Investments: Dire Situation
The rise of artificial intelligence has carried markets to record heights since the downturn of 2022. Along the way, it has also generated extraordinary returns for a handful of investors and hedge funds. One example is Situational Awareness, a grandiose AI-focused hedge fund led by 24-year-old former OpenAI employee Leopold Aschenbrenner. The fund has given their investors exceptional returns since the fund’s inception in 2024. Starting at around $200 million, the fund grew to over $20 billion in just two years. This was made possible through large, leveraged (use of margin or debt) bets on high-flying AI stocks, including memory-chip makers SK Hynix, Sandisk, and Micron, as well as fuel-cell maker Bloom Energy and cloud-computing provider Nebius Group. Over the past two years, particularly in 2026, these companies have seen monumental returns. SanDisk, for example, had gained more than 700% year-to-date through the end of June. However, as investor sentiment began to weaken on AI and other technology stocks in July as worries about capital expenditures and high borrowing costs grew, shares in these companies took a cataclysmic downturn. As these investors dumped their shares in these holdings, Aschenbrenner and his team saw the value of their public holdings plummet, forcing them to raise cash for a margin call, either through selling their positions at the bottom or raising new capital from outside investors. A margin call, stated simply, is an urgent demand from your lender to deposit cash immediately because a drop in your investment values has pushed your account balance below their mandatory regulatory maintenance margin. Situational ended up selling the bulk of its stock portfolio to Citadel, the hedge fund founded by billionaire Ken Griffin. For investors, the lesson is clear: extraordinary returns often come with extraordinary risk. Maintaining a diversified portfolio, avoiding excessive leverage, and staying disciplined through market cycles remain some of the most effective ways to build lasting wealth. Rather than chasing the highest returns, investors are often better served by building a resilient portfolio that can weather both bull and bear markets over the long term.
Sources: WSJ
Planning: Sequence of Return Risk
Sequence of Returns Risk is one of the most important risks retirees faces when taking distributions in retirement. It refers to the peril of experiencing poor market returns during the early years of retirement while simultaneously withdrawing money from your portfolio. Even if, for example, two retirees earn the same average annual return over their retirement years, the one who experiences poor returns early in retirement could end up with significantly less wealth accumulated when its all said and done. This is because withdrawals made in a down market reduce the money available to participate in the eventual recovery. Thankfully, there are ways to mitigate this risk. Maintaining an adequate level of cash exposure can allow you to pull from those funds instead of selling your stock positions in a down market. Remaining flexible with withdrawal amounts is another strategy that can help mitigate this risk. Ultimately, thoughtful planning can reduce the impact of unfavorable market timing and improve the likelihood that your retirement savings will last throughout retirement.
