There are several things that professional athletes need to do to manage their wealth. Some of these are money management, asset management, and tax planning. Other tips include establishing a budget and investing for long-term growth. Hopefully, these tips will make wealth management for professional athletes easier. For more information, read the article below.
Money management
Professional athletes can have multimillion-dollar contracts, and their money management strategies should reflect these peaks and valleys. Most athletes sign their first employment contracts as instant millionaires, but a middle-income athlete can learn from how professional athletes manage their money. Many financial challenges that plague middle-income athletes are also common to pro athletes. But with careful planning, athletes can avoid common pitfalls and build a successful portfolio. Here are some tips for athletes to manage their money wisely:
First, athletes should understand their investments. A good wealth management service should have a proven track record in managing athletes’ finances. Diversify your investments. Many professional athletes allocate too much money to private equity and other riskier investments. Choose stocks, real estate, and other tangible investments to diversify your investments. You might be tempted to invest everything in stocks, but it’s not wise if your career is uncertain.
Asset management
Unlike a typical white-collar professional, pro athletes’ careers are very short, and the peak years of earning are often much earlier than the rest of their age groups. In the National Football League, the average career spans about two and a half years, though it can be shorter or longer depending on skill level and position. Moreover, an athlete’s wealth management must consider that his career is likely to end sooner than expected due to various reasons. For example, injuries can end a career prematurely, and teams have been known to cut players without warning. Thus, managing risk is vital.
When managing their wealth, athletes should consider diversifying their investment portfolio to include private equity and real estate, with a large percentage invested in public securities. Athletes should diversify their investments since many allocate too much money to private equity. Additionally, they should consider the volatility of their salaries, as the risk of significant losses during their early years is high. While sports stars often exhibit a propensity for tangible investments like real estate and private goods, these investors should seek advice from a professional wealth management service.
Tax planning
The tax planning challenges of professional athletes are unique and must be considered before signing a contract. Many players pay taxes in multiple states. The state where they play the sport allocates the signing bonus, but the athlete should know how to manage his taxes before signing the contract. While the average salary of a professional athlete varies widely, the overall approach to wealth management should be similar for all athletes. The athlete must create a realistic budget and factor in cash-flow considerations. Since the athlete’s earning period is typically shorter than the average career, it is critical to ensure positive cash flow through their entire career and into retirement. Working with an accountant to create an effective tax plan is essential.
Investment strategies
If you’ve ever wondered what it takes to invest in the stock market, consider investing like a professional athlete. These athletes are more disciplined than the average investor. They practice making three-pointers and raising the bar, both risky, so that they can succeed in their field. But how do they apply those tactics to investing?
First, they need to make sure that they invest as a diversified portfolio. Because athletes’ career arcs are relatively short, they should spread their risk among different assets. They should avoid investing in just one asset, as this could put them at risk of experiencing disproportionate losses. The same goes for taxes. The athletes should use all available tax wrappers, including mutual funds, and seek independent financial advice to maximize their potential.
