Taking the step from “saver” to “investor”

Despite the common (mis)perception, many professional athletes do a very good job of saving money. Perhaps too good, in fact. I’ve also come across many “traditional retirees” that have the same “problem.” What do I mean? I mean that they save a bunch of money (this is a great thing), but they don’t really have a plan for it (this is not ideal.) We know we need a Spending Plan. This will allow us to create savings. But we also need an Investment Plan. I come across this quite often as an advisor: an athlete makes a lot of money for a bunch of years, they know it won’t last forever, and they throw the vast majority of it in a savings account. And it sits there. And sits there. I’ll give you an example that is not a real person but is loosely based on real situations that I’ve experienced:

Alex the Athlete plays for pro sports for 8 years. He signed a couple of very nice contracts and ended making $20,000,000 over the course of his career. In year 8, this is where he finds himself: he has done a good job of saving a lot of that money and after taxes and spending he has $8,000,000 in his bank accounts. Over the years Alex has resisted the temptation to invest with different “pitch-men” that he’s encountered (likely a good decision.) But he finds himself at a point where he’s never really invested in much of anything and he knows he wants to put his money to work generating a return.

This situation lends itself to investment mistakes for two reasons: 1) investors become deal-hungry and eventually say “yes” to the wrong investment/deal/project 2) investors end up putting way too much of their net worth in said investment/deal/project – oftentimes a real estate project – and because they invest too much in one asset class (or individual project within an asset class), they miss out on proper diversification.

Real estate can be a wonderful investment vehicle. I am a real estate investor myself. But saving a boatload of money over the course of multiple years and then putting half of your net worth in an 8-unit condo project is not a recipe for investment success.

How do we remedy this situation? We don’t wait around for years and years to begin our journey as an investor. We start an Investment Plan at the same time we start a Spending Plan. One technique I use with clients is a bucket strategy that incorporates different classifications of money within our investment plan: short term money that is in a “Safety Bucket”, and longer-term money that is in a “Growth Bucket”. This is a simplified version but you get the picture.

The great thing about the person with millions in savings is that they have millions in savings. Here’s the not-so-great-thing about it: that money has no defined purpose, and when money doesn’t have a defined purpose it eventually gets put to work in a less than ideal way.

Give every dollar you earn a purpose. Each dollar is either going to be saved, invested, given, or spent.

It’s great to be a saver. It’s even better to be a properly diversified investor.

Let’s talk about an Investment Plan for you and your family.