Why don't ultra high net worth athletes just use a 3-fund portfolio?

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bigguy8437
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Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by bigguy8437 » Mon Aug 22, 2016 7:20 am

So I was looking around and reading the Wall Street journal this morning and read that Kobe Bryant and some guy unveiled a $100 million venture capital fund to invest in media and technology (http://www.wsj.com/articles/kobe-bryant ... 1471838403) This just got me thinking why do ultra high net worth athletes mess with their money or have their money invested in stuff like this where they have to worry about how their investment is doing everyday when they should be enjoying a nice retired lifestyle. Kobe Bryant has a net worth of $320 million. If he just invested half of that in the market he would gain 3.2 million in dividends. And with 5% returns he would earn 8 million a year. I guess if you have that much money and want to expand your investments feel free but for me if I had that much money I would just rather invest it in something like the 3 fund portfolio and not worry about it and collect 5+ million a year on modest returns with little risk.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by GoldenFinch » Mon Aug 22, 2016 7:32 am

Many aren't aware of the 3-fund way of investing, and many don't agree with it. Probably too boring. Also, many wouldn't be satisfied with the idea of the expected results. They want more, more, more.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by ERISA Stone » Mon Aug 22, 2016 7:34 am

Call me crazy but I don't think earning only $8 million annually on an investment would be appealing to someone worth as much as Kobe.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by Steve723 » Mon Aug 22, 2016 7:44 am

While I agree with your sentiment and would do something similar, you have to remember a guy like Kobe is still relatively young and just spent the last 20 or so years performing at the highest level of a craft that he can no longer do. And what was he left with? A case full of trophies and a huge pile of money. There isn't much he can do with the trophies, but all of that money sure opens up a lot of options for a Type-A personality, doesn't it? I think it would go against every fiber of his being to simply put it in a 3-fund portfolio and let it passively sit there.

Now Tim Duncan on the other hand......

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by bigguy8437 » Mon Aug 22, 2016 7:49 am

Tim Duncan was caught in a [bad - moderator prudent] situation. He trusted an advisor to invest his money well and the advisor forged checks under his name and he lost about 25 million

Also do you know how some people would rather a less paying job in exchange for less worry and stress and more perks like being able to work at home etc, instead of a higher paying job which causes a lot more stress, less time with family and friends, more travel but with higher pay? I feel like that sort of fits here with Kobe. He can maybe make more money investing this way, but he's going to have a lot more active investing and dealing with it everyday instead of just using the three fund portfolio and sitting back and letting the market go to work for him.
Last edited by bigguy8437 on Mon Aug 22, 2016 7:52 am, edited 1 time in total.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by simplesimon » Mon Aug 22, 2016 7:52 am

Steve723 wrote:Now Tim Duncan on the other hand......
This made me laugh. Duncan's probably all in muni's.

I wonder what Kobe's expenses look like. He was making $20MM+ a year for a long time...$8MM/year might not be enough to support his standard of living especially in LA. Duncan at least got used to living in San Antonio.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by bigguy8437 » Mon Aug 22, 2016 7:53 am

simplesimon wrote:
Steve723 wrote:Now Tim Duncan on the other hand......
This made me laugh. Duncan's probably all in muni's.

I wonder what Kobe's expenses look like. He was making $20MM+ a year for a long time...$8MM/year might not be enough to support his standard of living especially in LA. Duncan at least got used to living in San Antonio.
There's no way Kobe is making just 8 million still. I would say his sponsorship just from Nike is that per year

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by njboater74 » Mon Aug 22, 2016 7:56 am

As a PP mentioned, most people haven't even heard of the three fund portfolio, or the term 'passive investing', let alone high net worth individuals who are expected to have a money guy handle everything.

and world class athletes don't settle for average.
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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by simplesimon » Mon Aug 22, 2016 8:00 am

bigguy8437 wrote:
simplesimon wrote:
Steve723 wrote:Now Tim Duncan on the other hand......
This made me laugh. Duncan's probably all in muni's.

I wonder what Kobe's expenses look like. He was making $20MM+ a year for a long time...$8MM/year might not be enough to support his standard of living especially in LA. Duncan at least got used to living in San Antonio.
There's no way Kobe is making just 8 million still. I would say his sponsorship just from Nike is that per year
I just meant if he had a passive portfolio throwing off 4% in the example the OP mentioned.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by cfs » Mon Aug 22, 2016 8:00 am

Or they can do like Tito.

Some of them have tried to outsmart the market by investing ALL in government obligations, some in the wrong place, such as professional boxer Felix “Tito” Trinidad, investing over $63 million in now-worthless government bonds from Puerto Rico [as reported by the PR newspapers]. Good luck with your investments.

Thanks for reading. ~cfs~
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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by Strayshot » Mon Aug 22, 2016 8:08 am

This post could be titled "why don't professional athletes just use the three fund portfolio" or "why doesn't everybody just use the three fund portfolio"

The answer is, like the rest of us, athletes have little financial education and are targets for the swindlers and criminals in "the financial industry" except that because a majority are high-income they paint a larger target on their backs. I seem to remember that even the lowest paid NFL athlete made 300k+ but don't quote me on that.

There was a great documentary but I can't remember the name that went over NFL players and how many went into financial distress after their careers ended because of money mismanagement and difficulty finding gainful employment (especially after the physical damage to their bodies and minds.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by SQRT » Mon Aug 22, 2016 8:18 am

I think it is more complicated. You could very well ask the same question of somebody worth $20million? He has "won the game" so should stop playing and put everything into fixed income, right? Some people have a higher risk tolerance than others, want to spend money in amounts higher than some can imagine, want to leave a legacy, or simply enjoy the game.

This comes back to the issue of who can afford to take risk vs who needs to take risk. Those who can most afford it, need to the least. At least in the eyes of people with more normal wealth levels.

If I had $320 million I would probably actively manage it as well. Granted. I have the experience and disposition to do so. Kobe has to hire such.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by 41Fin » Mon Aug 22, 2016 8:18 am

Strayshot wrote: There was a great documentary but I can't remember the name that went over NFL players and how many went into financial distress after their careers ended because of money mismanagement and difficulty finding gainful employment (especially after the physical damage to their bodies and minds.
Believe it was called "Broke".

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by WhyNotUs » Mon Aug 22, 2016 8:23 am

There is no one selling the 3 fund approach to high income investors. A money manager has no incentive to push it as it would be in his/her interest to sell hedges and complicated options and put their management cut into a 3 fund. Playing off an elite athlete's competitiveness to sell a hyper strategy would seem pretty easy. Sad but true.
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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by Jack FFR1846 » Mon Aug 22, 2016 8:29 am

Steve723 wrote:While I agree with your sentiment and would do something similar, you have to remember a guy like Kobe is still relatively young and just spent the last 20 or so years performing at the highest level of a craft that he can no longer do. And what was he left with? A case full of trophies and a huge pile of money. There isn't much he can do with the trophies, but all of that money sure opens up a lot of options for a Type-A personality, doesn't it? I think it would go against every fiber of his being to simply put it in a 3-fund portfolio and let it passively sit there.

Now Tim Duncan on the other hand......

Ah....but he could eBay the trophies one at a time. Think of it.....he sells the trophy and maybe a meeting with him. He could probably bring in several thousand dollars for each trophy and meet. Put all his money in a 3 fund.

Yah....I know he wouldn't care about a few thousand dollars......but it's something I would do.
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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by likegarden » Mon Aug 22, 2016 8:31 am

78% of NFL players are broke or commit suicide 2 years after retirement :

https://en.wikipedia.org/wiki/Personal_ ... n_athletes

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by eog » Mon Aug 22, 2016 8:35 am

I don't think most athletes would even consider the 3-fund portfolio even if they knew about it. IMO most successful athletes are super competitive type A personality and would try to beat the market if given the option. That is probably why most of them struggle with gambling once they retire.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by whomever » Mon Aug 22, 2016 8:36 am

I read an interesting chapter talking about this a couple of years ago (sorry, I don't remember the book title).

The argument was that 'stars' (sports, movie, or music) tend to be self-selected risk takers. Suppose you're young and have a lot of talent - you're the best football player your high school ever had and the colleges are knocking, or your band is just awesome. What should you do with your life? The boglehead analysis probably goes something like this: 'Well, If I make it to the NFL, or put out a chart topping album, I'll be set. But looking at the a priori odds, only 1 in 1000 football stars/lead guitarists that are hot stuff at 18 ever make it big. To find out if I'm that 1 in 1000 I'd have to devote the next ten years of my life to the single minded pursuit of that goal, but if luck puts me in the 999 who don't make it big, I'll be 30 with nothing to show for the effort'.

So people with a boglehead temperament probably major in engineering or accounting or medicine or start a business, and do the sports or music as a hobby, and have three fund portfolios. People who take the gamble are predisposed to be risk takers, and having played the long odds and won only confirms the notion that playing long odds works for them.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by BW1985 » Mon Aug 22, 2016 8:43 am

Steve723 wrote:While I agree with your sentiment and would do something similar, you have to remember a guy like Kobe is still relatively young and just spent the last 20 or so years performing at the highest level of a craft that he can no longer do. And what was he left with? A case full of trophies and a huge pile of money. There isn't much he can do with the trophies, but all of that money sure opens up a lot of options for a Type-A personality, doesn't it? I think it would go against every fiber of his being to simply put it in a 3-fund portfolio and let it passively sit there.

Now Tim Duncan on the other hand......
Agree, after their sports careers a lot of them want to be business men. Putting all your money in a 3-fund is boring and they're only in their late 30's or 40. Venture capital is much more exciting and powerful.
"Squirrels figured out how to save eons ago. They buried acorns. Some, they dug up, for food. Others, they let to sprout, in new oak trees. We could learn from squirrels." -john94549

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by knpstr » Mon Aug 22, 2016 8:52 am

I actually briefly chatted with a lineman on the Indianapolis Colts (lumpkin) while he was playing video games at twitch.tv

He said he basically puts all of his money in savings account as he was afraid of investors
I said he should look at Vanguard and he said "what is Vanguard I've never heard of that." "I don't want to do anything like that".

My point being... I think a lot simply have no clue at all about investing and many have heard the countless horror stories as well so they don't care to find out.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by Cosmo » Mon Aug 22, 2016 8:58 am

likegarden wrote:78% of NFL players are broke or commit suicide 2 years after retirement :

https://en.wikipedia.org/wiki/Personal_ ... n_athletes
You didn't bother to keep reading. Further down...

"A Fortune magazine article states, however, that a working paper from the National Bureau of Economic Research found that the percentage of NFL players who go bankrupt after two years is a much smaller 1.9%, climbing to 15.7% after 12 years.[4]"

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by amateurnovice » Mon Aug 22, 2016 9:02 am

Because they're pitched by hundreds of people with their own individual interests as to what should be the purpose of that money - that in and of itself is overwhelming aside from the millions of dollars they have at their disposal. Then, usually, they're told by a teammate or "someone in the know" that ABC Investments, LLC is the place to invest because they handle large accounts for famous people and Mr. John B. Investment Professional knows how to work on their behalf best. So, they let a financial professional handle their money so they can focus on football or baseball or living lavishly or whatever and not worry about it UNTIL they find out they were paying 10% in commissions on variable annuities they knew nothing about or 3% advisory fees for the financial guy to do nothing but let it ride in BAC, T, and FB. They're told this is the way to do it from someone with the persuasive skills to convince them who is also probably receiving a kickback.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by bigguy8437 » Mon Aug 22, 2016 9:04 am

Cosmo wrote:
likegarden wrote:78% of NFL players are broke or commit suicide 2 years after retirement :

https://en.wikipedia.org/wiki/Personal_ ... n_athletes
You didn't bother to keep reading. Further down...

"A Fortune magazine article states, however, that a working paper from the National Bureau of Economic Research found that the percentage of NFL players who go bankrupt after two years is a much smaller 1.9%, climbing to 15.7% after 12 years.[4]"
One of the biggest reasons NFL players struggle financially is that they usually only get game checks during the season. So most of the players fail to account for the long offseason of about 5-6 months where they won't be receiving game checks. They can receive some signing bonuses if it's in their contract and also have bonuses deferred, or they can receive workout bonuses for showing up to OTA's, mini camp, or training camp. But those checks are usually nothing compared to what a 17 week game check looks like

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by LiveSimple » Mon Aug 22, 2016 9:07 am

Ignorance, over confidence, greed and that is how our economy works !!!

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by BW1985 » Mon Aug 22, 2016 9:26 am

amateurnovice wrote:Because they're pitched by hundreds of people with their own individual interests as to what should be the purpose of that money - that in and of itself is overwhelming aside from the millions of dollars they have at their disposal. Then, usually, they're told by a teammate or "someone in the know" that ABC Investments, LLC is the place to invest because they handle large accounts for famous people and Mr. John B. Investment Professional knows how to work on their behalf best. So, they let a financial professional handle their money so they can focus on football or baseball or living lavishly or whatever and not worry about it UNTIL they find out they were paying 10% in commissions on variable annuities they knew nothing about or 3% advisory fees for the financial guy to do nothing but let it ride in BAC, T, and FB. They're told this is the way to do it from someone with the persuasive skills to convince them who is also probably receiving a kickback.
Similar to the HBO show Ballers.
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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by Boglegrappler » Mon Aug 22, 2016 9:29 am

Not sure if it is still the same, but years back when tax shelters made sense because of the punitive marginal rates, sports agents often held brokerage licenses as well, and collected commissions for putting Jack Nicklaus and others into drilling funds and other investments.

I think its pretty difficult for the top earners in athletics to know about the best choices, and then to make those choices. Their own advisors often have conflicts, not to mention their entourage of friends and relatives.

Apparently LeBron James has had some meetings with Buffett, as have a couple other athletes, I think. They are the smart ones, assuming they listen to his advice.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by NoVa Lurker » Mon Aug 22, 2016 9:32 am

simplesimon wrote:
Steve723 wrote:Now Tim Duncan on the other hand......
This made me laugh. Duncan's probably all in muni's.
He might be now, but not when he was younger - this lawsuit got a lot of coverage, not sure how it ended up:

"Duncan, 38, said he met Banks during his rookie year in 1998. At Banks’s urging, the athlete invested several million dollars in hotels, beauty products, sports merchandising and wineries that the adviser owned or in which he had financial stakes, according to the filing."

http://www.bloomberg.com/news/articles/ ... nvestments

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by Fixmen » Mon Aug 22, 2016 10:17 am

Part of the logic of using passive investments is that you ask yourself, "what's so special about me? why do I think I can beat the market?". Invariably, most bogleheads come to the conclusion that there's nothing special about them and they cannot beat the market. Ergo, low cost passive index investing.

However, in Kobe's case, I think he could honestly answer those questions differently. He does have an "unfair" advantage. A venture capital fund is just another way for him to leverage his brand. One of the hardest parts of being a VC is building a network and having people take your meetings. Who wouldn't take a meeting with Kobe?

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by bigguy8437 » Mon Aug 22, 2016 10:24 am

Fixmen wrote:Part of the logic of using passive investments is that you ask yourself, "what's so special about me? why do I think I can beat the market?". Invariably, most bogleheads come to the conclusion that there's nothing special about them and they cannot beat the market. Ergo, low cost passive index investing.

However, in Kobe's case, I think he could honestly answer those questions differently. He does have an "unfair" advantage. A venture capital fund is just another way for him to leverage his brand. One of the hardest parts of being a VC is building a network and having people take your meetings. Who wouldn't take a meeting with Kobe?
Something that really caught my eye was today Carl Quintilla asked Kobe Bryant if he would rather be known as a better player or investor. And Kobe answered investor. I think he probabaly would say player when asked the same question if he was still playing, but I think this just shows he's kinda moved on to the next phase of his life.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

Post by stoptothink » Mon Aug 22, 2016 10:29 am

41Fin wrote:
Strayshot wrote: There was a great documentary but I can't remember the name that went over NFL players and how many went into financial distress after their careers ended because of money mismanagement and difficulty finding gainful employment (especially after the physical damage to their bodies and minds.
Believe it was called "Broke".
That documentary made me angry more than anything. Most of the guys weren't swindled, they made unbelievably bad consumer decisions. In one instance, former NFL OL Leon Searcy knew he was broke, but was cut and took his last NFL check and bought a Hummer. Remember, professional athletes who managed to play for more than 3yrs get a player's association pension - for NBA player's, the minimum pension is $57k/yr. The majority simply become accustomed to a lifestyle which a short career can not maintain. The fact that they don't just use a 3-fund portfolio is no different than the conundrum most adults face: short-term thinking and they simply don't know.

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Re: Why don't ultra high net worth athletes just use a 3-fund portfolio?

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