually, as these companies either earn their way into the index or don't. The index you bought into always changes but the next few years will definitely see bigger changes than normal. If nothing else, it'll be interesting to see what happens going forward…Eyes open.
Mark Crothers is a retired small business owner from the UK with a keen interest in personal finance and simple living. Married to his high school sweetheart, with daughters and grandchildren, he knows the importance of building a secure financial future. With an aversion to social media, he prefers to spend his time on his main passions: reading, scratch cooking, racket sports, and hiking.
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America Doesn’t Just Do Layoffs. It’s Fallen in Love With Them

"Let me share some good news. I was downsized or better term fired in 1994. HR did a poor job, but tried to be nice, after telling me to leave, they offered help in finding a new job, an agency. What happened next was delightful, other employees that found a way to compete with our company founded a small 10 person company. They asked me to join, and I tripled my wage over a few years and never looked back. Sometimes you can make Lemonade out of Lemons."
- William Dorner
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My Favorite Rx

"I have used TurboTax for a number of years and familiar with using it. I typically use the self guided approach instead of interview. In past years I had to enter multiple K1’s and this was very clunky and seemed to change significantly one year to the next and often led to minor corrections in Forms mode. I always run the check for accuracy multiple times and purchase the audit defense for peace of mind, small cost in the big picture."
- Grant Clifford
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Tax Smart Retirement

A POPULAR JOKE about retirement is that it can be hard work. That’s because financial planning is like a jigsaw puzzle, and retirement often means rearranging the pieces. In the past, I’ve discussed two key pieces of that puzzle: how to determine a sustainable portfolio withdrawal rate and how to decide on an effective asset allocation. But there’s one more piece of the puzzle to contend with: taxes. Especially if you’re planning to retire on the earlier side, it’s important to have a tax plan. When it comes to tax planning for retirement, there’s one key principle I see as most important, and that’s the idea that in retirement, the goal is to minimize your total lifetime tax bill. That’s important because a fundamental shift occurs the day that retirement arrives: In contrast to our working years, when taxes are, to a large degree, out of our control, in retirement, taxes are much more within our control. By choosing which investments to sell and which accounts to withdraw from, retirees have the ability to dial their income—and thus their tax rate—up or down in any given year. The challenge, though, is that tax planning can be like the game Whac-A-Mole. Choose a low-tax strategy in one year, and that might cause taxes to run higher in a future year. That’s why—dull as the topic might seem—careful tax planning is important. To get started, I recommend this three-part formula: Step 1 The first step is to arrange your assets for tax-efficiency. This is often referred to as “asset location.” Here’s an example: Suppose you’ve decided on an asset allocation of 60% stocks and 40% bonds. That might be a sensible mix, but that doesn't mean every one of your accounts needs to be invested according to that same 60/40 mix. Instead, to help manage the growth of your pre-tax accounts, and thus the size of future required minimum distributions, pre-tax accounts should be invested as conservatively as possible. On the other hand, if you have Roth assets, you’d want those invested as aggressively as possible. Your taxable assets might carry an allocation that’s somewhere in between. If you can make this change without incurring a tax bill, it’s something I’d do even before you enter retirement. Step 2 How can you avoid the Whac-A-Mole problem referenced above? If you’re approaching retirement, a key goal is to target a specific tax bracket. Then structure things so your taxable income falls into that same bracket more or less every year. By smoothing out your income in this way from year to year, the goal is to avoid ever falling into a very high tax bracket. To determine what tax rate to target, I suggest this process: Look ahead to a year in your late-70s, when your income will include both Social Security and required minimum distributions from your pre-tax retirement accounts. Estimate what your income might be in that future year and see what marginal tax bracket that income would translate to. In doing this exercise, don’t forget other potential income sources. That might include part-time work, a pension, an annuity or a rental property. And if you have significant taxable investment accounts, be sure to include interest from bonds. Then, for simplicity, subtract the standard deduction to estimate your future taxable income. Suppose that totaled up to $175,000. Using this year’s tax brackets, that would put your income in either the 24% marginal bracket (for single taxpayers) or 22% (married filing jointly). You would then use this as your target tax bracket. Step 3 With your target tax bracket in hand, the next step would be to make an income plan for each year. The idea here is to identify which accounts you’ll withdraw from to meet your household spending needs while also adhering to your target tax bracket. This isn’t something you’d map out more than one year in advance. Instead, it’s an exercise you’d repeat at the beginning of each year, using that year’s numbers. What might this look like in practice? Suppose you’re age 65, retired and not yet collecting Social Security. In this case, your income—and thus your tax bracket—might be quite low. To get started, you’d want to withdraw enough from your tax-deferred accounts to meet your spending needs but without exceeding your target tax bracket. This would then bring you to a decision. If you’ve taken enough out of your tax-deferred accounts to meet your spending needs and still haven’t hit your target tax rate, then the next step would be to distribute an additional amount from your pre-tax accounts. But with this additional amount, you’d complete a Roth conversion, moving those dollars into a Roth IRA to grow tax-free from that point forward. How much should you convert? The answer here involves a little bit of judgment but is mostly straightforward: You’d convert just enough to bring your marginal tax bracket up into the target range. Some people prefer to go all the way to the top of their target bracket, while others prefer to back off a bit. The most important thing is just to get into the right neighborhood. What if, on the other hand, you’ve taken enough from your pre-tax accounts to reach your target tax rate, but that still isn’t enough to meet your spending needs? In that case, you wouldn’t take any more from your pre-tax accounts, and you wouldn’t complete any Roth conversions. Instead, you’d turn to your taxable accounts, where the applicable tax brackets will almost certainly be lower. Capital gains brackets currently top out at just 20%. Thus, for the remainder of your spending needs, the most tax-efficient source of funds will be your taxable account. What if you aren’t yet age 59½? Would that upend a plan like this? A common misconception is that withdrawals from pre-tax accounts entail a punitive 10% penalty. While that’s true, it isn’t always true, and there’s more than one way around it. One exception allows withdrawals from a workplace retirement plan like a 401(k) as long as you leave that employer at age 55 or later. In that case, as long as you don’t roll over the account to an IRA, you’d be free to take withdrawals without penalty. If you’re retiring before age 55, you’ll want to learn about Rule 72(t). This allows for withdrawals from pre-tax accounts at any age, as long as you agree to what the IRS refers to as substantially equal periodic payments (SEPP) from your pre-tax assets. The SEPP approach definitely carries restrictions, but if you’re pursuing early retirement, and the bulk of your assets are in pre-tax accounts, this might be just the right solution.   Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
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Forget the 4% rule.

"A few years ago I concluded I was under withdrawing. I begin with the RMD calculations but shifted to a modified guardrails approach. I evaluated just about every approach Christine Benz writes about at Morningstar. I ran a few scenarios and decided the MGA was best for me.  I have both traditional and Roth IRAs. My largest single annual withdrawal was 10% of the total value of these accounts. However, these accounts recovered and currently indicate a peak value. That’s been generally true on December 31 of each year. Because of circumstances we haven’t spent all of our withdrawal in recent years. That’s likely to be so in 2026. We are fortunate and don’t have to exercise caution with our spending. We’ve increased our charitable giving and G is currently on the east coast caring for an elderly relative. We have no concerns about the cost of her trips, which number 3-4 each year.  I’ll probably take a larger withdrawal this year. It is really more about tax management at this point. I’m allowing our taxed accounts to increase in value although I want to avoid going up a bracket with withdrawals. I have no intention of taking additional withdrawals from the Roth IRA in the foreseeable future."
- normr60189
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Free Newsletter

Get Educated

Manifesto

NO. 23: IF WE DON’T have much money, we should compensate with time—by starting to save when we’re young, holding stocks for decades and encouraging our children to do the same.

act

CHECK YOUR portfolio percentages. Each year often brings sharply different results for stocks and bonds, U.S. and overseas shares, growth and value stocks, and large- and small-company shares. This can push your portfolio away from your target mix—and you may need to rebalance. This is best done within a retirement account to avoid triggering big tax bills.

Truths

NO. 10: WALL STREET always strives to look its best. To ensure mutual fund expenses and advisory fees appear small, they’re expressed as a percent of the dollars we invest, not as a percent of our likely gain. To make their results appear more impressive, money managers pick their benchmark indexes carefully and use cumulative return “mountain” charts.

think

LONGEVITY RISK. Spending down a retirement portfolio is tricky: You don’t know how long you will live—and hence there’s a risk you’ll run out of money before you run out of breath. To fend off that risk, limit annual portfolio withdrawals to 4% or 5%, delay Social Security to get a larger check and consider an immediate annuity that pays lifetime income.

How to think about money

Manifesto

NO. 23: IF WE DON’T have much money, we should compensate with time—by starting to save when we’re young, holding stocks for decades and encouraging our children to do the same.

Spotlight: Family

Savoring the Moments

BASIC ECONOMICS teaches us that scarce commodities are more precious. This holds true for metals, rocks, food—and time. Which brings me to today’s topic: Time spent with my daughter and only child has reached the rare and precious stage.
In summer 2023, scarcity was far from my mind. My daughter and I traveled to visit Grandmama—my mother—five hours’ drive south of our home. The visit itself was short and mundane, with just the usual catching up with my mother and tending to her business.

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Holiday Habits

What creates a family tradition? Why is a certain vacation spot more special than another with the same basic attributes? Why must the family Christmas celebration repeat the annual ritual to seem authentic? Chances are, these events evoke memories of happy times, perhaps shared with loved ones who are long-gone. Traditions often become fixed in our minds as children, when we’re still learning how things ought to be done.
We’re entering the season of traditions. In the physical therapy clinic during this time,

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Love, Money, and a 44-Year Compromise

Suzie and I have been together for 44 years and married for 36 of them. It goes without saying that a relationship of that length is achieved by many means, but I think a fundamental characteristic is the ability to compromise and be mindful of each other’s wishes.
A strong partnership where both people work can also supercharge wealth generation through the decades, especially if you both think in lockstep on humble lifestyle choices and the importance of saving for the future.

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Two income households and money matters

As I read through the comments and posts on HD I often see a comment related to a spouse’s employment/retirement. Is a two income family as common as it appears to be?
How does a dual income impact financial and retirement planning? Is it easier or more complicated? Are family finances viewed as one pool or separate?
Are there conflicts when one spouse retires while the other works?
Are financial/Investment decisions made by individual or as one portfolio?

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Checking the Score

I’M DUMB MONEY, as are all so-called recreational gamblers. That’s why, during the recent basketball playoffs, we sports spectators were bombarded with wildly seductive commercials glamorizing sports betting.
Fortunately, I learned my limits early on. My last notable gamble ended badly more than four decades ago, when some IBM options I bought expired worthless.
But I’ve also come to appreciate that not all individual gamblers are dumb money. I’ve lately been serving as the sounding board for my 36-year-old son Ryan,

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When They’re 64

WHEN MY TWO CHILDREN were ages nine and five, I opened Vanguard Group variable annuities for them. No, variable annuities aren’t my favorite investment. Far from it. Indeed, I don’t think they’re anybody’s favorite investment vehicle, unless you happen to be an insurance agent angling for a big commission.
Still, tax-deferred annuities differ from other retirement accounts in one crucial way: You don’t need earned income to fund the account. That means it’s possible to open a tax-deferred annuity for a toddler,

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Spotlight: Grossman

Beat the Street

WHEN WE ROLLED OVER into May, I was reminded of a saying I used to hear when I worked in the world of stock-picking: “Sell in May and go away.” The idea—based on questionable data—was that stocks lagged during the summer months. This notion always seemed suspect to me. But even if it were true, I was never quite sure what to do with it. Should an investor sell everything on May 1 and then buy back on Labor Day? If so, what about taxes? And what about October, when several notable crashes have occurred, including 1929 and 1987? Should an investor really sit out from May all the way to October every year? Of course, the whole thing seemed ridiculous. But professional investors talk about such things. There are literally dozens of similar pithy sayings that are what comedian Stephen Colbert might call “truthy.” That is, they sound like they ought to be true, but they're backed up by scant data. That’s one reason, I believe, actively managed mutual funds have lagged behind index funds for so many years. Professional investors rely as much on opinions, gut instinct and pithy sayings as they do on facts and data. Does that also mean you should never buy an individual stock? Almost universally, I recommend against it. Investors are much better served, in my opinion, buying low-cost index funds, rather than spending time trying to pick stocks. That said, I do believe individual investors have several inherent advantages over professionals. Among them: 1. Long-term focus. Fund managers are subject to constant scrutiny. They don't have the luxury to endure extended periods of underperformance. For a fund manager, when a stock is lagging, the path of least resistance is simply to sell and move on, even if that stock may ultimately bounce back. But as…
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Staying Positive

PRESIDENT TRUMP recently criticized the Federal Reserve—yet again. Calling Fed Chair Jerome Powell and his colleagues “boneheads,” the president expressed frustration that they haven't done more to lower interest rates. Specifically, the president said we should, “get our interest rates down to ZERO, or less.” That last part—“or less”—was key. Not only should rates be lower, he argued, but they should be below zero, as they have been in Europe. Last week, the Fed did indeed cut short-term interest rates—by 0.25 percentage point. Still, so far, the Fed has resisted pressure from the White House and is holding its target interest rate well above zero. I hope they continue to do so. While I understand the president’s perspective—as a borrower, the Federal government would benefit from lower rates—I see at least 10 ways that negative rates would hurt our economy and investors over the long term. 1. Low rates punish retirees. Consider what life looks like today for a retiree in Europe. In Germany, 10-year government bonds are now paying -0.5%. Translation: Instead of earning interest when you buy a bond, you have to pay the government to take your money. It’s completely upside down. 2. Excessively low rates cause investors to reach for yield. With rates on high-quality government and corporate bonds providing paltry income, many people throw caution aside and purchase lower-quality bonds. Why? Because that’s the only way to earn a higher rate. But this is dangerous. Low-rated bonds carry low ratings for a reason: They’re riskier. If U.S. rates went negative, the result would be even more investors facing this uncomfortable choice. 3. In our country, savings rates are already too low. Negative interest rates would further dissuade folks from saving. In fact, negative rates would effectively become a wealth tax. Think about it this way: If the government sells you a bond for $1,000 but pays you back…
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Giving Credit

ABOUT ONCE A WEEK, someone will say to me, “I don’t understand bonds.” Sometimes, they’ll state it in stronger terms: “I don’t like bonds.” Fundamentally, bonds are just IOUs. If you buy a $1,000 Treasury bond, you’re simply lending the government $1,000. The Treasury will then pay you interest twice a year and return your $1,000 when the bond matures. That part is straightforward. What’s more of a mystery is why we should own bonds and what we should expect from them. In a recent article, investment researcher Ben Carlson highlighted why this is such a mystery. Carlson argued that the way investors tend to think about bonds doesn’t match the data. Specifically, bonds have a reputation for moving inversely with stocks. When stocks go down, bonds tend to go up. This is known as a negative correlation, and it’s the reason stocks and bonds tend to work so well together. In 10 out of the past 50 years, the stock market has lost value on an annual basis. In nine of those 10 years, bonds gained value. That’s been a tremendous benefit. Investors sometimes refer to this as a “flight to safety.” When the stock market drops, investors turn to the security of bonds, and that pushes bond prices up. We saw this as recently as a month ago. As you may recall, in early August, the stock market dropped briefly, in response to a weak unemployment report and other factors. In total, the stock market dropped 6% in three days. And in those three days, bonds rose, gaining almost 1.5%. It was a perfect example of portfolio diversification. For many investors, this is reason enough to own bonds. In fact, I often describe bonds as being like insurance. They’re there to carry investors through periods when the stock…
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Adding Value

NIKOLA TESLA WAS a brilliant inventor, with nearly 300 patents to his name. He also had some unique habits. Among them: Every night, before he sat down for dinner, he would ask his waiter for a stack of 18 napkins. He would then use them to carefully wipe down his silverware. Even at the Waldorf Astoria hotel, where Tesla lived for decades and where the silverware was presumably clean, Tesla insisted on this time-consuming process before every meal. The first napkin, and perhaps the second, might have ensured a somewhat cleaner set of utensils—and it probably gave Tesla, who had contracted a debilitating infection as a child, additional peace of mind. That’s what economists would call positive marginal utility. It served some use. But beyond that, it’s hard to imagine that all that additional cleaning and scrubbing contributed much. It just took time. That’s called negative marginal utility. It consumed time without adding any value. When it comes to managing your finances, I suggest looking at things through this same lens. The financial world, unlike more scientific fields, is full of uncertainty. In many situations, additional effort won’t get you any closer to a better answer—just as wiping down the silverware for the 18th time won’t make it any cleaner. This notion strikes many folks as counterintuitive. When we were children, we were taught to work hard—and indeed, in most endeavors, additional effort does yield a better result. But in the world of finance, it's more nuanced. Historically, when people talked about personal finance, they focused primarily on investment-related questions—which way the market was going, which stocks were hot and so forth. For years, these kinds of questions received the lion’s share of attention from both experts and everyday Americans. But research has shown that time spent on these questions often isn’t time well-spent. Stock picking, market…
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He Got Us to Diversify

THOSE WHO LIVE VERY long lives sometimes face an unfair irony: The accomplishments of even towering figures can lose their luster over time—not because they’re proven wrong, but because the ideas they developed become so widely accepted that we forget they were once innovations. The investment world lost one such towering figure last week: the economist Harry Markowitz, who was age 95. Markowitz first came to prominence in the early 1950s, when his PhD thesis, titled “Portfolio Selection,” offered an entirely new approach to investing. Prior to Markowitz, what constituted investment theory would have fit on an index card. For years, in fact, the only framework available to investors was the “prudent man” rule, which had its roots in an 1830 court ruling. At issue in that case was the management of a trust which had been established for the benefit of Harvard College and Massachusetts General Hospital. Over time, the two institutions became unhappy with the trust’s performance and sued the trustee, arguing that he had been negligent. The trustee prevailed, however. “All that can be required of a trustee,” the court wrote, “is to observe how men of prudence, discretion and intelligence manage their own affairs.” In other words, investment markets inherently carry risk. All an investor can do, therefore, is to exercise judgment in choosing investments. This became known as the prudent man rule. Despite being highly subjective, it was the lens through which investments were evaluated for more than 100 years, until the economist John Burr Williams suggested a better way. In his 1937 book, The Theory of Investment Value, Williams developed the concept now known as intrinsic value. Williams introduced the idea with this poem: A cow for her milk, A hen for her eggs, And a stock, by heck, For her dividends An orchard…
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AI Rally Market Risks

LAST WEEK, OPENAI founder Sam Altman sat down for an interview with venture capitalist Brad Gerstner and Microsoft CEO Satya Nadella. Both are investors in OpenAI, so it seemed like a friendly audience. But Gerstner posed a question that seemed to make Altman uncomfortable. Since introducing ChatGPT three years ago, OpenAI has posted impressive growth, but Gerstner wondered whether the company was, nonetheless, getting ahead of itself. “How can a company with $13 billion in revenues make $1.4 trillion of spend commitments?” Gerstner asked. The commitments in question are OpenAI’s agreements to purchase computing resources. In total, they’d cost more than 100 times its current revenue. Commitments that top $1 trillion would be significant for any company, but they’re of particular concern because OpenAI has yet to turn a profit. Altman was quick to debate Gerstner. First, he said, “we’re doing well more revenue than that.” He dismissed what he called “breathless concern” over OpenAI’s finances, and he expressed frustration at Gerstner—who is himself an OpenAI investor—for even asking the question. “Brad, if you want to sell your shares, I’ll find you a buyer…I think there’s a lot of people that would love to buy OpenAI shares.” In recent months, investors have been asking questions like this with increasing frequency, concerned about the economics underpinning the AI economy.  For everyday investors, these questions are important because many of the largest public companies are now heavily dependent on AI spending. At the top of the list: Nvidia. Its graphics processing unit (GPU) chips power most AI-based computers. Last week, it became the first company ever to reach a market capitalization of $5 trillion. It now accounts for 8% of the total value of the S&P 500. As a point of reference, it’s now worth more than the total value of the…
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