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How and Why Athletes Go Broke (2009)

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Re: How and Why Athletes Go Broke (2009)

#171

Post by kazinator »

pascalxus wrote: post #123

At the end of the day, it's the same reason most people go broke: they know nothing about money. Unfortunately, Money is the most important thing in the world because you can't get anything without it. And yet, it's not even a primary subject taught in k-12. Where are people supposed to go for a decent financial education? Instead k-12 teaches kids about useless butterflies and countless other things that are of less…

> they know nothing about money.

Oh, I think they probably know the basics.

They know how percentages work well enough to know that they could take all that money and put it strictly into safe investments, and get a considerable, steady cash flow from that, on which a more than comfortable life is possible.

Any rank and file financial advisor at a local bank branch could set them straight on the basics, if they want.

Come on, just half a percent earned on $100M is $500,000; total no-brainer.

That's boring though; they want to substantially multiply their wealth. They want to take their dough and blow it sky high. E.g. guy who has a $100M million put away thinks he can turn it into a $1B empire.

It's like another sport; scoring another goal.

In some ways, taking the risk makes sense (just not to the point that you go broke). Say you have that example $100M, and you could earn 0.5% on it for the rest of your life. Well, whoopee; why would you? You could simply draw 500,000 a year from that for 200 years, even if it earns nothing. (Let's ignore inflation and all that for simplicity.)

So you can see why the lower-yield safe things are not attractive if you have a lot of money.

I think these guys just fall victim to a "go big or go home" thinking. Plus they probably think that they have so much money, they don't have to keep tabs on exactly how much.

Also, while they have those high paying contracts, they think that their income can always save them.

Re: How and Why Athletes Go Broke (2009)

#172

Post by freddie_mercury »

magnetic wrote: post #165
hinkley wrote: post #138

Earlier quoted context omitted.

It is sobering math to figure out that a million dollars is only about $25k a year for the rest of your life. A million bucks will make the rest of your life easier as long as you don't 1) spend it all and 2) don't make yourself unemployable (injury, bad PR, etc)

How are you computing that? Perhaps you are forgetting that an investment still grows while you are withdrawing from it? Here is a calculator that helps you compute how much you can actually pull from it: https://www.money-zine.com/calculators/retirement-calculator... If you set the initial variables to: - Retirement age 40 - Life expectancy 83 - Annual Return 7% (typical of stocks) - zero out everything else (no pen…

This is not a good way to calculate it because it ignores volatility of the investment. There are decades of publications in the topic of sequence of returns and the impact on retirement.

$25,000 is likely a little too low but $70,000 is way, way too high.

Most people who've done research agree that something like $25,000 to $35,000 a year from $1,000,000 is reasonable for someone retiring extremely young.

Re: How and Why Athletes Go Broke (2009)

#173

Post by rfeather »

cm2012 wrote: post #167
grahamburger wrote: post #163

Earlier quoted context omitted.

I'm pretty sure your experience is pretty normal for the US. Lots of people forget that they had several classes that taught basics of personal finance, few people actually didn't have those classes.

I didnt

Ditto.

Re: How and Why Athletes Go Broke (2009)

#174

Post by jordancrane »

Baeocystin wrote: post #140
pascalxus wrote: post #123

At the end of the day, it's the same reason most people go broke: they know nothing about money. Unfortunately, Money is the most important thing in the world because you can't get anything without it. And yet, it's not even a primary subject taught in k-12. Where are people supposed to go for a decent financial education? Instead k-12 teaches kids about useless butterflies and countless other things that are of less…

Do you have any book recommendations? I have some younger relatives graduating from college soon, and although they are bright, I worry about their financial sense. I talk to them regularly, but something more concrete would likely also help.

I found JL Collins' "Stock Series"[1] of posts on his blog really helpful. He lays out a very simple investment strategy using low-cost index funds and talks about a lot of different investment vehicles in an easy to understand way. He also wrote a book on the same subject matter called "The Simple Path to Wealth". [1]http://jlcollinsnh.com/stock-series/

Re: How and Why Athletes Go Broke (2009)

#175

Post by notyourwork »

pascalxus wrote: post #123

At the end of the day, it's the same reason most people go broke: they know nothing about money. Unfortunately, Money is the most important thing in the world because you can't get anything without it. And yet, it's not even a primary subject taught in k-12. Where are people supposed to go for a decent financial education? Instead k-12 teaches kids about useless butterflies and countless other things that are of less…

MBA who doesn’t know what a tax deduction is? I call bullshit. I did a business minor and took finance, any business student would fake finance.

Re: How and Why Athletes Go Broke (2009)

#176

Post by alsetmusic »

talmand wrote: post #106
majormajor wrote: post #80

Earlier quoted context omitted.

In most of the US you can't even practice ice skating without paying money. Compare that to the number of basketball courts out there for pickup games, or fields where football could be played. It's not solely that the equipment costs more, it's that practice directly requires money, and practice time is the biggest overall driver of excellence. Professional race driving is another example of this. Tennis another not…

So the problem is lack of ice and not directly related to economic status? If one goes far enough north, or south, where ice is easily found for practice then the costs decline? So it's more where people choose to live versus the cost of the sport as a whole?

> So the problem is lack of ice and not directly related to economic status? If one goes far enough north, or south, where ice is easily found for practice then the costs decline? So it's more where people choose to live versus the cost of the sport as a whole?

Minors don’t choose where their parents live. If you’re getting drafted at 19 yrs of age, you’ve probably been playing since you were a kid. If you don’t live in a region with abundant natural ice, it will cost you money to skate.

Frankly, your comments comes across as the same type of empty criticism as that which often comes up when people complain about government: “If it’s really so bad, why don’t you just move to another country?” Easier to blame someone for where they live than to consider the challenges of relocating. Both criticisms are deliberately dim.

Re: How and Why Athletes Go Broke (2009)

#177

Post by notyourwork »

WalterBright wrote: post #105
ChuckMcM wrote: post #55

Earlier quoted context omitted.

Agreed, look at it from their perspective. They haven't been around a lot of money before, they don't have a lot of friends who have been around a lot of money either, so they don't really know even what questions to ask to understand the people who are arguing to be their financial advisors. Perhaps major league sports would do well to help train their athletes in the basics of financial management in order to help…

The best thing a person can do in such a situation is to put the money in a savings account, and then set about learning what to do. Nobody is going to have their best interests at heart but themselves. If you want to have money, you have to learn to manage it yourself. There's not really a choice about it. Also, hire a properly licensed CPA. Make sure to listen to his advice on taxes. Don't give him a financial ince…

Your replies are far too naive.

Re: How and Why Athletes Go Broke (2009)

#179

Post by hinkley »

magnetic wrote: post #165
hinkley wrote: post #138

Earlier quoted context omitted.

It is sobering math to figure out that a million dollars is only about $25k a year for the rest of your life. A million bucks will make the rest of your life easier as long as you don't 1) spend it all and 2) don't make yourself unemployable (injury, bad PR, etc)

How are you computing that? Perhaps you are forgetting that an investment still grows while you are withdrawing from it? Here is a calculator that helps you compute how much you can actually pull from it: https://www.money-zine.com/calculators/retirement-calculator... If you set the initial variables to: - Retirement age 40 - Life expectancy 83 - Annual Return 7% (typical of stocks) - zero out everything else (no pen…

That was clearly off the cuff. But we're here in the context of people with new money blowing it all, so let's stay there instead of imagining we're talking about something else.

First, start with the 25 number. We're talking about athletes here, they aren't losing their income potential at 40, they're losing it a lot earlier than that. There are 40 year old athletes, but we talk about them all the time because they're unusual, not because they're the norm.

Next, cut the rate of return. Like by half. Nobody with new money is that successful with their finances. That's why we're discussing this.

Now, I wasn't thinking about this too hard when I did the math in my head, but I do tend to round down pretty heavily when doing math for myself for a very particular reason: adjust down for inflation. Way, way down. The biggest fuckup people make when rationalizing their rate of savings or how great an investment their house is: by the time you get to use this money thirty years from now it won't be worth half of what it's worth right now. Present day you thinks 25k a year will pay your rent. 70 year old you will have to move to the middle of nowhere to say that. You won't want to do that. So double your withdrawal rate by 60 and almost again by the time you die.

Re: How and Why Athletes Go Broke (2009)

#180

Post by wutbrodo »

grahamburger wrote: post #163
QittyQat wrote: post #162

Earlier quoted context omitted.

I have a very vivid recollection of 8th Grade Civics units on personal finance, budgeting, and tax management. In this unit we were awarded a salary through a lottery system and had to learn to live within the means of our salary. Students would pair up and find homes to live in by reviewing ads in the newspaper. We would have to learn to set aside money for savings, groceries, and for fun. We also learned how to inv…

I'm pretty sure your experience is pretty normal for the US. Lots of people forget that they had several classes that taught basics of personal finance, few people actually didn't have those classes.

I went to private schools in CA and never had classes like these either.
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