Call it schadenfreude, but it is hard to look away from the riches-to-rags stories of professional athletes. Sports Illustrated has a great article on this topic (hat tip: Abnormal Returns), with some alarming statistics: An estimated 60 per cent of NBA players go broke within five years of retiring from the basketball league.
There are some lessons here for regular investors whose exposure to professional sports is limited to Sunday afternoons, on a couch. The article also serves as a booster for anyone who is bummed out over the performance of their own investments over the past decade.
Turns out, the stock market is not to blame for the financial troubles of these former athletes. Indeed, the stock market would probably have helped them. One financial adviser quoted in the story suggests well-heeled athletes allocate 5 per cent of their wealth to private equity, 7 per cent to 12 per cent to real estate, 50 per cent to 65 per cent to a mix of stocks and mutual funds, and the rest to alternative investments such as gold and hedge funds.
“Yet with athletes, who are often uninterested in either conservative spending or the stock market, those percentages are frequently flipped,” the Sports Illustrated article reads. “Securities are invisible, after all, and if you don't study them, they're unintelligible. Not to mention boring. Inventions, nightclubs, car dealerships and T-shirt companies have an advantage: the thrill of tangibility.”
