I have been investing money for 15+ years and the first 11 of those years I was a professional athlete.
The best way for me to describe my investing over those years ~ A Journey.
You see when I first started out investing I knew nothing. Heck, I can remember the first time my portfolio went down (if happened in week one of investing) and the fear I felt.
If you fast forward a few years, I was spending time trying to figure out how to optimize each inch of my investment portfolio. Frankly, I was spending a bunch of time on stuff that was not going to move the needle for me.
Today, I look at the collection of personal experiences, results, and client situations to better help our athletes invest. You see as I will share when it comes to investing for professional athletes there is no one size fits all.
In this blog, I am going to talk about the best frameworks, strategies, and examples of investing for professional athletes.
Investing as an Athlete
Let me just say there are a million ways to invest money. The longer I invest the more I learn about unique ways athletes have successfully and unsuccessfully invested their money.
I have seen everything from real estate to stocks to government contracts to silver eagles.
On the surface, it is impossible to say if those investment strategies are good or bad. The reason is, to understand how to invest as a professional athlete you must first understand your situation.
Consider this, you are a $10,000,000 per year player with enough set aside in conservative investments to continue living your lifestyle. You come across a high-risk venture that requires a $100,000 investment. That type of opportunity given your situation is worth exploring.
Now consider that same situation but you are in the last year of your career with only a few hundred thousand saved.
That opportunity, no matter what the upside, should not pass go.
Same investment but different circumstances = different decision.
Today, I want to show you how these frameworks lead to the types of investments and share how I invest in each of these areas.
Athlete Investing - Bucket Approach
I want you to think about investing like building a house.
You can't start by picking out light fixtures and hardware.
You have to start with the foundation.
While there are thousands of ways to invest money they can be broken down into one of three foundational buckets:
Bucket 1 - War Chest (safest)
Bucket 2 - Growth Strategy (riskier)
Bucket 3 - Aspirational Strategy (highest risk)
You can see below how each bucket correlates to a time period in which we plan to use the money.
Our war chest is the money we need in the next 7 years.
Our growth strategy is money we don't need for another 7-15 years.
Our aspirational strategy is money that we don't need for 15+ years.
The quickest and most accurate screen for any investment as an athlete is to determine which bucket a particular investment falls into.
Then you can decide if that investment fits your overall circumstances.
If the answer is yes to the above, then you can explore how that investment could fit into your overall plan.
Only, then after several screens should you do a deep dive into the investment opportunity itself and its viability financially.
See how that works...It is a simple way to weed out 95% of investments that you should not be considering in the first place.
Now let's talk about five common investment strategies for professional athletes, how I invest in them, and what you need to know about them.
Athlete Investing - Strategies to Consider
You will hear of countless investment opportunities in the locker, see dozens more in the press, and be presented with hundreds of opportunities as an athlete.
Remember, step one is to understand which of the above buckets (war chest, growth strategy, aspiration strategy) they fit into.
Yet once we determine that I want to discuss in more detail some specific investment strategies as a professional athlete and how I use them.
One thing I want you to remember is investing is simply fuel for your life and your goals. Notice how I said "your" life, that is important. I say this because one common mistake I see among professional athletes is we get caught up in what a teammate is doing and think we should.
Remember as we walk through this we need to think about what investing strategies fit your goals.
Today's Money
This is money that you are going to need this calendar year. You need access to this money and would like to earn a small return with little risk.
The Goal ~ To produce some income, take minimal risk, and have access to this money.
Strategies to Consider:
High Yield Savings Accounts
Money Market Positions
Treasury Bills
Each of these is on the lower-risk side of the investment landscape.
Each of these provides its own unique advantages and disadvantages.
Each of these three provides income (in the form of a yield) on your money.
The nuances to consider with these are the tax consequences, the FDIC coverage, and the risk profile.
In my portfolio, the large majority of my "Today Money" sits in a money market position. It provides me immediate access, a low-risk profile, and a sufficient return.
Tomorrow's Money
This is money that you are going to need in the next 1-7 years but not this year.
The Goal - To produce solid income with moderate risk and a belief it will be there when you need it.
Strategies to Consider:
Corporate Bonds
Municipal Bonds
Private Credit
Each of these provides consistent income.
Each of these has a moderate risk profile.
Each of these accomplishes the goal.
The factors to consider with these are the risk profile (muni bonds are less risk than the others), the tax consequences, and risk/return ratio.
In my portfolio, I use municipal bonds for my "Tomorrow Money". This is a type of bond provided by a city/municipality that pays me interest tax-free. I use this due to my tax bracket, risk profile, and overall portfolio.
Stock Market
This is money that you are not going to need until years down the road.
The Goal - To produce increased returns while still being able to stick with the ups and downs of the market.
Strategies to Consider:
Mutual Funds
Individual Stocks
Exchange Traded Funds
Each of these has a higher risk profile.
Each of these can build long-term wealth.
Each of these provides good expected rate of return.
The factors to consider these is the diversification, your ability/desire to take risks, and how each could help you accomplish your goals.
In my portfolio, the majority of my stock market investments are in exchange-traded funds. These provide me with increased diversification, reduced yearly taxes, and a part of a portfolio I can stick with for decades.
Real Estate
This is money that you are playing the long game with.
The Goal - To increase your investment diversification, provide you with a hard asset, and potentially produce tax-advantaged income.
Strategies to Consider:
REITs
Syndications
Private/Direct Ownership
Each of these can provide current income.
Each of these has different amounts of liquidity.
Each of these is a long-term asset for a long-term time horizon.
The factors to consider with these are your expertise (direct ownership is very different than a REIT), your time frame, and your desired outcome (income vs capital appreciation).
In my portfolio, the biggest part of my real estate investing is done through REITs (Real Estate Investment Trusts) as this provides me increased liquidity and added diversification. My direct ownership is minimal outside of my house as this does require time, expertise, and additional attention.
Private Deals
This is money that you are willing to lose and in return could see an outsized return.
The Goal - To produce higher returns with an increased risk profile.
Strategies to Consider:
Private Equity
Venture Capital
Buying a Business
Each of these provides a significant upside.
Each of these takes on significant risk.
Each of these could go to zero.
The factors to consider here is your interests, your expertise, and your ability to withstand a 100% loss of capital.
In my portfolio, I invested to start a business (Moment) and focused the rest of my private investments on small businesses I understand. I only invest in private deals if it is an area that I understand and it is with money that I am ok losing.
Athlete Investment Strategies - Things to Know
Let me be clear, you do not need to hit a home run with your investments.
In fact, I would argue (and the data would support) that the best way to invest money is to stay in the game.
Consider this ~ $1,000,000 initial investment doubling every 9 years looks like this:
$1,000,000 to $2,000,000
$2,000,000 to $4,000,000
$4,000,000 to $8,000,000
$8,000,000 to $16,000,000
The most important double is always the next one.
You want to make sure your portfolio allows you to:
Sleep at night (not too much risk)
Stay in the game (years of return not yearly return)
Reaches the goals specific to you (not someone else's)
I see too many athletes build investment portfolios that look cool but don't correlate to their life.
So ask yourself, would you rather your portfolio help you reach all your financial goals or be a great locker room story?
If you are looking for a deeper dive into how we approach investing for professional athletes make sure you check out our blog on it.
If you are a current or former professional athlete looking for help understanding your investment portfolio, schedule a call with our team.
Get in Touch With An Advisor
Frequently Asked Questions
Here are some answers to questions received regarding investing for professional athletes:
How do you determine how much risk an athlete should take? It is a combination of our expertise, our athlete's desire to take risks, and his ability to take risks.
How can athletes say no to investment opportunities from family and friends? You need to make sure you have someone on your team that can be the no-man. For us at Moment, we direct our athletes to point all opportunities to us to properly vet them.
What is the biggest investing mistake you see athletes make? The biggest mistake I see is when athletes invest in areas they don't fully understand. While an athlete does not have to be the expert on an investment they should understand how it works.
What should athletes know about rates of return? I encourage all of our athletes to think about years of return (how many years we are invested) over yearly return as this is something completely inside of our control.
What is one thing you wish you knew when you started investing as an athlete? There is no perfect investment portfolio. Often I see players wanting to make changes that will ultimately hurt their long-term performance as opposed to letting time in the game take over.
*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
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