“I went to my brother to ask for a loan …’cause I’m busted.” From “Busted” by Harlan Howard and Daniel Ticotin and recorded by Ray Charles
There’s a famous story, full of pathos, about Jim Thorpe, the man voted the most outstanding American athlete of the first half of the 20th century. Retired from his professional football and baseball careers, the tale features Thorpe standing in the rain outside a theatre in 1951 without enough money to see the picture. The movie that was playing? Jim Thorpe: All-American, starring Burt Lancaster.
Long ago athletes were admittedly not paid lucrative salaries, so a former athlete’s financial fall was not so astonishing nor so steep. But in this era of well-paid performers, the number of professional players who experience bankruptcy is stunning. Why does this keep happening?
There are a myriad number of reasons, including brief career arcs, poor tax planning, exorbitant personal spending habits and bad investment advice. And when athletes go broke, it’s big news. We seldom read about those who have wisely invested their assets.
I’m not a football enthusiast, but I read recently where former Florida Gator and current NFL star Joe Haden was offered a guaranteed 12 percent return when his investment advisor guided him into purchasing promissory notes from a firm called Success Trade. Turns out the arrangement was a Ponzi scheme, not unlike Alan Stanford’s 10 percent guaranteed CD returns from his Antigua bank. Success Trade is now barred from FINRA membership for the fraudulent sale of securities and must pay $13.7 million in restitution, mostly to current and former professional athletes.
Truthfully, though, it’s not just athletes who are vulnerable to grandiose investment schemes. Many of Bernie Madoff’s clients were sophisticated investors. The promise of stable, double digit returns was too enticing to bypass.
After all, if someone offered you a guaranteed 12 percent annual return on your investment, would you be interested? Sure you would. So would I. Unfortunately, if it sounds too good to be true, it probably is.
So if an advisor tells you, “You’ll never have a negative statement,” or “I guarantee this annual return,” it’s wise to reflect very soberly on your relationship. Investments do not always escalate in value, month by month, without interruption. Nor do they provide guaranteed returns.
You might also ask your advisor, “What was your clients’ average absolute return in 2008?” and “What defensive investments do you recommend to protect my assets if the market experiences a significant correction?” The idea is to have more up statements than down, and depending on your age, goals and risk tolerance, for your portfolio to reflect your particular investment needs. No player wins every game, and no investment arrangement can provide guaranteed returns.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.