By Brett Arends, MarketWatch
Patrick Smith/Getty Images
Sports stars, stop getting suckered by con artists!
Stop letting smooth-talking chisellers get their hands on your championship loot!
You played hard to make your millions. Now play hard to keep it.
Retired NBA legend Tim Duncan is the latest champ to get taken for a ride. His former financial adviser, Charles Banks, pleaded guilty on Monday to fraud.
Duncan may have lost up to $20 million in Banks’ investment schemes — or about a 10th of the money Duncan was paid during 19 years with the San Antonio Spurs.
I’ve been writing about these cases for about as long as Duncan played in the NBA. The names and the sports change, but the story is predictably the same. The young and naive athlete unused to money. The plausible older guy who becomes his “trusted” adviser. The obscure and convoluted investment schemes. The double-dealing. The losses.
Duncan didn’t even realize he’d lost his money until he got divorced, and the lawyers started checking the books.
I don’t know much about basketball, but I’ve been writing about Wall Street, and investment scams, for a long, long time.
And if you’re a young sports star, the money is pouring in, and you don’t know what to do with it, here are some words to the wise.
<STRONG>You don’t need to shoot for a big score.</STRONG> You’re young, and you’ve got a lot of money. You’re already rich. Time will do the work for you, so long as you don’t screw it up. Even invested sensibly, your money should double every 15 years or so. The first goal of your financial plan should be to avoid losing your money.
<STRONG>There is no good reason to plunge your money into a private venture except as a gamble.</STRONG> And if you want to gamble, you are probably better off going to a sports book in Vegas. You know sports. Most of your money should be invested in publicly traded assets: stocks, bonds, even commodities and real estate. It’s all available at a low cost. There are tens of thousands of stocks in the U.S. and international markets, investing in pretty much anything you want. They are easily traded, properly regulated and their books are public. By contrast, private companies and schemes are lightly regulated and generally risky. It’s easy to put your money in, but often hard, or impossible, to get it back out.
<STRONG>Winning in your sport may involve hard work and complex game plans. But winning at investing is exactly the opposite.</STRONG> The most successful investment strategies are really, really simple, and involve minimal work. The smart money is the simple money. It requires little of your time, and leaves you free to live your life.
<STRONG>Never invest in something you couldn’t explain over dinner to your grandma.</STRONG> Buying, say, Coca-Cola /zigman2/quotes/209159848/composite KO -0.27% stock or U.S. government bonds? OK. Buying subordinated and mezzanine debt, as Duncan apparently did? Not so much.
<STRONG>Anyone promising big returns with low risk is just lying to you.</STRONG> It’s the oldest trick in the book. Banks promised Duncan a return of 12% a year, plus sweeteners, in return for his loan. That was in 2012, when inflation was below 2%, long-term U.S. government bonds were paying less than 3%, and corporate loans with reasonable risk not much more than that.
<STRONG>Watch out for anyone trying to impress you or sell you.</STRONG> Trust your instincts. The harder the sell, or the bigger the snow job, the more you should watch your wallet.
<STRONG>Money managers typically don’t make money from investing. They make money from charging their clients fees.</STRONG> If the guy who wants to manage your money is a former salaried sports agent and now he’s buying up California wineries, as Banks was, ask yourself where he’s getting the money.
If you really want a reassuring old guy to manage some of your money for you, try Warren Buffett. You can buy stock in his investment vehicle, Berkshire Hathaway /zigman2/quotes/200060694/composite BRK.B -0.77% , through an online broker, and he will basically work for you for free. Buffett has nearly all his money in Berkshire, so he only makes money when you do, and he draws a salary less than you got per game. FYI, when it comes to investing, Buffett is basically Michael Jordan, Tom Brady, Tiger Woods and Roger Federer rolled into one.
The simplest portfolio
If in doubt, try putting one-fifth of your money into each of these five Vanguard mutual funds: Total Stock Market Index Fund /zigman2/quotes/202876707/realtime VTSMX -1.67% , Total International Stock Index Fund /zigman2/quotes/210096929/realtime VGTSX -2.04% , Emerging Markets Stock Index Fund /zigman2/quotes/205715973/realtime VEIEX -1.56% , Inflation-Protected Securities Fund /zigman2/quotes/207983017/realtime VIPSX +0.51% and Long-Term Treasury Fund /zigman2/quotes/201786083/realtime VUSTX +0.44% .
In the past 15 years, this simple portfolio has nearly tripled your money — it’s up 172% — with moderate risk. (In 2008, it fell 23%, or about a third less than the overall U.S. stock market.)
You don’t need any expertise, you don’t need to know what’s going to happen next to the economy or the stock market, and you don’t need a guy with a Rolex that you helped pay for. It balances long-term growth with protection against inflation, stagnation and crashes. And it will cost you almost nothing in fees, which is why the only people who will tell you about it is someone with nothing to sell you.