There is some debate about how large the US income tax code is. If you are just talking about the literal statutes, it comes in at roughly 2,600 pages—about the length of the Harry Potter series by word count. The Tax Foundation claims this is not enough, however, because it doesn’t include IRS regulations, revenue rulings, and other clarifications that are needed. Include those and we get closer to 9,000 pages. And if you go further yet and add case law, the number balloons to over 70,000 pages. Finally, there is the Standard Federal Tax Reporter, which “contains a comprehensive collection of federal income tax information, such as the full text of all proposed, temporary and final federal income tax law regulations, as well as the full text of federal administrative rulings and documents.” This is an incomprehensible 908,521 pages.

Let’s just agree that the rulebook is very long and very, very boring. Still, it is important to understand the rules so we can legally minimize our tax burden and maximize our after-tax wealth. I have wrote about a number of ways to reduce your taxes in the past. Today, I want to talk about an often overlooked way, which is called asset location.

Now before I go any further I must disclose that I am not a Certified Public Accountant (CPA), and as such I am not qualified to give tax advice. I will only try to give you an investment manager’s perspective on the topic. You should always consult a qualified accountant regarding any questions related to taxes.

So what is asset location? Well, more often than not investors have a mixture of taxable, tax-deferred (e.g, 401k, traditional IRA), and tax-exempt (e.g., Roth IRA, HSA) accounts. In these situations we must not only consider the overall asset allocation, but also which account is the best place to park each particular investment. As a general rule, it is usually best to put tax-efficient assets in taxable accounts and tax-inefficient assets in tax-exempt or tax-deferred accounts. 

Tax-efficient assets have low taxable income yields and low turnover, which means they aren’t doing a lot of buying and selling that can realize capital gains. These include municipal bonds and stock funds that track low-turnover benchmarks. These are assets that are typically better off in your taxable account. Depending on the makeup of the rest of your portfolio, it may or may not be more efficient to put higher dividend yielding stocks here, too.

Tax-inefficient assets have high turnover and, in particular, will realize a lot of short-term capital gains that are taxed at a higher rate. A good example of this is merger arbitrage strategies, which are usually investing in deals that will close in under a year, then recycling those proceeds into other deals creating a lot of turnover. Funds with high levels of interest income are also tax-inefficient, like bond funds whose interest is taxed at the investor’s income tax rate. These are assets that are typically better off in your tax-deferred or tax-exempt accounts. Stock funds that offer a high dividend yield could be better off here, although dividends are usually taxed at a lower rate. Long-term gains on precious metals, like gold and silver, are taxed as collectibles which has its own maximum tax rate of 28%.

Expected growth is another thing to consider. Your will eventually have to pay taxes when you withdrawal from a tax-deferred account; you won’t when you take money out of a tax-exempt account. Therefore, you would rather have higher growth, tax-inefficient assets in your Roth IRA, and lower growth, tax-inefficient assets in your 401(k) or rollover IRA

It is a bit more nuanced than all this once we start factoring in each individual’s goals, time horizons, and present and expected future tax situations. And we are often limited by the level of assets in each type of account. In an ideal world we might just park everything in a Roth IRA, but unfortunately we are constrained by contribution limits and restrictions. 

So an asset location strategy is not something that can be rigidly employed. It is, however, something that we can customize to try to maximize your after-tax wealth.

This has, unfortunately, turned investing into a smartphone game. According to the co-founder of Robinhood, users with positions check the app an average of 10 times per day. And that’s a bad thing. It means users aren’t evaluating their investment decisions over years or decades, as they should, but rather over the time it takes between trips to the bathroom. This narrow-framing can cause investors to lose sight of their long-term goals and trade way too frequently. And as Gene Fama once said, “Your money is like soap. The more you handle it, the less you’ll have.” As a generation, they want immediate feedback, but as investors they should be coached to reduce the frequency in which they check on their investments and enjoy the emotional benefits of ignoring day-to-day market volatility.

Anyway, an alarming series of stories came out about a month ago regarding a “cheat-code” in Robinhood that offered users the potential for infinite leverage. It worked by allowing users to buy stocks with money borrowed on margin, write deep-in-the-money covered calls against the leveraged position, and then allowing them to borrow more money against the premiums. Rinse and repeat. A group of sociopaths on Reddit began engaging in this practice and posting their ludicrous amounts of leverage on the site, with each one trying to outdo the others. One devil-may-care trader claimed he turned a $3,000 deposit into a $1.7 million position. This is, of course, not good, and this user lost $180,000 according to an article on Business Insider, and many of the other foolhardy people attempting it also lost sums of money many multiples above what they could afford to lose. And make no mistake about it, you are still on the hook for any borrowed money still owed after your account is wiped out.

Robinhood says it has since closed the loophole and suspended accounts engaging in this behavior. It’s still not clear what will happen to those who lost tens or hundreds of thousands of dollars in this idiotic behavior, but according to a YouTube interview with one they were able to settle for an amount smaller than what was actually owed, but still much larger than what they had deposited. It’s possible the legal ramifications for the abusers could go beyond seizure of personal assets to pay off any debts, however, and into the realm of securities fraud. The whole fiasco should serve as a warning to investors about the risks of leverage, as well as a reminder that even in this modern world there is such a thing as personal responsibility.

While navigating the subtle and sometimes not-so-subtle inquiries as to the whereabouts of my checkbook, it got me thinking about charitable giving, and how the approach to it needs to be re-optimized under the recent change in tax laws. Because just like universities, we have our own ulterior motives. We might be happy to give, but we’re even happier to do so when there are tax benefits.

**Before I start talking about taxes anymore, let me remind you that I am not a CPA and am not qualified to give tax advice**

With the increase in the standard deduction and the $10,000 limit on state and local tax (SALT) deductions, it’s getting harder to meet the threshold to itemize deductions. This means the tax-advantages of charitable donations and mortgage interest are marginalized or eliminated for many taxpayers. Take, for example, a married couple making $275,000 per year in a high-tax state that maxes out their SALT, and that has $10,000 in mortgage interest per year with no other deductions. And let’s say they also like to give $4,000 per year to charities. Under the old tax law they would itemize and those charitable deductions would save them $1,320 on their taxes (33% bracket). Under the new tax law their itemized deductions now equal the standard deduction of $24,000, so their altruism goes completely unrewarded by the IRS and those donations cost the full $4,000 (although they are in a much lower 24% bracket under the new law, so it’s not all bad).

Fortunately, as there often is in the world of taxes, there is a creative solution. One that will allow this couple to continue to donate for years to come and receive a tax benefit — upfront no less.  This is by opening up a donor-advised fund (DAF). The contribution is tax-deductible the first year, and the assets in the account grow tax-free. Then you just make your charitable donations from the account whenever the mood strikes you. That is to say, the money doesn’t need to go to charity the same year as the tax benefit is realized.

If we assume a 4% net return on the DAF over the next 7 years, and $4,000 per year in giving, about $28,000 up front should cover your giving from this year through 2025 (after this the tax cuts are currently set to expire). Better yet, you can fund the account with the most heavily appreciated assets in your taxable account instead of cash, thus eliminating those unrealized capital gains, saving you in potential federal capital gains taxes down the road.

The three big players in the DAF space are Fidelity, Schwab, and Vanguard. They all charge 0.60% in account fees and have comparable investment options, but there are subtle advantages and disadvantages to each. Vanguard has arguably the best lineup of all-in-one type asset allocation funds, but is a little more restrictive with account minimums ($25,000) and contributions and donations ($500 minimums). Schwab arguably has the better lineup of individual funds, and is less restrictive on minimums ($5,000 to open, $500 for subsequent contributions, and $50 for gifts). Lastly, Fidelity has the least restrictive minimums ($5,000 to open, no minimum for subsequent contributions, and $50 for gifts), but the underlying fund fees tend to be a little higher. Gives and takes. Schwab might edge the other two out as the better choice, but you really can’t go wrong with any of the three, in my opinion. 

There are some disadvantages. First and foremost, if you give money away you now have less of it, and once you fund the DAF the money is no longer yours. So if you found yourself in a financial situation down the road where you wish you had access to this money, too bad — there are no takesy backsies. Secondly, while modest in my opinion, there are the fees. There is also the risk that markets go down and you will end up with less to give than if you kept it in cash. Overall, however, this can be a great strategy for those that want to give thoughtfully for years to come and have the means to front-load that giving now.

As it happens, CFA Institute has such a thing. An adult summer camp of sorts, held every year down in the idyllic southern town of Charlottesville, VA. Like most summer camps, activities include soccer, golf, hiking, and swimming. The talent show stage looks a little more like a karaoke bar, though, and cultural activities include wine tastings. The biggest difference, however, is that instead of arts & crafts, we grade exams. A lot of exams. About 36,000 hand-written exams from 91 different countries and territories.

The Chartered Financial Analyst® designation is globally recognized and is considered by many to be the “gold standard” in the industry. The process for becoming a charterholder includes passing three rigorous exams that test the candidates’ knowledge of a comprehensive curriculum spanning over 2,000 pages. The final exam—Level III—is half essay questions because it is not enough to just know the material, you have to be able to communicate it, as well. The hand-written responses to those essay questions need to be graded by a human, a CFA charterholder that understands the material. And it is a massive undertaking.

While the CFA Standards of Practice forbid me to talk about any information pertaining specifically to the questions and answers, I am permitted to talk about the grading process in general. The hundreds of CFA® Program exam graders are broken up into dozens of smaller teams, each assigned a part of a single question they will be responsible for grading over the course of the week. The question writing team provides each grading team with a set of guideline answers that merit credit. We as a grading team then go through an extensive set of sample exam responses, and work towards a consensus on how each one should be scored so that we will grade consistently as a team. Guideline answers are sometimes modified during this process if we encounter unanticipated answers that we believe merit credit. This is why it is so important to have only CFA charterholders grade the examinations.

Once we have established our scoring rubric, the grading begins. Captains and senior graders are on each team to check your work and help out when you need a second opinion on the merits of an exam response. It’s an incredibly efficient process that involves not only the graders, but an army of staff to check-in and check-out stacks of exams and to support the scoring software and tablets. You grade for seven hours per day any time you like between 7am and 5pm with a break for lunch, and the balance of the day is yours to explore the Charlottesville area or enjoy organized social activities. 

After us one-week graders go home a contingent of captains, senior graders, and others stick around for another week to regrade every exam that’s in the middle of the distribution of scores to make sure deserving candidates have every opportunity to pass. And even after that, a third round of grading is 

conducted for any parts of those exams where graders scored a candidate differently. This is where a final score is determined when scores do not match between the first two rounds.

Completing the CFA program and becoming a charterholder was arguably the most difficult thing I’ve accomplished in my life, so I am very pleased the grading process is so thorough and consistent. When I earned the right to use the CFA designation ten years ago, I was told at that time less than one in five candidates who begin the process eventually ended up earning their charter. Candidates typically spend 250-300 hours studying for each exam, and yet pass rates for each of the three levels are typically only in the 30-50% range every year. The average pass rate has been 43% over the past decade, according to the CFA Institute. 

To spend a week with more than 630 other charterholders from around the globe that understand what an honor and privilege it is to be trusted to manage other people’s money; that take that responsibility seriously and with the highest ethical standards, and yet still know how to have fun. Well, it was a truly rewarding experience. 

I hope to be invited back next year and many years thereafter. 90-year-old Robert Hardaway, a legend of sorts at Camp CFA, has been grading for 28 years and has been involved with CFA Institute for 60. Not a bad goal to aspire to.

The second kind are the tax-free Roth-type IRAs and 401(k)s. You put your after-tax money in them,  and like the traditional accounts money grows unfettered by the burdens of taxes on capital gains, dividends, and interest. When it comes out in retirement in does so tax-free. Double tax-advantaged. Pretty sweet. Roths are a great complement to the traditional type, because they give you more control over your tax liability in retirement.

But what if I told you there was something even better? Something that combined the pre-tax advantages of the traditional account with tax-free distributions for certain qualified expenses to be triple tax-advantaged? And that it wasn’t a retirement account at all?

That, my friend, is the Health Savings Account (HSA). The HSA is an investment account that can be paired with an eligible high-deductible health insurance plan (HDHP).  For 2020, the IRS allows eligible enrollees and their employers to stash away up to $3,550 into an HSA for self-only HDHPs, and up to $7,100 for family HDHP coverage. Contributions via payroll deductions are not subject to income taxes or FICA taxes.

The money is intended to cover medical expenses that HDHP plans do not, so, similar to a flex-spending account, distributions taken out of the account for qualified medical expenses are not taxed. Unlike a flex-spending account, however, where you have to use it or lose it each year, the HSA rolls over indefinitely. There are also no required minimum distributions (RMD) at 70^1/2, like with traditional retirement accounts. It’s also portable, so you can take it with you when you change jobs. And the money can be invested in the financial markets for long-term growth.

Distributions taken for non-qualified medical expenses are subject to income tax and a 20% penalty, however this penalty goes away at 65. Still, you can use this money to pay for Medicare premiums, prescription drugs, dental, vision, nursing home, and other qualified medical expenses. Which, when you’re old, well, you know…could be a lot. According to an annual estimate by Fidelity, the average couple retiring today at age 65 will need $280,000 to cover health care and medical costs in retirement—a figure that will likely grow each year.

So the HSA can effectively be used as a retirement account. A very good one, at that. Instead of using it for your ongoing medical expenses from year-to-year, just leave it be and let it compound tax-free. You can save those medical expense receipts over the years, and use them to offset withdrawals decades later. Or simply use it to cover your qualified medical expenses in retirement, again tax-free. And if you are fortunate enough to not have large medical bills at all, it effectively becomes a traditional retirement accounts after age 65, only without the RMDs. Or you could just leave it to your heirs.

Despite the advantages of this strategy, only about 4% of HSA enrollees are actually moving money out of safe investments and into assets with more long-term potential for appreciation. The number of employers offering HSA eligible HDHPs is rising, though, with a 2017 report from United Benefit Advisors showing 24.6% of employer-sponsored plans offering an HSA. As this option becomes available to more people, I believe its popularity will increase.

A high-deductible plan may not be appropriate for everyone, however. If it is an option at your current employer and you would like to discuss the pros and cons in more detail, feel free to reach out.

This is how it has been for the past year or two since the Fed started raising its target interest rate. A race with no finish in sight between a handful of horses vying for online banking supremacy. American Express, Capital One, Discover, and Ally, the former GMAC financing unit of General Motors, are now neck-and-neck with Synchrony at 1.75%. Meanwhile, the complacent majors like Wells Fargo, Bank of America, and Chase have yet to even step out of the starting gate, offering yields of only zero-point-zero-who-gives-a-crap.

While savings accounts aren’t exactly on the glamorous side of investing, they are nonetheless a very important component of a sound financial plan. According to a May 2018 report from the Federal Reserve Board, four in ten Americans could not cover an unexpected $400 expense without selling something or borrowing money. If that seems absurd, it’s actually an improvement from 2013 when only half of adults could handle that expense.

It is important to have unfettered access to money without paying a fee, penalty, or interest, or having to sell something at a steep discount to cover unforeseen expenses or to float you in the event of work displacement. But how much should you set aside in an emergency savings account?

A common rule of thumb is you should have six months of expenses in your emergency savings account, but this is really just a starting point. What follows are a few questions to consider in determining the right number for you.

How many sources of income do you have? If you and your family rely on only one income, you’ll want to save more. If you have multiple sources of stable income, or have other significant resources you could tap such as credit card points, a few hundred thousand airline miles, or a large amount of gold buried in several different locations around Pawnee, you can save less.

How stable is your income? An hourly employee, a business owner, or someone in sales who relies heavily on commission has a less predictable and less stable income compared to a straight salary worker, and therefore should save more.

How reliable is your income? Where we are in the economic cycle matters, and in recessionary times you may want to increase your emergency savings. There is also a significant difference in the likelihood of, say, a tenured professor losing her job versus a store manager at Sears.

How easily could you get another job? Someone with a broadly applicable skill set in an in-demand occupation, such as data scientist, will likely find a much more welcoming job market than, say, a historian specializing in Phoenician maritime arts (oddly specific, but that’s kind of the point).

What do your expenses look like? This is where having a detailed budget comes in handy. You should focus only on critical expenses, as you should be able to quickly downsize the discretionary components of lifestyle if need be. Maybe you pay hundreds of dollars a month for a dog walker. Well, if you don’t have a job, one would hope you could, you know, walk your own dog. What about unplanned expenses? For example, maybe your water heater or furnace is beyond its expected useful life and could go out at any moment, or you know you need to get your wisdom teeth out soon. What if you get injured or sick? Someone with a high insurance deductible will want to save more. If you have large planned expenses, like a new car or a vacation, that’s another reason to increase your savings buffer.

How do market swings impact you emotionally? Having a pile of safe cash money also makes weathering the inevitable market downturns easier from an emotional standpoint. What is most important, ultimately, is finding the amount that helps you sleep well at night. For some that might be $10,000 and for others it might be $100,000.

What if you have high-interest debt? It doesn’t have to be a one-or-the-other decision. To start, split half of your income available for savings towards paying off debt—highest interest rate first—and the other half towards emergency savings. After you’ve built an initial buffer of, say, one month of expenses, you can begin to shift your focus more towards debt repayment.

There is some debate about whether your emergency savings should be invested in the market or just left to sit in a savings account struggling to keep pace with inflation. It’s a personal choice pertaining to your comfort with risk, but I fall on the side of just leaving it in savings. This is supposed to be your rock, and it’s not something you want to see the balance of go down for any period of time. It’s also more likely that you’ll need to access this during an economic downturn, when assets prices are likely to be depressed. So I currently recommend going with Marcus, or any of the other aforementioned online savings accounts.

Now I am Become GE, the Destroyer of Wealth

There was an article in the Wall Street Journal last month about a gentleman by the name of Gary Zabroski. Mr. Zabroski was a lifer at GE, putting in 40 years at the company and retiring as a punch press operator in 2016. He walked out with a comfortable $85,000 per year pension and over $280,000 in GE stock. Two years later and his shares have lost most of their value as GE stock has accelerated a decline that started almost 20 years ago. According to Fortune, GE hit its peak in August of 2000, with a market cap of $601 billion. Today, the company is only worth one-fifth of that after destroying $477 billion in wealth. What makes matters worse is GE’s pension is currently underfunded to the tune of $31 billion.

Now, with a dwindled retirement and an uncertain pension, Mr. Zabroski is cutting his retirement short and looking for work at a time when the only company he’s ever known is eliminating jobs. This is why I always advise clients to limit investing in the companies they work for. So much of your financial well-being is already tied to the company. This can have a devastating impact on someone whose employer hits a rough patch — or worse, goes bankrupt. Imagine losing both your job and a significant portion of your wealth at the same time.

I get it, people are comfortable with what they know and unfamiliar situations can evoke fear in an investor. This is called familiarity bias and also explains why investors often shy away from foreign investments, or why doctors tend to overweight healthcare stocks. But this can result in a lack of proper diversification, the dangers of which Mr. Zabroski unfortunately learned the hard way.

“Can I ask you a question?”

“Sure!”

“Are you happy?”

“Well, I got a boat, good friends, and a trampoline. You tell me.”

That was a revelational series of dialogue from the 30 Rock episode where fictional GE executive Jack Donaghy went to Liz Lemon’s high school reunion and realized that everyday middle-class folk were happier than he was. They do say money can’t buy happiness, but research argues it, in fact, can. But only up to a point.

A research paper out of Purdue has caught a few headlines recently by trying to dial in on that point at which further increases in annual income cease to increase happiness. The paper tries to go beyond a very similar study done by Agnus Deaton and the great Daniel Kahnemen almost a decade ago. That study used 2008 and 2009 data, and found the number to be around $75,000 in the US, although, as the Purdue paper points out, it could have technically been anywhere between $60,000 and $120,000 because of the use of categorical data. “High incomes don’t bring you happiness, but they do bring you a life you think is better,” Deaton and Kahneman concluded.

The number the Purdue group found, as it pertains to overall life satisfaction (i.e. are you living your best possible life?), is about $105,000 for a single individual in Northern America (U.S. and Canada). As far as your day-to day emotional well being, they found positive affect (things like happiness, enjoyment, and smiling/laughter) satiated at $65,000. So beyond that amount, positive emotions are more or less influenced by factors other than money.  At $95,000 you’ve reached the satiation point for negative feelings of emotional well being like stress, worry, and sadness. So beyond that point money isn’t likely to cure your blues and can even begin to have a negative impact for some. ‘Mo’ money, mo’ problems,’ I believe is the expression.

Of course, it’s a little more nuanced than that. How you compare to your friends or other professionals in your peer group makes a big difference. Someone making $60,000 out of college while their friends are making only $30,000 is probably going to feel quite a bit more satisfied than, say, someone making $100,000 when others in their same role with similar experience are making two or three times that. Likewise, someone living in Fort Wayne might feel flush making $75,000 per year, while someone in San Francisco might feel borderline destitute making the same. Levels of educational attainment and the number of dependents you have will also play a role. Even the amount of time you spend on social media, where people’s lives are often filtered to look as fabulous as possible, may have an effect.

So aiming for exactly $105,000 in your personal life might not be the exact goal and probably misses the point. The key message here is the marginal utility of income diminishes as it increases, and probably faster than most would think. A $10,000 bump in pay could be life-changing for someone at the poverty line, but it would be significantly less meaningful for someone already making $100,000. It’s a logarithmic function, rather than a linear one. Meaning, to feel a similar effect of a doubling of income from $25,000 to $50,000, one would have to then double again to $100,000.

What you need to find is the point that works for you, where you realize that anything over that would be welcome but won’t really make you any happier. I have a pretty good sense where my number is, having spent significant periods of time below, near, and above it. It is enough to feel secure, live in a nice apartment in a good neighborhood, go out to bars, restaurants and theaters without too much thought, take a couple nice vacations every year, and still have some money left to sock away for a rainy day.

Once you stop seeing improvements in your emotional well-being and life satisfaction with every raise or promotion, it might be a good time to ask yourself “is it still worth it?” Would a continued climb up the corporate ladder mean less time with those I love? Would it be damaging to my health? Would it mean foregoing other passions and leisures that I really enjoy?

If you haven’t hit that point yet, rejoice in the knowledge that more money can still buy you happiness. By all means, keep reaching for that brass ring. Or maybe just move to Latin America or the Caribbean. The study showed it only took $35,000 per year to be happy there.

Amazon’s empire is growing, and apparently Seattle is starting to feel a bit cramped. The company has been making headlines over the past couple months with its announcement that it will be building a second headquarters somewhere in North America that promises to eventually employ as many as 50,000 high-paid workers and result in over $5 billion in capital investment.  The company reported that 238 cities and regions responded to their RFP (request for proposal) for a site, which is incredible given the fact that these are governments, which as a whole are notoriously slow at doing anything, and they were only given six weeks to get their proposals together. Municipalities were tripping over themselves in a shameful attempt to plant the biggest, wettest kiss on Amazon’s ass. New Jersey’s $7 billion in tax incentives makes it the most desperate looking one at the dance. The majority of these entrants were just a waste of resources, as they don’t even come close to meeting Amazon’s minimum requirements, which were clearly laid out in the RFP.

Criticism aside, the forthcoming announcement of the winning bid early next year will no doubt have a significant positive impact on the economy and real estate prices in that area, so it’s a story many homeowners, including myself, are very interested in following. A number of articles have already been written enumerating the favorites, but I have my own opinions and thought it would be fun, so I put together what I think the list should be.

First, I ruled out any place outside of the U.S., because the political risk would be too bigly given the current administration. I think Amazon wants to use this as a way to expand their political clout, not destroy it. With the RFP requirement of a metro area population of at least one million, this narrowed it down to 53 contenders.

It’s a smart idea, especially when you get as big as Amazon, to keep the interests of as many politicians and the states they represent aligned with your own. I feel like Boeing is necessarily a master of this geographic political strategy, given how much of their business is tied to government contracts. I’m sure it’s no accident they have operations and suppliers in all 50 states. They even keep a single employee in Rhode Island and another one in Wyoming just to make it a clean sweep. With this strategy in mind, I don’t think setting up shop in Portland or San Francisco or anywhere else on the west coast does them much good, so I am betting HQ2 will be somewhere east of the Rockies. This narrows the list further to 41.

The RFP also requires the site be close to a major international airport, have direct access to mass transit, a stable and business-friendly environment (read: we expect tax breaks and lots of them), and a highly educated labor pool and strong local university system, among other criteria. With all this in mind, here is my top ten list (take it with a grain of salt):

10. Atlanta. Why it wins: Hartsfield-Jackson is the busiest airport in the world by passenger traffic. Why it doesn’t: Hartsfield-Jackson is the busiest airport in the world by passenger traffic.

9. Orlando. Why it wins: Orlando is my top pick for Florida, and it gets the nod over Tampa and Miami because it has a more tech-based economy. Being in the opposite corner of the country as Seattle and in a swing state helps make a political case. Sunshine might be a draw for those tired of the dreary weather in Seattle, too. Why it doesn’t: It’s Florida.

8. Washington DC. Why it wins: Bezos just bought the biggest mansion in DC, plus he owns the Washington Post, so one might think this would be a logical choice. Why it doesn’t: Real estate is just as expensive as Seattle, and I think being right in the nation’s capitol smells too much of corporatism. The RFP specifically requested the airport must have direct flights to Washington DC, which to me implies they have already ruled it out (along with San Francisco and New York City).

7. Philadelphia. Why it wins: Philadelphia is ideally located right in between New York and DC, and is less than two hours by train to either. Wharton is in Philly, homes in the city are cheap, and Pennsylvania has become a major nexus for Amazon’s fulfillment centers. Why it doesn’t: Not sure — it’s the only one on this list I’ve never bothered to go to.

6. Austin. Why it wins: Austin is a popular favorite, and I think it has a legitimate chance. The SXSW home attracts a lot of tech talent, and real estate is still kind of affordable. Why it doesn’t: Austin banned Uber and Lyft until a state law passed earlier this year superseded the rule, proving they are generally hostile toward anything that doesn’t “keep it weird,” whatever that means. A light rail to the airport, which seems like a good idea, has been repeatedly rejected since the 1970’s. Plus, Whole Foods is already headquartered in Austin.

5. Raleigh. Why it wins: Raleigh is an intriguing choice, with the Research Triangle providing a well-educated employee pool for Amazon to tap into. Like Florida, North Carolina is a swing state that fits our geographic and political strategy. Real estate prices are very reasonable as well, and traffic is a breeze. Why it doesn’t: The lack of any mass transit that doesn’t involve getting on a bus is a major drawback.

4. Boston. Why it wins: Boston is reportedly a top pick for many Amazon executives — presumably the ones who graduated from Harvard and MIT. The proximity to those universities certainly checks a big box. Why it doesn’t: relatively high real estate prices is a knock against Beantown. Also, Amazon Robotics is already located just north of Boston, so this might not follow our aforementioned “Boeing Strategy”.

3. Minneapolis. Why it wins: I’m biased after living in Minneapolis for six years, but I honestly believe Minneapolis is a kindred spirit of Seattle. Both cities are bicycle friendly and enjoy active, outdoor lifestyles. The Twin Cities also have light rail access to a major international airport, a number of universities, and low real estate prices. Why it doesn’t: People may rarely move away from Minneapolis, but they also rarely move to it. Plus they only offered a modest $3 million in incentives, which I applaud.

2. Denver. Why it wins: Central location, high quality of life, and them there mountains. Why it doesn’t: The airport is an obnoxious 28 miles outside the city center and can take upwards of an hour to get to by car. A new train line was completed last year that supposedly cuts the time to 37 minutes, but trains only leave every 30 minutes after 6:30 pm.

1. Chicago. Why it wins: It’s my list and I want my condo to appreciate, so this is a good part wishful thinking. Chicago does, however, have two international airports with direct “L” train access, the top two MBA programs in the world (according to The Economist), affordable real estate, and one of the best food scenes in the country. We also have experience wooing Seattle companies, as sixteen years ago none other than Boeing moved their HQ here. Why it doesn’t: Crime, traffic, and a failing pension system. Also, our politicians are accustomed to getting bribes, not giving them out.

Essentially, the SEC believes that ‘accredited investors’ — those that have over $1 million in net worth or make at least $200,000 per year ($300,000 for joint income) — are sophisticated and don’t need the protection provided by regulatory disclosure filings. This allows companies to raise cash through a Reg D private placement without the expense of a public filing, but does not allow the majority of the “unsophisticated” public to invest. This has changed somewhat recently, however, as two new avenues for investing have come to prominence: Initial Coin Offerings (ICOs) and equity crowdfunding.

Initial Coin Offerings

ICOs are all the rage right now. ICOs essentially allow anyone to raise money by offering made up cryptocurrency tokens to anyone with bitcoin or ether burning a hole in their flash drives, with nothing more than a website and a white paper that uses the word ‘blockchain’ a lot. There have been over $2 billion in token sales so far this year, most of them seemingly for services that already exist and are easily accessible, but, you know, aren’t on a blockchain.

ICOs bypass the rigors and expense of raising money through regulated means, because they aren’t actually selling equity. Unless they are, in which case they are breaking the law and the SEC is scrambling to crack down on them. China went so far as to outright ban ICOs last month. And there is really no obligation on the part of those launching the ICO to actually do what they say they are going to do. It’s like trying to invest in Disney by buying Disney Dollars that can only be used at Disney World, and there is a very good chance Disney World is never actually going to be built.

The whole ICO market is rife with scams, but money is still being made hand over fist right now. If you really want to get in on the action, your best path to riches is not investing in an ICO, but rather launching one yourself. Seriously, get together with a few of your buddies, stock up on beer and psychedelics, and lock yourself in an apartment for the weekend. Write a white paper about, I don’t know, a decentralized means of paying contract workers around the globe using the blockchain and smart contracts and stuff, while not explicitly saying it’s about evading taxes. Come up with some cool name for your token, like ‘ShinGig’ — the token for the gig economy! Better yet, call it the ‘Goldman’ token so that a bunch of morons will think Goldman Sachs is somehow involved. Then just watch the millions roll in while you nurse your hangover and try to forget how morally bankrupt you are.

This might be a big part of the future of investing, but not before a lot of people get swindled. Until then, I’m doing my best to avoid the cognitive biases that tempt us all to join in on these types of speculative frenzies, and I’m staying away from cryptocurrencies.

JOBS Act Equity Crowdfunding

Crowdfunding sites like Indigogo (founded in 2008) and Kickstarter (2009) allow the everyman to give money to support creative projects and product developments they are interested in. The reward for your investment can be tickets to the show you are supporting, a discount on the product you want to see made, or perhaps, I guess, just the good feeling of giving your money away. But the reward could not be equity until just recently.

The Jump-start Our Business Startups Act, or JOBS Act (clever), was passed in 2012, but the SEC didn’t actually establish the corresponding 685-page set of rules until 2016. The JOBS act made equity crowdfunding and investments from non-accredited investors legal.

Title III of the act allows startups to raise up to $1 million every 12 months. However, this avenue is unappealing to serious startups for two reasons. First, there are significant upfront compliance costs associated with this type of fundraising that exceed the cost of a classic Reg D accredited investor raise, as well as steep brokerage fees for a successful campaign. Secondly, $1 million is chump change in the tech space. It makes you wonder if anyone doing a Title III raise is only doing so because they know sophisticated investors would not give them money.

Title IV, which pertains to Reg A+, has more promise. It allows companies to raise up to $20 million (Tier I) from accredited and non-accredited investors alike while pre-empting state registration, and up to $50 million (Tier II) with state registration.

There are now over a dozen portals like SeedInvest and StartEngine that offer equity crowdfunding opportunities, but I advise caution at this point. Companies I have been interested in investing at first glance, I have soured on once I have read the offering circulars, which aren’t really prominently linked to on these sites. And that’s a problem.  The average joe isn’t going to take the time to read the circular, and even if he did he probably wouldn’t understand it.

Take Rayton Solar for example, which has so far raised more than $6 million from over 4,000 investors. You might have seen ads on Facebook with Bill Nye the “Science” Guy (the mechanical engineer, turned comedian, turned actor, turned Dancing with the Stars contestant, turned political figure, turned corporate shill) promoting the company. The idea behind the company is to use particle accelerators to cut silicon wafers as thin as three microns, thus eliminating the kerf waste in the current manufacturing process for solar panels. Sounds cool enough, but the company doesn’t show any substantial data on the cost savings. Silicon is not all that rare of a material, and its not clear from the circular just how much silicon adds to the manufacturing cost of solar panels (according to MIT’s photovoltaics lab, it’s only 15%).

The particle accelerators they want to use to cut silicon wafers reportedly cost $2.3 million a pop. Here is the rub: “The particle accelerator in its present form is not, however, capable of producing silicon wafers in the volume necessary for commercial use.” That seems like a lot of money to spend on an overly-complicated saw that doesn’t do the job it needs to do.

Even if it is a good idea, the terms are very unfriendly to the investor. With 200 million shares authorized, at $1.52 per share, the offering values the company at $304 million. The founders’ investment in the company was only $70,500 for 80.5 million shares, or $0.00088. Yes, less than one-tenth of one penny per share. Private placements netted them another $2,683,545 for 56,919,968 shares, or $0.04715 per share. Now, they are asking you to pay $1.52 per share. That’s 3,124% above the private placement and 173,460% over the founders’ buy-in for a company that has only six employees and less revenue than your daughter’s lemonade stand.

Worse, the three million dollars raised between the $7 million and $10 million marks will go directly to founder and CEO Andrew Yakub and two companies I could not find any information on: Marooned, Inc. (bought-in last year at less than $0.03 per share) and Phos, LLC. Another $150,000 will go to paying back a loan to ReGen America, a company 50% owned by Andrew Yakub. Last year Rayton paid Mr. Yakub $120,000 and awarded him stock-based compensation of 4,000,000 shares, which at $1.52 would be worth more than $6 million. He’s already taken out far more money than he put in, and the company is still probably more than a year away from selling a product. If this is going to be such a great business, why is the founder so eager to cash out?

In the first six months of 2016 Rayton spent only $72,210 on research and development. Meanwhile, they spent an astounding $335,333 on sales and marketing when they have no product to sell or market. No product to market except the company’s stock, of course.

Furthermore, the circular claims they are “unaware of any other company that has created a particle accelerator that can penetrate silicon at a 3-micron level,” which is intentionally specific . A simple Google search reveals there are other companies and research institutions working on the kerf issue, and they are very well funded. I honestly hope Rayton is a commercial success, but I have serious doubts. The reality is that solar cells will continue to get cheaper without this technology.

I think it’s best to avoid flashy tech companies like this on equity crowdfunding sites. If a company truly has revolutionary technology backed by data, they are going to be drowning in venture capital money. However, I do think this could eventually be a great avenue to invest in less-sexy small businesses with strong leadership, good financials, and a clear purpose for the funds other than lining their own pockets. 

For now, I think I’ll stick to boring old publicly traded stocks and bonds.