It’s kind of interesting how this works:
You want to buy a black truck, you start shopping for one, and then when you are out there on the road, you start to notice that everyone seems to be driving around in a black truck.
You pick up a new pair of retro Air Jordan’s, you think that you are the only one that has them, and the first night out, you see three different guys in the same exact shoes.
Relevant to me: You start contributing articles to AccessAthletes.com with a focus on financial literacy and every time that you open the paper, you read about another ex-professional athlete that is now broke.
Maybe it’s due to the recession to a certain extent, but more than anything else, all of these individuals seem to have absolutely no financial literacy. None of them seem to know that CD not only stands for Compact Disc, but can also stand for, Certificate of Deposit. None of them seem to know that you are better off buying gold bullion as opposed to a gold chain. None of them seem to understand that they are better off spending more on investment real estate than they are the house that they live in.
I came across an article about 2 weeks ago about former NBA player Derrick Coleman. Besides the fact that another high earning Coleman is broke (i.e. Gary Coleman a.k.a. Arnold Jackson from Different Strokes), I found the following excerpt quite interesting:
“According to Basketball Reference, Coleman made more than $87 million during his 15 year career with the Nets, 76ers, Hornets, and Pistons. But now he has only about $1 million in assets, including a 1997 Bentley convertible, five fur coats, and $3,000 in jewelry. ”
I thought it would be an interesting exercise for the blog to break this excerpt down, and give some examples of what he could have done better in this situation.
First of all, the word asset should not even be used to describe these items. These should be described as “luxuries”, and no other way.
The chart below shows an alternative way to allocate this money:
| Luxury Owned | Better Investment Idea |
|---|---|
| 1997 Bentley Convertible | 1,522 Shares of Toyota (TM) |
| Current Value – $120K | Current Value – $120K |
| Annual Return – Negative | Annual Return (Last 5 Yrs) – 11% |
| Five Fur Coats | 1 Acre of Land in the Upper Peninsula of Michigan, Rented Out to Hunters/Fishers |
| Current Value – $25K | Current Value – $25K |
| Annual Return – Negative | Annual Return – 2-10% |
| Jewelry | 4.18 OZ of Gold Bullion |
| Value – $3K | Value – $3K |
| Annual Return – Flat | Annual Return (Last 5 Yrs) – 165.02% |
What’s the main difference between these categories? Every single item on the left side is a toy. They are all worth less today than they were when they were bought (i.e. depreciation). All of the items on the right side are true assets. They have the ability to grow in value (i.e. appreciation) and/or produce continuous cash flow for the investor.
It’s a shame that someone who earned over $87 million could be broke, ever. There is no good excuse as to why that money was not able to support Derrick for his lifetime, as well as his kids and their kids… As another Coleman bites the dust, we assess the situation and are left wondering “What'choo talkin' 'bout, Willis?”.
