By Vasilia Polycarpou, The Sport Financial Literacy Academy
The great desire to achieve financial freedom- which can be interpreted as having the financial resources to afford the lifestyle you wish- can be met by making your money work for you. Investing is one of the key ways to achieve this desire since it allows you to grow your wealth by generating additional income streams to support your lifestyle.
However, making uninformed decisions when it comes to investing can lead to great financial misfortunes for many athletes, as we have seen in the case of Scottie Pippen who has reportedly lost $27 million in bad real estate investments, as well as Ismail Raghib who invested in numerous businesses, with one failing after the other. With financial predators offering ‘‘get rich quick’’ schemes, athletes need to have the knowledge and information they need to make educated investment decisions.
When making the decision to invest, you need to have the knowledge that will form the foundation of an effective investment strategy. Basic knowledge on investments can give you the tools to financial success. With a wide range of investment options available, ranging from stocks, business ventures, precious metals, bonds, funds, real estate to crypto-assets, it is important to study the market you are interested in and identify trends which will allow you to assess the quality of the investment options presented to you. Conducting due diligence research on the types of investments you are considering can help you find out if there are potential or current issues, as well as get a better understanding of why a stock is tumbling, or why the housing market is rising.
Having an investment advisor is crucial when building an overall investment plan; they will provide you with the guidance and support you need to create a consistent long-term investment plan, avoid making emotional decisions, and protect yourself against fraudulent investment schemes.
To get started, choose an investment strategy based on the amount you are willing to invest, your financial goals and the timelines for your investment goals. Additional factors include how long you are willing to leave funds tied-up, along with the amount of risk that makes sense to you and that you can tolerate. Furthermore, it would be best to invest in something that is of interest to you and aligns with your beliefs, especially if deciding to invest in a business. For example, Conor McGregor’s passion for clothes, led him to create his own luxury menswear line «August McGregor» in collaboration with David August Heil, which boosted his income.
When making an investment decision, it is highly important to determine your risk appetite, given that each type of investment comes with a different level of risk and reward- the greater the risk of losing your money, the higher the potential return. You should decide whether to proceed with an investment or not based on the level of risk you are willing to undertake; being risk averse, risk neutral or risk-seeking. The secret to managing risk is diversifying your investments with the help of your financial advisor, by allocating your money to several different types of investments that are unlikely to all move in the same direction, at the same time.
A well-known example, is that of NBA superstar Magic Johnson, who in 2022 had a reported net worth estimated at $600 million. His well-diversified investment portfolio consists of investment in team Liquid eSports, investment in MLS side LAFC, part ownership of Los Angeles Dodgers and ownership of 125 Starbucks shops, in addition to investments in real estate.
Keep in mind, that you should ideally only use risk capital for investments. In other words, money that you can afford to lose without putting you in dangerous financial circumstances. Also, try to be as proactive as possible. No matter how “safe” you believe an investment is, you always need to have an exit plan, in case the investment doesn’t go as planned. Knowing the liquidity level of your assets beforehand will help you determine this plan.
All in all, it is crucial for athletes to start investing as early as possible. To achieve long-term financial freedom and retain their security after retirement from sport, athletes need to exercise caution- taking into consideration both the uncertainty and risks involved.
The Money Smart Athlete® Blog is established and run by the Sports Financial Literacy Academy® (SFLA). Through its education programs, the SFLA has the vision to financially educate and empower athletes of all ages to become better people, not just better athletes. For more information on our courses, our SFLA Approved Trainer Program®, and how they can benefit you and your clients, please get in touch with us at email@example.com.