By Demetris Constantinou, Contributor
It is no secret that we’re currently experiencing one of the most turbulent and volatile periods in the history of financial markets. During such times, it’s in every individual’s best interest to survive through the crisis and if possible, emerge stronger through the exploration of various opportunities. Unfortunately, things are more pressuring for athletes, given the short lifespan of their careers and the high level of financial dependence they have on their investments. To put things into perspective, individuals in most industries, despite facing the current economic downturn, will have ample of time and opportunities to get back on their feet as they have their entire professional life to recover and re-build their finances. Athletes on the other hand, only have a limited amount of years after this downturn to turn the tables and make sure they acquire the resources that will provide them financial freedom for the rest of their lives. Having said that, through this article, we’ll try to provide Athletes with some general guidelines that will help them safeguard their finances and emerge financially strong from the ongoing financial downturn.
Recessions, economic slowdowns and volatility are part of our financial system and understanding that helps you view the bigger picture of things. Simply put, we’d probably face some sort of economic downturn at some point irrespective of the current global pandemic. Of course, the magnitude and duration of such downturn would probably be on a much smaller scale but even so, understanding that economic downturns happen prepares you to always be ready for volatile times. As we’ve already pointed out in numerous of our previous articles, the biggest enemy of volatility is diversification, which brings us to the first “cure” of the financial impacts of the Coronavirus. It’s currently more important than ever to talk to your financial advisor and ensure that you have a very well diversified portfolio that covers different ranges of instruments and directions. Picking the instruments, the longs and the shorts are of course the job of your financial advisor but what’s important, is that you, the athlete, understand the importance of diversification and how it can reduce your overall financial exposure and mitigate your losses. To simply put diversification into perspective, there are always investment positions that will go up and investment positions that will go down. Through diversification in the current financial situation, you’re trying to ensure that while most of your investments positions tend to generally move negative, you invest yourself in other positions that move towards other directions with the aim of reducing, or even evading any losses that you’d have to face, had you not diversified well enough.
Nevertheless, despite diversification being a priority when investing, it will never be a sufficient measure by itself to help you persist through such tough financial times. What will eventually make you emerge stronger is your ability to cover your short-term obligations while you invest with an eye in the future. While you always want your investments to be going up, understanding that your goal is to be financially independent in ten or twenty years, allows you to be more flexible and to invest strategically. Being an athlete with a few more years of playing in a professional league gives you the flexibility of looking more towards the future and less towards the next year when it comes to your investments. With that in mind, the current financial climate gives a lot of room for what’s known as “averaging down”. In simple words, you can invest in holdings that you already own but at lower prices and eventually expose yourself to higher upside potential in the future. This technique is mostly advised in situations where you don’t expect to liquidate your investment in a short period of time but rather when you anticipate on keeping your investment position for the long run. Having said that, averaging down is not always the right move even when having the future in mind; sometimes it’s smart to just sell an investment and cut your losses. It’s important to note that such decision, about which investments to apply “averaging down” to, should be thoroughly discussed with your financial advisor. Still, it’s important that as an athlete, you’re educated about risk mitigation techniques as well as potential opportunities that you can benefit from during this period of financial uncertainty.
Turning our attention towards new opportunities, it’s always important to keep in mind that what goes down will eventually go up, assuming that the strong fundamentals continue to exist. Simply put, an investment made after research and thorough due diligence, might be negatively impacted in the short-run given the current economic situation, but as long as the pillars that made it a strong investment are still there, it remains to be a strong investment with high upside potential in the future. Athletes tend to be highly liquid during their professional life, making the current situation a good opportunity for them to take advantage of undervalued investments and explore substantial upside potentials. To put things into perspective, during the 2008 financial crisis, the market dropped as much as 55% but ten years later, in 2019, the market was up by more than 300% from the lowest point during the 2008 crisis. What we’re eventually trying to convey is that someone who had the liquidity to invest in the market lows back then, would have tripled their money within ten years, proving the point that during a crisis, opportunities are formed for those who are willing and able to take them. Having said that, such opportunities should be viewed with caution, as they usually bear an amount of risk higher than he average risk.
All things considered, you can never be too prepared to face such an economic downturn and it’s more likely than not that you will be negatively impacted financially from what’s currently going on. Despite that, following the above general guidelines, in combination with consulting your financial advisor, will help soothe the financial implications on your Investments and allow you to continue to manage your finances as a Money Smart Athlete.
For more information on how to safeguard your finances during these times of volatility you can get in touch with us at [email protected].
