4 Ways to Avoid Ending Up Like Dennis Rodman

For many, the arrival of spring means March Madness. So here’s a little trivia for you basketball fans.  What do Dennis Rodman, Allen Iverson, Scottie Pippen, and Antoine Walker all have in common?  Truthfully, I have no idea if they have anything in common as far as college championships go.  I do know, however, that they all ended up broke.  In fact, according to a Sports Illustrated report, 60% of former NBA players are bankrupt or near bankrupt within the first five years of retirement.  Now that’s hard to believe.  It’s almost incomprehensible that Scottie Pippen, who had tremendous success on the court with the Chicago Bulls and $120 million in career earnings, is broke.  How could this happen? The answer, quite simply, is a gross lack of planning.

The fact is whether you’re a world-class athlete or a yoga instructor, everyone needs a plan.  It’s crucial to having control over your financial future.  And here are four ways that you can start taking control of your financial future and dodge becoming a statistic like Dennis Rodman and too many other NBA players.

1.  Get educated.  Everyone needs financial education to improve their financial well-being.  Knowledge is power, and financial knowledge translates into freedom and stability.  Like many professional athletes, NBA players turn pro having come off college scholarships and never learn the basics of money management.  So invest in yourself.  A little financial know-how will help you make financial decisions that can positively impact you and your family.

2.  Plan for the Future.  Really, it’s never too early to start planning for retirement.  Map out your short-term goals and your long-term dreams.  Take a hard look at where you are now and where you ultimately want to be.  This kind of mindfulness is the first step to mastering money management.  Commit to staying focused on your financial future.

3.  Pay yourself first.  That is, SAVE.  Even after retiring, Allen Iverson was still spending a mind-boggling $300,000 a month. He didn’t know how to save and, clearly, didn’t have a plan.  The fact is, most of us struggle to save money.  We just don’t know how.  This leads me to my final point…

4.   Find a Trusted Financial Advisor.  We can be certain that a lot of professional athletes are the attraction of disreputable people; the money’s too easy to get at.  Regardless, a good advisor will take the time to get to know you beyond your money.  He or she will help you articulate your long-term goals or intentions and frame a plan for achieving them.  In other words, they’ll hold you accountable and keep you on a path to achieving them.

 

Orlando the Cat Out Performs the Pros

Often, when people learn that I’m a wealth manager, they’ll ask, “Where’s a good place to invest my money?”  As I’ve stated before in this column, my answer is always the same:  If I or anyone else could predict the near-term future, I’d probably have a cult following me around.

A recent article in the Huffington Post by money writer Mark Gongloff validates my point.  He writes:  “A ginger tabby named Orlando beat a team of investment professionals and a group of students in a year-long stock-picking experiment conducted by the British paper The Observer”. Orlando picked his stocks by throwing a toy mouse at a grid of publically traded companies, while his human opponents possibly used methods involving “research” and technical analysis.

At the end of the year, Orlando’s picks had returned nearly 11 percent, while the pros had gained just 3.5 percent.  In comparison, the Standard & Poor’s 500-stock index rose 13 percent last year.  They all would have been better off just buying an S&P 500 index fund.

To quote Gongloff:  “Orlando joins a long list of famous stock-picking animals that have made stock-picking humans look ridiculous through the years. They include Adam Monk, the cinnamon-ringtail monkey, who successfully picked stocks by circling his tail around ticker symbols in the newspaper, beating the market and shouty CNBC personality Jim Cramer.  And then there is what may be the uber-investing-Ape, Raven the chimp, who threw 10 darts at a wall full of internet stocks and picked 10 winners. It was the time of the dot-com bubble, to be sure, but Raven’s performance allegedly placed her 22nd among more than 6,000 Wall Street pros that year”.

Randomness in stock picking can even extend to human beings.  In 2006, Playboy playmate Deanna Brooks’ stock-picking efforts were awarded with a 43% return!  In fact, she smoked Bill Miller, the legendary fund manager, with her five picks.  Deanna’s top pick was Yamana Gold Inc. (USA) (AMEX AUY).  Her reason: “What girl doesn’t like a little bling? I’m hot for gold this year…”  No one has yet to confuse Ms. Brooks with Warren Buffet!

Market researchers such as professors Eugene Fama and Kenneth French have long maintained that luck plays a huge role in superior performance of professional money managers when they outperform their comparative indexes.  Dr. Fama has been quoted as saying, “I’d like to compare stock pickers to fortune tellers, but I don’t want to denigrate the fortune tellers!”

With the Dow soaring to unprecedented levels in recent weeks, more people are looking for an entry-point into the market.  My advice is to stay disciplined, goal-oriented, and diversified.