You have the greatest superpower paired with a laundry list of disadvantages.
Welcome to investing for professional athletes.
Let's start with the good. You have time. The average athlete has their peak earning years in their early to mid 20's. That means you have decades to invest those earnings and let them compound.
No seriously consider what that provides you, here is a visual of that power:
You know you can't have the good without the bad, so here it is:
You have little (or no) experience, you have a target on your back, and if done poorly there is little time to recover.
In this blog, I am going to walk you through everything you need to know about investing as a professional athlete.
Investing For Professional Athletes
To understand where we are going, you need to understand where I am coming from. I have walked in your shoes. I earned millions, knew nothing, feared messing it up, and managed to retire with enough money to create financial optionality.
That is what you want as an athlete ~ financial optionality after your playing career is over.
The 4 questions we are going to answer today:
Where do I start?
What should I focus on?
How much risk should I take?
How do I connect my investment portfolio to my life?
There are infinite things you "could" consider but what we want to focus on is what you "should" consider.
Where Do I Start?
The best decisions start with the end in mind.
So what does the end look like? Well in a perfect world, what do you want to accomplish with the money and investments you have?
No seriously, stop and write down everything you think you want in the future.
Here is an example:
$15,000 a month
$1,000,000 house
New car every five years
Charitable giving each year
Two family vacations a year
There is no wrong answer here, this is your money and it should be personal to you. My one recommendation is to make it specific. See how I said, "new car every five years" not "a new car". The more specific the goal the clearer the plan to get there becomes.
Once you understand where you are going let's talk about how to get there.
The foundation of investing money is this ~ the more risk you take, the higher the expected rate of return you should receive.
Stuff money under the mattress ~ the return is zero because the risk is zero (actually some risk there).
Invest in an established business ~ the return should be good because there is risk in that.
Invest in a startup ~ the return better have a chance of being great because of the risk.
You can see here how the more risk taken in your portfolio the higher the rate of return has been.
The key for professional athletes is to understand how much risk one should take.
I always fall back to my favorite Warren Buffett line ~ "Do not risk what you have an need for what you don't have and don't need."
Remember how we wrote down specific goals, well the next step is gaining a better understanding of how much risk we need to take to produce the return necessary for those goals.
That is the starting point of investing.
What Should I Focus On?
The investing headlines for professional athletes read like a high-powered Venture Capital firm.
"Star player invests in this."
"MVP launches his own brand."
"Top athletes buy a sports franchise."
What if I told you those are the wrong things to focus on?
Well, here it goes ~ those are the wrong things to focus on.
They don't affect you
No two situations are alike
The focus should be on substance, not flair
If I could put one thing on a billboard for athletes to read when it comes to investing this would be it:
You should focus on your years of return not your yearly return.
Take two athletes:
Athlete 1: Invests in the latest high-flying investments. He has some incredible years but also fails to protect his downside losing as much as 20% of his capital in a year. To recover that 20% loss he needs a 25% gain.
Athlete 2: Invests in established businesses. He has some good (not incredible) years but also properly protects his downside losing only 10% of his capital in his worst year. To recover that 10% loss he needs a 11% gain.
Protecting the downside is as important (oftentimes more important) than the potential upside. Remember your greatest superpower is time.
To use that superpower you need to stay in the game.
Consider this ~ Warren Buffett is worth an estimated $130,000,000,000 and more than 99% of his net worth was made after his 50th birthday.
He didn't magically become a better investor, he let time do the heavy lifting.
10x10 = 100
10x10x10 = 1,000
10x10x10x10 = 10,000
10x10x10x10x10 = 100,000
See how powerful compounding is?
The rule of 72 states that 72 divided by your rate of return = the amount of time it takes for your money to double.
Example: 72/8 (rate of return) = 9 (years it takes for your money to double)
*$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.
So instead of focusing on a flashy yearly rate of return focus on your years of return.
How Much Risk Should I Take?
There is risk with everything we do in life.
Investing money - there is risk.
Driving down the street - there is risk.
Eating food at a restaurant - there is risk.
Yet just like wearing your seatbelt or making sure your food is cooked, there are ways to reduce risk in investing.
The first and most important step for professional athletes is to understand how much risk to take.
At Moment, we think about this in terms of how much money we need to have in each bucket.
Bucket 1 - War Chest (safest)
Bucket 2 - Growth Strategy (riskier)
Bucket 3 - Aspirational Strategy (highest risk)
To find the answer you need to consider three factors:
Spending
Ability to take risk
Desire to take risk
***To better illustrate this we are going to use a hypothetical athlete, Bryce.
Spending
Before you invest you need to understand what it costs to be you.
This is all the costs involved with living your lifestyle.
Bryce spends $20,000 per month or $240,000 per year.
This includes:
Food
Travel
Donations
Entertainment
Housing Costs
Transportation Costs
Investments are fuel for our lives, which means we need to position our investments around the fact Bryce is spending $20,000 per month.
Ability To Take Risk
Ability to take risks means can an athlete invest in a way to grow his portfolio while still maintaining his lifestyle.
The inevitable part of investing is on average the stock market is down in value one out of every four years.
There has to be enough money in our war chest (safety bucket) to sustain those downturns.
Bryce has saved $10,000,000 during his playing career.
What I like to consider is how many years of spending ($240,000 per year) we want to have in our war chest.
Our baseline for professional athletes is between 5 -7 years. This means we need $1,200,000 to $1,680,000 in our war chest.
So Bryce has the ability to take risks with the additional ~ $8,500,000 he has saved.
That leads us to should he?
Desire To Take Risk
This is as much art as it is science.
As specialists in athlete wealth management, it is our job to help lead athletes through a process to determine how comfortable they are taking risks.
While we know the more risk we take the higher our expected rate of return should be, the biggest key is sticking to the plan we set out.
This means that even in those years when the portfolio is down an athlete is comfortable with the level of risk taken.
While Bryce has the ability to position nearly $8,500,000 towards growth, given his current spending, and risk tolerance he prefers to take a more conservative approach.
The agreed-upon strategy includes a total of $3,000,000 in his war chest and $7,000,000 positioned towards growth.
Enough risk to reach his goals and enough downside protection to allow Bryce to sleep at night.
See how spending, ability to take risks, and desire to take risks all play a factor in investing for professional athletes.
If spending goes up, the ability to take risks might go down.
If the ability to take risks goes down, future spending might need to go down.
How Do I Connect My Investment Portfolio To My Life?
You know those athlete headlines we talked about, remember how they don't apply to you?
Investing and the returns you earn are fuel for your life.
They are not meant to be campfire stories or headline news.
They are meant to help you, your family, and the people you want to support.
So connecting your investment portfolio to your life is key. It needs to be specific to you.
It is a combination of all the things we have discussed:
Where you want to go
Focusing on the right things
What you are trying to accomplish
How much risk you can and should take
Answer those questions, understand how they all work together, and then build your investment portfolio.
It is a surefire way to make sure your investments connect to your life.
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The investment mindset needs to be what is a good rate of return I can sustain for the longest possible period?
Yet time and time again, we see athletes trying to hit home runs when all you need is singles and doubles.
It is critical to have a financial team specializing in wealth management for professional athletes.
You have one chance to do this right ~ make the most of it.
If you are a professional athlete looking for a financial team specializing in you, schedule a call and talk with a Moment founder.
Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor.
Get in Touch With An Advisor
Frequently Asked Questions
Here are some answers to questions I received frequently about this topic.
Are you a fiduciary? Moment Private Wealth serves clients as a fiduciary 100% of the time.
How does Moment Private Wealth make money? We are only paid in one transparent way, by our clients. We receive no kickbacks or participate in any profit-sharing arrangements. Our fees are simple, transparent, and clear for our clients.
How are you different than other financial advisors? We are specialists in working with professional athletes and entrepreneurs. We limit the number of new clients we take on. This allows us to provide unparalleled value and highly personalized service to professional athletes. We work as a team to service our clients. We believe in building a team of “A” players. This ensures our clients receive world-class tax, estate, insurance, and investment strategies. We focus on educating first, then executing.
Where do you hold my investments and how can I see them? Moment Private Wealth uses Fidelity Investments as a third-party custodian for our client investment accounts. As a third-party custodian, Fidelity safeguards and provides reporting to you and the IRS each year. Clients can also access all financial information via the Moment Private Wealth Client Portal.
How do you work with other members of my team? We believe in the power of the team. For most of our clients, their team consists of Moment Private Wealth, an accountant, an attorney, a banker, and an insurance specialist. We help our clients build out their team of individuals or work with existing partners clients have. Our goal is to ensure every family has a team of experts to protect their interests.
How do you choose investments for clients? As independent financial advisors, we can gather research and make recommendations based on all available options. We determine clients’ portfolios in partnership with some of the largest asset managers in the world. Each quarter, we have calls with teams of CFA (Chartered Financial Analysts) to ensure our clients are receiving the most up-to-date strategies and recommendations.
What does your average client look like? Our clients are nearly all athletes and entrepreneurs. Our average client has a net worth greater than $10M. The strategies, solutions, and planning that we implement have a high-net-worth and ultra-high-net-worth client in mind.
Why should I consider hiring Moment Private Wealth? Great question! But first, let us explain why you shouldn’t hire us. If you’re looking for an advisor who will pitch shiny object investments or be a “yes man” you are in the wrong place. Why? Because we believe in being truth tellers and only giving advice that we take ourselves. The investments, strategies, and planning we do are all things our advisors do with their own money. If you are an athlete or entrepreneur interested in things like lowering your tax bill, investing smarter, and finding a trusted partner we might be a good fit.
*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.
