Investments & Creating Long-Term Wealth

Key topic

Bad investment decisions contribute greatly to the financial problems of professional athletes.  Unfortunately, athletes are an easy target for many shady financial predators, who promise them ‘sweet deals’ with huge returns in a short period of time.  With so many ‘get rich quick’ schemes out there which try to sell the improbable dream, athletes need to have the knowledge which will help them make educated decisions for themselves, and control their emotional responses to risk and the market.  In this lesson we go through the process of getting prepared to invest and we pinpoint what to look for and what the risks are.  We also look into the importance of investment diversification and we go over real estate investing.  At the end of the lesson, we will present the ‘Being Investment Prepared’ Checklist which will inform student athletes whether they are investment ready or not!

Learning objectives

• The main reason why people invest is to see a return on their investment.
• In preparing to invest, you have to devise a consistent plan, you should control your emotional responses to risk and the market, you should always strive to see the big picture and you need to be aware of the characteristics of fraudulent investment schemes so that you can protect yourself.
• Every investment carries a certain amount of risk and reward. Risk can be managed only up to a certain extent and it cannot be eliminated.
• Creating the right team of trusted, reputable, and established professionals is important to your financial success.
• There are various investment options available which are suitable in different situations, depending on your long-term financial strategy and they include stocks, bonds, real estate, etc.
• Diversification means that you put your money into several different types of investments that are unlikely to all move in the same direction.
• Before investing make sure you are investment prepared. An investment preparation checklist gives you an indication as to whether you are ready to start investing.

Introduction

Investing is one of the key ways to achieve your financial goals.  Through investing you can make your money work for you and take charge of your financial security by growing your wealth and by generating additional income streams to support your desired lifestyle.

Investing means committing capital or funds to different types of assets with the expectation that you will generate a gain or profit in the future from these investments.  An investment is different from saving because an investment is a rather active way of using your money while saving is basically storing your money for future use.  Investing always carries risk with it therefore it is critical to do your research and analyze the risk before committing your money into an investment.

Every one of us, athletes or not, need to be educated in the basics of investing.  Such knowledge will help us create successful investment strategies and plans, through which we can generate enough income to support the lifestyle we envision for ourselves.  Knowledge forms the foundation of any successful investment strategy.  Knowledge can give us the tools to invest wisely and make our money work for us.

Action Steps – Exercise 1 (10 minutes): 

Kick off today’s lesson with an exercise.  Ask students to complete the “Investment Knowledge Checklist” below to figure out how much they know about investments.  Follow with an open discussion based on the answers of the students.

1.Circle the number that represents your current financial knowledge level. Then underline the number that represents the knowledge level to which you plan to improve your personal financial knowledge within one year.

2. Place a check mark next to those trusted team members you consider necessary in your quest to become a savvy investor and explain why you would need each one of them.

3. Depending on your qualifications and ability to get a job, a 6- to 12-month emergency fund will prepare you for an unexpected event or job loss. How prepared are you in terms of emergency savings?

4. Once I build up my emergency fund, I will start to save risk capital. Risk capital is money that I can invest without risking dangerous financial circumstances. I will start saving risk capital to invest by [date]

Why people invest

The reason many people invest is to achieve financial freedom. The term “financial freedom” means something different to each person.  Many define it as being able to have the lifestyle they want and knowing they can afford it financially, without worrying about paying bills and making ends meet. Financial freedom means that instead of having to work to generate income, you will have your assets working for you and these assets will be generating the income you need to support your desired lifestyle. In order to attain this goal, it’s important to begin investing as early as possible so that you generate passive income streams instead of having to work for every penny.

By starting early, you take advantage of compound interest revenues, meaning your earnings generate additional earnings over time, significantly increasing your wealth.  In today’s digital economy, financial freedom is increasingly being achieved through alternative investment opportunities, such as digital assets (cryptocurrency, NFTs), peer-to-peer lending, and fractional real estate ownership. These modern investment options provide additional ways to generate passive income beyond traditional methods.

In addition to having your money work for you, there is more to be gained through investing:

• You can protect your money against the possibility of negative interest rates which can decrease instead of increase the balance of your precious saving accounts.
• Investing helps you keep pace with inflation, by growing your money fast enough to keep up with rising prices.
• If you decide to invest money in a new or current business, you support the creation of new jobs and new products. In addition to enjoying the process of creating and establishing a new business, you can also get a good return on your investment. With the rise of startups, crowdfunding platforms, and digital entrepreneurship, investors now have more opportunities to fund tech-based businesses, AI-driven innovations, and green energy projects, which can provide long-term returns.
• Investing can help you reduce your taxable income. There are certain investments such as retirement funds which are exempt from taxation.

Whatever goals you may have set in your financial freedom plan, whether travelling the world or retiring on a yacht in the Greek Islands, investing is the key to getting you where you want to be.

Basic investment definitions and concepts

Investing is buying assets that you believe will go up in value or produce income. Assets do not always increase in value, so every time you invest, you risk losing some or all of your money. Before stepping into the world of investments there are some basic definitions that will help you better understand how investments work.

Risk capital refers to money that you can afford to lose without putting you in dangerous financial circumstances.

There are three types of income. Active income is earned through work, while Passive income is earned without your work effort, like income from renting out properties or from interest on your savings. Portfolio income is the return from investing in the financial market.

Prices change according to the law of Supply and Demand. Demand reflects how much quantity of a product or service is desired by buyers at a certain price. Supply is how much quantity of a certain product suppliers are willing to sell at a certain price. The more the demand for a product, the more the supply price of that product goes up. When fewer people want a particular product, prices go down.

Return on investment (ROI) is a performance measure that helps investors compare the return offered by one investment to returns on other investments and is expressed as a percentage or ratio.  It measures the gain or loss generated on an investment, relative to the amount of money invested.  For example, if you have invested $100 and in a year’s time you receive a dividend of $10, then your return on investment is 10%.

Interest rate is the amount charged, by a lender to a borrower for the use of assets and it is usually expressed as a percentage of the principal amount. Interest rates are typically charged/credited on an annual basis, known as the annual percentage rate (APR). Anyone can lend money and charge interest, but it’s usually banks which are safe to do that because they are government regulated. They use the deposits from savings or checking accounts to fund loans and they pay interest to encourage people to make deposits.

Banks charge borrowers a little higher interest rate than they pay depositors so they can profit. At the same time, banks compete with each other for both depositors and borrowers. The resulting competition keeps interest rates from all banks within a narrow range of each other.

Compounding returns describe the process by which the value of an investment increases exponentially because it earns returns both on the principal and on the prior returns. The beauty of compounding returns is that you make money both on the money you deposit and on the returns your investments pay you. Using this principle if you invested just $100 a month when you were 18 years old you could become a millionaire by retirement age. New robo-advisors, high-yield DeFi protocols, and AI-driven investment strategies are helping investors maximize compounding interest with automated portfolio management. These tools allow users to reinvest profits instantly, increasing their overall returns.

The Rule of 72 says that if you divide 72 by the non-decimal interest rate (10, not 0.1) you are receiving from an investment, the answer tells you how many years it will take for that money to double. This principle helps illustrate that the earlier you start saving for retirement, the better the chances that your money will double. If for example you have $10,000 in savings and are earning a 10% interest rate, your money will double in 7.2 years. (72 /10 = 7.2). With cryptocurrency staking and decentralized finance (DeFi) yield farming, investors now apply the Rule of 72 to assets with highly variable interest rates. While some DeFi platforms offer high short-term APYs, the risk of volatility means investors should carefully assess how long these returns are sustainable.

Preparing to invest

Investing makes sense. It’s all about making your money work for you, instead of the other way around! Best of all, the sooner you begin investing, the more you can increase your original investment – at least in theory.  In addition to learning basic investment concepts and definitions when preparing to invest, you have to also become mentally ready for investing.

Be consistent – The first step to achieving financial success is following a consistent, long-term investment plan. A regular savings plan can be the foundation of your investing career as it provides you with money to invest on a regular basis.  Financial success takes time, so you need to take the long view, and not focus on short- term gain.  If you start investing early and consistently, you will be able to take advantage of the power of compounding returns.

Have your emotions in check – Emotions make us do things we wouldn’t normally do. This is especially true with investing. The negative emotions most likely to affect people when they invest are greed and fear. Many people just concentrate on getting more and more money, but when they start to lose money, they become scared and freeze up.  Another mistake people make is getting emotionally attached with a stock, or a company, or a piece of real estate. Despite warning signs telling them to sell, they foolishly continue to hold on to it, even as it depreciates in value!  If you carry emotional baggage, you are more likely to make bad decisions than people who have a clear, relaxed business focus.  You should be aware that controlling your emotional responses to risk is an important part of your investment plan.

Look at the bigger picture – You should not just focus on the ups and downs of each individual investment; always step back and look at the big picture.  One of the biggest things to watch is trends. A trend is the direction towards which a market tends to move. New tools like AI-driven market analysis, sentiment tracking, and predictive algorithms can help investors identify emerging trends faster than ever. To invest in companies or markets, you need to know whether they have any problems. General research can help you find out if there are problems and you will get a better understanding of why this stock is tumbling, or that housing market is rising.  Since the final decision will always be made by you when investing, you need to keep an open perspective and keep educating yourself on the surrounding facts of the investment markets.

Now let’s look at some tips on how to go about investing, from NFL running back Arian Foster.

Investment advice by NFL running back Arian Foster: Start with the end in mind Look at each contract like it is the last one you will ever sign, because you never know when your run in sports will be over. Invest in companies that align with your beliefs Every investment is rooted in my personal conquest to help people live better lives. You can do good by doing good. Invest in great human spirits The world is full of great ideas, the execution is where the brilliance is and that takes a great leader and a great team. Be part of companies where you can learn too If you can make sure that with each company you work with, you can get your hands dirty and learn the business, that wisdom alone will always be a great rate of return on your investment. Know who to trust… and trust them Find mentors, you can’t go it alone, surround yourself with people you trust who are experts in areas you are weak in . . . and then, listen to them when they give you advice.

Action Steps – Exercise 2 (10 minutes):

Tell students that they each have $100,000 available to invest.  Ask them how they would invest their $100,000 and why.  Take 4 to 5 answers and continue with a discussion in connection with the students’ responses.

Be careful of fraudulent investment schemes

During your lifetime you will come across people offering you “Get-rich-quick” schemes as well as people giving you a “hot” stock tip or urging you to invest in a sweet deal. These people are trying to affect your emotions by selling you an unlikely dream. Some examples of fraudulent investment schemes include Ponzi schemes (like the infamous Bernie Madoff case), bank frauds, and accounting scandals such as the Enron collapse. In recent years, financial fraud has evolved to include cryptocurrency scams, rug pulls, and pump-and-dump schemes, which exploit new technologies to deceive investors. By gaining the necessary knowledge of how these fraudulent schemes have worked in the past, you will be able to make educated financial decisions for yourself.

It is OK to listen to other people’s investment ideas, but never go through with one before doing your research and discussing it with a trusted advisor. Verify investment legitimacy through regulatory agencies and use online tools to check company filings, audits, and past performance. A clever way to filter the people who approach you with an investment idea, is to ask them to send you relevant information like an investment fact sheet or a business plan.  The more information you have, the more educated decision you will make.

In the past couple of decades, we have had several fraudulent investment schemes in which a lot of money was invested and lost.  Unfortunately, these investment schemes come in a lot of varieties and flavors, so we have to be extra careful.  Having knowledge about these fraudulent investment schemes of the past, may help you in identifying similar characteristics in any investment proposals you may get in the future.

A Ponzi scheme is an investment fraud where people invest and their return on the investment is paid from the money of new investors. So basically, a Ponzi scheme is a type of fraud in which belief in the success of a non-existent enterprise is fueled by the payment of (typically) quick returns to the first investors from money poured in by later investors. So, people who invested in 2023 were paid their return using the investment money from people who invested in 2024.  Therefore, you need to beware of the promise of unrealistically high returns. For example, person A invests $1million and is promised $100,000 in a year. Then person B invests $500,000 and the fraudster uses person B’s money to pay person A their $100,000. Person A seeing the huge returns gets excited and may even end up investing more money.

A rug pull is a cryptocurrency investment scam where the creators or developers of a cryptocurrency project suddenly abandon or exit the project, taking all the funds invested by users with them.  To avoid rug pulls, try to avoid projects where a small number of wallets hold the majority of the coins.

Pump and dump, is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements (pump), in order to sell the cheaply purchased stock at a higher price (dump).  Once the operators of the scheme dump (sell) their overvalued shares, the prices falls and investors lose money.  This is most common with small-cap cryptocurrencies and very small corporations (micro-caps)

With the help of either a financial advisor or a trusted person with investments knowledge, always check out the history of companies that you intend to invest in.  Do not look at companies just from the outset.  It is important to understand the value of the underlying assets of a company.  For example, if you invest in a company that owns and rents out a real estate complex, you need to understand what gives this complex its value.  Is it its location?  Is it its architecture? Or, is it just that currently real estate prices are overestimated? Recent market fluctuations, driven by AI-driven property valuations and speculative real estate investing, have caused housing bubbles that investors must be cautious of.

Real Life Examples The case of Ian Gregory Bell (2024) Ian Gregory Bell, a Colorado-based investment advisor, was indicted on charges of defrauding nearly 30 clients, including professional athletes. He allegedly misrepresented his trading performance and provided fabricated account statements, resulting in a loss of approximately $1.3 million from his clients.   The case of Arana Taumata (2025) Former NRL player Arana Taumata was convicted of defrauding two individuals of nearly $164,000 through a Ponzi scheme, posing as a property investment manager. He was sentenced to a 17-month intensive correction order and mandated to repay his victims million from his clients.

Action Steps – Exercise 3 (5 Minutes):

• What do the real-life examples teach us?
• Ask the students if they know of any fraudulent investment schemes. Discuss in class.

Risk and potential

An investment’s potential to generate revenue is usually directly correlated with risk.  Risk is the chance that an investment you make will lose money. There are ways you can manage risk, but a certain amount of risk will remain present in every financial decision you make.  There are different kinds of investment risks.  Common investment risks include:

Inflation risk – When the value of an asset or income decreases due to the reduced value of the currency.  Inflation causes the purchasing power of the investment return to decline.

Liquidity risk – This risk is commonly associated with real estate and refers to the inability to convert an asset to cash. With stocks that have a high trading volume, typically your liquidity risk is low except for when there is a significant market correction.

Interest rate risk – When interest rates rise, the value of a fixed-rate investment will decline in value.

Business risk – The potential for a company in which you have invested (in a stock or bond) to go out of business, become bankrupt, or be unable to pay back their bond obligations. Recent high-profile bankruptcies like Wirecard (2020), and FTX (2022) show how business risk can severely impact investors

Opportunity risk (cost) – When you are presented with a better investment option than the one to which you have committed your money, it is called opportunity risk. For example, locking funds in a low-interest savings account may prevent you from investing in high-growth stocks or emerging markets. Because you are already tied up in a project, you cannot act on a new opportunity and you potentially lose profits.

Credit risk – Credit risk is a specific risk for bondholders where the bond issuer cannot make interest or principal payments.

Market risk or Systematic Risk – The uncertainty and movement of financial markets is called market risk. This type of risk affects all securities in the same asset class in a similar manner. Changes in interest rates, tax base, and other factors, all affect the potential return on investment. Some events that can increase market risk include: natural disasters, major policy changes, and events that can impact the overall market, like the COVID 19 pandemic had affected the overall markets worldwide.

Idiosyncratic risk – The risk that an individual investment holds by itself (e.g. the risk of holding a single stock of a company).  This type of risk can be eliminated by diversifying your investments.  The more diversified your investments are, the closer the idiosyncratic risk goes to zero.

Reinvestment risk – This risk mainly applies to those bondholders whose bonds are coming due and who are seeking a bond investment with equal or greater interest and with the same amount of risk. If they are unsuccessful, their income can be reduced or they may have to invest in riskier bonds.  With interest rates fluctuating, investors now consider alternative reinvestment options, such as dividend-paying stocks, structured products, or inflation-linked bonds.

Political risk – Government action that might change the value of the investment is a risk that must be considered. Recent examples include Brexit (which impacted European trade and financial markets), U.S.-China trade tensions, and new regulatory policies on cryptocurrencies, which have influenced global investment strategies.

The relationship of risk and earning capacity

Before you start investing, it is critical to understand the relationship between risk and return. There are different types of investments, each associated with a level of risk and return. Risk is the chance that the return from an investment will be different than the one expected. Low risk is usually associated with low potential returns while high risk is associated with high potential returns. You can choose the level of risk you feel comfortable with which will come with a comparatively similar return on investment.

Risk and return have a correlative relationship, or at least they should if you are getting a good deal. If you are investing in something that carries a low level of risk, then you probably cannot expect to earn very high returns.  The opposite is true of high-risk ventures. In that case you would expect higher returns in exchange for risking your money.

For instance, if you invest your money in a brand-new company that has no proven track record, that investment is high-risk. The company could easily go out of business, and you would lose everything. On the other hand, it could be highly successful, in which case you would make a lot of money. Today, high-risk investments also include venture capital, early-stage technology startups, and cryptocurrency projects, where investors take on significant risk in hopes of major returns. The rise of crowdfunding platforms has also made it easier to invest in small businesses and innovative projects, but due diligence is crucial.

There are a lot of different investments out there, so when presented with different investment opportunities you should make a list of possibilities and evaluate the advantages and disadvantages of each one, together with a financial advisor or knowledgeable person you trust. Weed out any investments with overwhelming “cons,” and zero in on the best investments for your budget and goals.

Action Steps – Exercise 4 (10 minutes):

Ask students to discuss any examples they know which demonstrate the relationship of risk and earning capacity, for example if they know of any startups which ended up giving a high return to their investors or which have gone bust and their investors lost all their money.  Have a discussion on the given examples with the whole class.

Your investment advisor

Your investment advisor plays a vital role in the success of your investment plans.  You need to exercise great care when choosing your investment advisor since this is the person who will be guiding you on how to achieve the financial results you need to attain financial freedom. With the rise of fee-based advisors, robo-advisors, and fiduciary financial planners, it’s essential to understand different advisory models and choose one that aligns with your needs

The best advice that we can give you, is to educate yourself on basic financial and investment concepts so that you are in a position to evaluate the advice given to you and make financially sound decisions. Resources such as online courses, financial podcasts, investment newsletters, and AI-powered financial tools can help deepen your understanding. We reiterate that, basic financial knowledge can really save the day when it comes to financial decisions with a lifelong impact. By being aware of the basic principle that the riskier the investment, the higher the potential return, you will be able to make educated financial decisions.

Types of investments

When you start investing, you may need to educate yourself on the different investment options available. To be able to choose amongst different investments you need to have some knowledge about the different investment categories and their characteristics. The most common types of investments are grouped into several general categories: ownership, lending, cash equivalents and funds.  We set below some basic information on all four groups of investments.

1. Ownership Investments

Ownership investments are considered the most volatile and profitable class of investment.  When you purchase an ownership investment or equity, as it is alternatively called, you own an asset or part of it. You expect the value of this asset to increase, thus giving you a return on your investment. The value of the asset is determined by fluctuations of its relevant market. Some examples of ownership investments are:

a. Stocks

When you own stock in a company, you partially own the company and have a right to a portion of the company’s value. For example, if you owned 10,000 shares of a company that has 1,000,000 outstanding shares, you would own 1% of that company.  You can profit by how the market values the asset you own. If the company makes a big profit, investors will want to own its shares, driving up demand for them and thus increasing their price. You can profit by selling your shares at a higher price than the price you bought them or by receiving dividends on the shares included in your investment portfolio.

b. Business ventures

Putting money in a new or existing business, is an ownership investment with potentially high returns. People such as Bill Gates of Microsoft and Elon Musk of Tesla have made huge personal fortunes by creating products and services and selling them to the market through their own businesses.

c. Real Estate

Buildings that you buy to rent out or repair and resell are considered ownership investments.  The latest financial crisis followed by the housing market crash is a good illustration of the risks associated with investing in real estate. The house you purchase to live in is not considered an investment, as it is not purchased with an expectation of profit. Investors who want exposure to real estate but prefer not to manage physical properties often choose Real Estate Investment Trusts (REITs) or tokenized real estate, which allows fractional ownership of properties via blockchain technology.

d. Precious objects and collectibles

Precious metals and stones, art and collectibles, if bought with the intention to resell for profit, can all be considered ownership investments. There are risks associated with owning these investments since if you don’t take good care of them, they might be damaged and depreciate in value.

2. Lending Investments

Lending investments usually bear a lower risk than ownership investments and have lower returns as a result. If you choose to invest in a bond issued by a company, you will receive a set amount over a certain period, while if you choose to invest in a stock of the same company, you might get double or triple the money or lose all of it if it goes bankrupt.  In case of bankruptcy, bondholders usually still get their money and the stockholder often gets nothing.

a. Your savings account

The money you deposit in your savings accounts are essentially being lent to the bank, which loans it out to other people. The low return you get is associated with the minimum risk you have since deposits are protected up to a certain amount by authorities such as the FDIC in the USA. In recent years, high-yield savings accounts and online-only banks have offered better interest rates compared to traditional banks.

b. Bonds

Bonds are basically debt obligations, a form of borrowing money. The issuer of the bonds receives money which has to repay over time, including periodic interest that has to be paid to the lender. The risks and returns will depend on the financial status of the issuer of the bond and type of bond, but overall, lending investments are considered lower risk and have a lower return than ownership investments.

3. Cash Equivalents

Cash equivalents are investments that can be readily converted into cash and are characterized as low-risk, low-return investments. There are different types of cash equivalents such as treasury bills, commercial paper, marketable securities, money market funds and short-term government bonds.

4. Funds

Mutual funds, index funds, and ETFs can help investors diversify their portfolios.

a. Mutual Funds

Mutual funds are funds operated and actively managed by an investment company. The money is pooled together from various shareholders and then invested in different stocks, bonds, options, commodities, or money market securities. Mutual fund managers buy and sell stocks on a regular basis and try to deliver returns that beat the overall market performance. Today, some mutual funds are managed using AI-driven algorithms or robo-advisors, optimizing asset allocation based on market conditions.

b. Index Funds

An index fund is a type of mutual fund whose portfolio is designed to track the components of a market index and can give investors increased diversification, broad market exposure, and low operating expense. Examples of indices that index funds mimic are: the S&P 500, the NASDAQ 100, the Wilshire 5000, and the Dow Jones. Index funds are not actively managed, they just mimic a particular market index and as a result they have lower costs.

c. ETFs

An ETF (exchange traded fund) is a security that tracks a basket of assets like a commodity, sector, index, or other area. It acts similarly to an index fund, but trades like a stock. Examples include S&P 500 ETFs — called “spiders” — and Wilshire 5000 ETFs — called “vipers”.

The stock market

The stock market is a market for trading the stock of companies and other financial securities and offers investors the opportunity to reap rewards, but there is also an associated risk. Although any investment carries risk, education, experience, and a trusted team can help you achieve successful returns on your investments.

The stocks of public companies are listed and traded on stock exchanges. The stock of U.S. companies can be listed on several different exchanges like the New York Stock Exchange (NYSE), NASDAQ, AMEX, etc.

During trading, stocks are bought and sold by bidding. When the bid price (price at which a buyer is willing to buy) and ask price (price at which a seller is willing to sell) match, a sale takes place. This means that prices can fluctuate day-to-day and the worth of the stock you own can change, depending on the demand for the company’s stock. The stock market moves based on prices at which people are offering to purchase a stock.

A stockbroker is usually the middleman in any transaction who sells or buys stock on your behalf. In addition, stockbrokers may also offer advice to their clients on which stocks to buy. However, with the rise of commission-free trading apps (such as Robinhood, ETRADE, and Interactive Brokers), many investors now trade stocks independently. Robo-advisors also offer algorithm-based investment recommendations, reducing the need for human stockbrokers in certain cases.

Street talk

Wall Street has its own ‘language’ and it is good to be aware of it so we set below a few of the most common terms:

• Share — A share is an ownership unit of a company issued to shareholders.
• IPO —Initial Public Offering (IPO) is the first sale of a corporation’s common shares to public investors. The main purpose of an IPO is to raise capital for the corporation.
• P/E Ratio —The price/earnings (P/E) ratio represents a stock’s present price in relation to its per share earnings from the past year.
• Moving Averages —Technical investors look at charts and evaluate the stock price in relation to the average of a stock’s closing price for a specified number of previous closing prices. This can indicate whether the stock is moving up or down – which is important for analysis because once a stock starts moving in a particular direction, it tends to gain strength and continue moving in that direction.
• Volume — equals the daily number of traded shares of a particular security. This is another indicator since increased volume on increasing prices shows accumulation; Increased volume on lower prices shows distribution. Price/volume relations can determine which way a stock will move.
• Consolidation —occurs when a stock pulls back after a move up or down, and temporarily trades in a narrower range on lower volume.
• Odd Lot — order to buy or sell less than 100 shares of a stock.
• Stop Loss —This is a sell order placed under the current stock price to limit losses in case a stock price goes down. For example, your stock is currently at US$20. You want to sell if it drops to US$18, so you would simply put a Stop Loss order in at US$18. The stock is sold automatically once it reaches that level. Investors also use trailing stop orders, which automatically adjust as stock prices rise, locking in profits while protecting against sudden downturns. For example, if you set a trailing stop at 5% below the stock’s highest price, and the stock rises to $25, the stop-loss moves up to $23.75 (5% below the new high). This strategy helps maximize gains while limiting losses.
• Bull Market – A period of generally rising share prices which encourages buying. The start of a bull market is marked by pessimism. The feeling of despondency though, changes to hope, optimism, and eventually euphoria, as the bull runs its course.
• Bear Market – A period where share prices are falling and where selling is encouraged. A bear market is typically shrouded in pessimism and the economy typically slows down.
• Market Correction – Corrections are generally temporary price declines interrupting an uptrend in the stock market. A correction has a much shorter duration than a bear market.

The real estate market

Home ownership provides a number of benefits, but like all major purchases, buying property takes planning. Before buying property, you should assess your credit score, debt-to-income (DTI) ratio, mortgage pre-approval options, and interest rates to determine how much you can truly afford. With rising property prices and evolving lending standards, understanding modern financing options such as adjustable-rate mortgages (ARMs), FHA loans, and down payment assistance programs is crucial. Financially successful people are the ones who make sure they can really afford a purchase before they buy.

The benefits of property ownership.

• Leverage — As a property owner, you have the ability to control a property of greater value than the cash you originally invested. You gain leverage by borrowing money and controlling a much bigger asset than the money you have originally paid.
• Equity Growth — Paying down the principal balance regularly gives you a steady equity growth. Each time you make a mortgage payment you pay down a portion of the balance you owe.
• Tax Benefits — Real estate owners have many available tax benefits.
• Appreciation — Appreciation is a real estate term for the increase in value of land and buildings. If you purchase a house for US$200,000, for example, and the property appreciates 10%, the value of the house is now US$220,000. If it appreciates 10% again the next year, the value grows to US$242,000.
• Higher Return on Investment Potential — Given the leverage real estate investment offers, and the fact that your investment appreciates on the total property value, your ROI could be much higher than in other investments.
• Cash Flow — Rental property owners generate cash flow via monthly rental income they collect from

The risks of real estate investing:

• Liquidity — Selling a property can take years, depending on the market conditions. When the market is strong, the average time to sell in most communities is two to six months. In bad market conditions, the property can be listed for years before it
• Change in Loan Market — Lenders can change their rules at any time. Changes in loan terms affect future buyers and the ability to sell the property. For example, rising interest rates or stricter lending policies can reduce affordability and slow down property sales. Understanding mortgage rate trends and credit availability is crucial for long-term investment planning.
• Market Conditions — Fluctuations in market conditions can quickly change the value of real estate. It’s important for property owners to view the long-term market outlook.
• Maintenance— Property repairs can be quite costly. You need to have enough money saved and the right insurance so that you’re adequately prepared for Many investors also consider hiring property managers for rental properties to handle maintenance and tenant issues. Additionally, landlord insurance and home warranties can help mitigate unexpected repair costs.

Breaking It Down

This is a sample budget for purchasing a home. You should understand the importance of budgeting and being financially prepared before purchasing a home.

Here’s an example of potential costs to include in your budget:

 

 

 

 

 

 

Purchase price	US$100,000
Down payment at 10% of purchase price	US$ 10,000
Monthly Costs Mortgage payment (based on €90,000 at 6.5% interest)	US$        874
Property tax	US$        105
Insurance	US$          40
Maintenance	US$          45
Total monthly payment	US$   1,064

 

Some costs — like taxes and insurance — may increase or decrease. You must budget out a few years in advance when considering the cost of home ownership.

Investment diversification- do not put all your eggs in one basket!

What would happen if you had all your money in real estate and the real estate market collapsed?  Sounds familiar right?  During the Great Recession of 2008 in the U.S. this is exactly what happened with real estate values going down by a staggering 30% plus! More recently, the COVID-19 pandemic and the 2022 stock market downturn demonstrated how unexpected global events can cause major asset declines. This is why diversification is essential—it protects against market shocks by balancing risk across different investments.

Most top investment advisors will recommend that you diversify your investments to protect you from losing everything. Diversification means that you put your money into several different types of investments that are unlikely to all move in the same direction. In today’s market, investors not only diversify across stocks, bonds, and real estate but also consider alternative assets such as commodities (gold, silver), cryptocurrencies, REITs, and hedge funds to further balance risk and return. For example, you might spread your money across stocks, bonds, and real estate. When the value of one investment goes down, one of the others might go up, so you either have better returns or reduce your overall losses.  Furthermore, by diversifying your portfolio, you remove any form of idiosyncratic risk which is the risk associated with a single stock.  For example, if you hold a single stock of let’s say Tesla, you bear the risk of the Tesla stock price falling.  When, on the other hand you own 100 different stocks, including Tesla, the risk that you bear when the Tesla stock price falls is negligible given that you have 99 more stocks in your portfolio of investments.  Even diversification within a single sector (e.g., only tech stocks) is risky, as entire sectors can experience downturns. A common approach is investing in sector-diverse ETFs (exchange-traded funds), which provide broad exposure while reducing individual company risk.

Diversification can be an important step towards developing a successful investment formula and a winning portfolio. Your investment advisor can help you make qualified diversification decisions. You should consult with your advisor about how best to spread your money around to reach your long- term goals.  Let’s look into the four different types of diversification:

• Diversification BETWEEN different asset classes; i.e. real estate and shares. When you allocate assets into different asset classes such as shares, real estate, cash, bonds, etc. you balance risk and potential rewards.

 

• Diversification WITHIN an asset. For example, real estate can be diversified between owning residential and business properties or, investments in shares can be diversified between large established companies and small start-ups.

 

• Diversification ACROSS industries, countries and currencies around the world. When you allocate your shares portfolio across different industry sectors you will be able to monitor and balance the impact of each industry sector on your portfolio.  Also, spreading your equities across different countries and currencies, contributes to risk balancing and potential maximization of returns. However, global diversification comes with risks such as currency fluctuations and geopolitical instability (e.g., trade wars, sanctions). Investors can use currency-hedged funds or forex strategies to manage these risks.

 

• Diversification ACROSS time; just keep adding to your investments systematically over the years and you will increase your returns while reducing your risk. This is called Dollar Cost Averaging and it is an investment technique through which you buy a fixed dollar amount of a particular share on a regular basis, regardless of the share price. Many investors use automated investing apps (such as M1 Finance or Wealthfront) to implement DCA strategies effortlessly. In the cryptocurrency market, DCA is also commonly used to accumulate Bitcoin and other digital assets while reducing the impact of volatility. There is no generic diversification model which can be a perfect fit for every investor.  Each investor has different characteristics which should be considered when forming a diversification strategy.  These characteristics include the investor’s financial goals, time horizon, risk tolerance, investment expertise, need for liquidity, etc. For example, a retired athlete’s investment horizon may be 5 or 10 years whereas a rookie athlete’s time horizon may be 20 or 30 years.  Also, a mature athlete is naturally less of a risk taker given that their investment time horizon is limited.  So, diversification is not a one-fit-for-all strategy, nor a one-time task.  A proper diversification strategy should always align with your particular circumstances and characteristics; it should be continuously monitored and periodically adapted to make sure that it continues to make sense.

So, remember:  A proper and flexible diversification strategy, periodically adapted to your changing needs, is the key to building a successful investment portfolio and ultimately achieving your financial goals.

Becoming investment prepared:  Go through the investment checklist!

Through investing, you are getting your money to generate more money and over the long term, you benefit from potentially higher returns than you get from a savings account. Today, automated investing platforms, robo-advisors, and AI-driven financial planning tools make it easier than ever to create a customized investment strategy. With a proper investment strategy, you can use your money to build up your assets and use them toward the major financial goals you have set, such as buying your dream home, buying your dream car, starting your own business, or having a financially comfortable retirement.

Investing is not simple and requires investors to be constantly educated and informed on the variety and complexity of investment vehicles available. If you choose for example to invest your savings in the financial markets, you have the opportunity to benefit when companies perform well or if you choose to buy and sell real estate you can benefit from their increase in value.  Additionally, alternative investments such as REITs, cryptocurrencies, and peer-to-peer lending platforms provide further diversification opportunities. The investment opportunities are almost endless. Today, investors can also enhance their financial literacy through online courses, investment simulators, and AI-driven research tools.

To figure out if you are ‘investment ready’ we suggest you go through the following checklist which will give you an indication regarding your readiness to become a first-time investor.

• Before you consider investing, be sure to have 12 months’ worth of expenses put away in your emergency fund.
• Be free of credit card debt and have a working budget in place that allows you to save money each Use budgeting apps like Mint, YNAB, or automated savings tools to track spending and optimize cash flow. A strong credit score also improves access to better investment financing options.
• Only use risk capital for investments. Risk capital refers to money that you can afford to lose without putting you in dangerous financial circumstances
• Have a team of trusted advisors and mentors at your disposal
• Gain knowledge on the types of investments you are considering by conducting due diligence research
• Determine the risk and potential reward. All investments have a certain amount of risk and reward. Ideally, you want to earn the highest return with the least amount of risk
• Have an exit plan in place in case the investment doesn’t go as planned

Structuring wealth in view of a short sports career

Being a young athlete, one could suggest that all you should care about is performing your best in the field – an utterly mistaken perception that can be the root of a financially disastrous life for professional athletes. Financial planning and wealth management should be at the core of an athlete’s mind throughout their career. The average athlete has a career of about 10 years, depending on the sport they play, and assuming they’re not forced to involuntarily retire. This suggests that while you’re an athlete, you need to plan your wealth in a way that you’ll be able to continue living a comfortable lifestyle for the next 30-40 years. It’s not as hard as it may sound, assuming you have a plan that will enable you to take the right actions, at the right time, in order to be financially covered for the rest of your life.

Establishing the Plan

At the very early stages of your career, even before you’ve signed your first contract, it’s important that you sit down with a competent financial advisor and set the parameters that will shape your sports retirement fund. Many athletes also turn to specialized wealth management firms that focus on sports professionals, offering tailored financial planning, tax strategies, and investment guidance. The most important information that you need to form such a plan is the number of years you expect to be earning the income of an athlete. Once you estimate that, figure out how much of that money you can set aside each year for investing. Together with your advisor, you can set up a retirement fund which will consist of both savings for retirement, as well as long-term investments that will be generating constant income for the rest of your life.  It would be wrong to say that there is a fixed percentage that needs to go towards savings or investments because every athlete’s career is very different.

After you share all the relevant information with your advisor, such as the expected time span of your career, the value of your initial contract, and your future plans, your advisor can help you tailor a plan towards achieving a financially successful retirement.

Executing the Plan

Once you’ve established your plan of action together with your financial advisor, it’s up to you, the athlete, to faithfully follow that plan. As a young athlete, you tend to believe that money will never be a problem once you go into professional sports.  Good news is: professional athletes tend to make more money than the average employee throughout their career, but the money is more concentrated and it’s up to the athlete to spread them out throughout their lives. This is what makes the execution of your plan highly important. Every time athletes ignore the plan and spend excessively without accounting for retirement, they are essentially stealing from their future self and family.

Plan B and involuntary retirement

As mentioned above, athletes, based on the sport they practice, have a certain number of years during which they will generate income and that income should be able to sustain them for the rest of their lives. What happens though when you find yourself forced to retire earlier than planned due to the circumstances? Put simply, what if you have a serious injury half-way into your career that prevents you from playing? What happens to your retirement plan? Indeed, things can get more complicated in the case of involuntary retirement but yet again, with the right precautions, an athlete can survive and still have enough money to restructure their lives and switch to other career paths.

A simple precaution that an athlete could take is to create a ‘Plan B Fund’ where the athlete will save the required amount to pursue a specific college degree or start a business idea. By having the capital to invest in your education or in the opening of any other business, you already have an exit strategy towards another career. Of course, this is by no means an ideal path but as an athlete, given the nature of your professional career, you should always have a plan B to cater for the case of involuntary retirement.

The circumstances and characteristics of your life as an athlete necessitate that you start structuring your wealth during the early days of your sports career.  Ongoing financial education, adapting to new investment opportunities, and continuously reassessing your wealth strategy will help ensure financial security long after your sports days are over.

Action Steps – Exercise 5 (10 minutes):

Complete the following quiz to test what you took away from today’s lesson.

1. Although financial freedom can have different meanings, a standard definition would be:
   1. A millionaire who has invested in multiple industries
   2. You have readily-available cash. In other words, you have highly liquid assets
   3. You are able to have the lifestyle you want, knowing you can afford it financially, without worrying about making ends meet
   4. You are free from financial obligations altogether 
2. A positive indirect effect of investing is:
   1. You are protected by a rise in interest rates
   2. You will definitely earn high returns on your investment
   3. You are protected by a drop in interest rates
   4. You don’t have to worry about taxes 
3. Passive Income is earned through work, while Active Income is earned without your work effort
   1. True
   2. False 
4. Which of the following statements is false in relation to investing?
   1. Important to financial success is following a consistent, long-term investment plan
   2. You should have your emotions in check
   3. You should always invest in the stock market 
5. In short, a Ponzi scheme is an investment fraud where people invest and their return on the investment is paid from the money of new investors
   1. True
   2. False 
6. Which of the following is NOT a risk associated with investing?
   1. Interest rate risk
   2. Credit risk
   3. Roaming risk
   4. Liquidity risk 
7. Which of the following should NOT be among your primary concerns when evaluating an investment?
   1. The pros and cons associated with the investment
   2. Your budget
   3. Your goals (short-term and long-term)
   4. Your friends’ recommendations 
8. If you manage to get a good financial advisor then you should delegate everything to them.
   1. True
   2. False 
9. If a company that you have invested in, increases its profit then that means that your stocks will increase in value because their demand will rise (as a result of rising profits)
   1. True
   2. False 
10. What are mutual funds?
    1. Type of prenuptial agreement
    2. Business fraternities
    3. Funds operated and actively managed by an investment company
    4. Type of stock 
11. The stock market could be defined as a market for trading the stock of companies and other financial securities
    1. True
    2. False 
12. Which of the following is a benefit associated with property ownership?
    1. Liquidity
    2. Maintenance
    3. Tax benefits
    4. Changes in loan market 
13. Diversification can take different forms. Choose all that apply
    1. Diversification between different asset classes
    2. Diversification within an asset
    3. Diversification across cities
    4. Diversification across time 
14. Adaptability is key to diversification
    1. True
    2. False 
15. Choose all that are part of the Investment Checklist:
    1. Have an exit plan in place
    2. Only use risk capital for investment
    3. Have an emergency fund of at least 36-months’ worth of expenses available
    4. You should always have your lucky charm with you

 

Answer sheet:

1.      c	6.  c	11.a
2.      c	7.  d	12. c
3.      b	8.  b	13. a,b,d
4.      c	9.  a	14. a
5.      a	10.c	15. a,b

 

Lesson wrap-up

In this lesson we have covered the basics of investing so as to give student athletes the necessary knowledge to make sound investment decisions.  We have explained concepts such as diversification of investments, the relationship between risk and investment potential and we have also presented various investment options along with their pros and cons.  We believe that this lesson has given student athletes a comprehensive overview of how investments work and how they can get prepared to start investing.

At this point the instructor should go over the learning outcomes stated at the beginning of the lesson and take questions from student athletes.  An open discussion on the concepts taught and how they relate to the student athletes and their greater life plan should be encouraged.