When professional athletes make it big, they often find themselves faced with a sudden influx of wealth. Unfortunately, many of them lack the necessary financial education or guidance to handle their newfound fortune responsibly. They are particularly vulnerable to bad financial advice for professional athletes. As a result, they become vulnerable to bad financial advice and practices that can have long-lasting negative impacts on their finances.
Let's take a closer look at some examples of the bad financial advice that professional athletes might encounter along their journey to financial stability.
1. Investing in Trendy Ventures
Some people get lucky on the market and ride that wave to great financial success. Those success stories are few and most fail. Investing in unvetted, trendy ventures can be a risky proposition for pro athletes—it’s not a sound investment strategy. Financial advice for professional athletes should come from a trusted source with expertise to back financial decisions.
We've all heard the stories of "can't-miss" business opportunities that turn out to be nothing more than money pits. It's not uncommon for financial advisors for professional athletes to get caught up with what's trending and not look at the bigger picture. Torii Hunter invested $70,000 in an inflatable raft for furniture to protect them during floods. The product idea itself was terrible, but even after investing his initial $70,000, he was asked to invest more before he even turned a profit.
Thankfully, Hunter spoke with a financial planner for professional athletes and realized this was a scam. He lost his money, but could have been financially ruined if he continued to fund this “invention.”
2. Leaving Everything to the Experts
While financial advisors for professional athletes should be giving you solid advice about your financial goals, no one should aim to be financially illiterate. Avoiding financial education is only going to lead you to poor decision-making. Given the unique financial trajectory of professional athletes, it's imperative that you receive sound financial advice based on your situation.
Falling for any of these bad pieces of financial advice for professional athletes can jeopardize your financial well-being, both during your playing years and long after you've retired from the sport.
To avoid this, athlete financial advisors should be working with clients to ensure they understand their finances. You should be involved and understand how your finances work because it's your money.
Financial planning for professional athletes should be focused on long-term financial goals. You don't have to be skilled in the technical details. You should understand your financial strategy, cash flow, budgeting, and retirement plans.
3. Cosigning Loan for Friends and Family
Professional athletes are often targeted by close friends, family, and associates to offer financial assistance. While it's great to want to help the people who helped you to become successful, it means you are at a higher risk of being taken advantage of.
Cosigning loans for friends and family can be a tricky situation that many people find themselves in. The pressure to help out a loved one financially can often cloud our judgment.
When you cosign a loan, you are essentially responsible for repaying the debt if the borrower fails to do so. This means your credit and finances are at risk if the borrower defaults on their payments. Even if you trust the person you're cosigning for, unforeseen circumstances or financial difficulties can arise, leaving you in a difficult position. The excuse will always be that you can afford it, but this is poor financial advice for professional athletes to follow.
4. Focus on Your Passion Only
The lack of diversification in athletes' investments and ventures. It's no secret that athletes have the potential to earn significant amounts of money during their careers. However, putting all their eggs in one basket can be a risky move.
Curt Schilling is an example of how risky this can be. He believed wholeheartedly in his video game company, 38 Studios, and invested everything he had in it. His dream was to build a company that could rival Mircosoft and make himself as rich as Bill Gates.
However, he never delivered a single product and his company never generated any revenue. Ultimately, it failed and he lost everything. By focusing solely on one type of investment or venture, athletes expose themselves to unnecessary risk and potential financial setbacks.
Diversification is key when it comes to managing wealth and ensuring long-term financial stability.
Get Financial Advice from a Trusted Source
You should get your financial advice for professional athletes from a trusted source. With Asset Preservation Wealth and Tax, you are working with a firm that handles everything from tax planning to retirement strategy. Our experts are here to help you create a tailored strategy for your financial success.
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
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