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February 2008

February 2008


The Similarities Between Coaching Football and Investing

by: Jason Cole
© February 2008

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Stability

As many of you know from your experiences, there is tremendous job insecurity in the football coaching ranks. Due to losing records, popular demand, compensation, school administration or financial reasons, among many other, there is tremendous turnover in the coaching profession.

The financial markets also have much uncertainty. Whether it be rising oil prices, inflation, a sub-prime credit crisis or a real estate bubble, to name just a few, the stock, bond and real estate markets are always reacting to minute-to-minute financial information. This information often leads investors to make emotional decisions about how or where to invest. The result is a very subjective response to investing instead of investing in a more disciplined, objective manner with a long-term approach. Stock market investors have been rewarded over the past 85 years with an average annual return of 10.7% for large company stocks and 5.4% for long-term bonds. Yes, it is quite possible during many several quarters and/or years the stock market can lose money but there has never been a 10-year period of time where stocks have underperformed bonds.

First down play-calling: Invest for the long-term but expect the market can and probably will lose money over a short period of time.

Don¹t panic; rather, stick with your financial game plan while making rational adjustments.

The Big Play

In football, everyone, especially offensive coaches, loves a to see their team make big plays. There is nothing like a long pass down the sideline where the wide receiver beats the cornerback and makes the 70-yard touchdown to solidify the outcome or get back into the game. It is very easy for investors to look for the home run investment as well. Whether it be buying a rental property, beach home, single stock based on a tip, or invest in a business a fellow coach or friend has told you about, it is no surprise there is always a chance to try to hit it big overnight. The problem is that most of the time when we make a quick decision to invest into some of these opportunities it becomes a poor investment decision that ends up costing us money. There are no get rich quick schemes in the stock market.

That is why the wealthiest people work with private bankers or financial advisors and invest in many different strategies and stocks. The most proven way to build wealth is to grow it gradually over time and to avoid big losses and extreme returns. A simple illustration is that over the course of twenty years, Investor A makes 10% per year every year on his or her money versus Investor B who makes 20% in odd years and 0% in even years.

After twenty years, Investor A has $673,000 and Investor B has $619,000, or $53,000 less. How about this example: you start with $100,000 and you lose 25% due to making bad decisions. In order for you to get back to your original investment of $100,000 you now need to make a return of 33%. The smoother your portfolio¹s return is, the more wealth you will build. If you want to make a few risky bets in your portfolio, make sure you can afford for them to go to $0 and that it will not impact your long-term financial goals.

The Playbook

As coaches, you are well aware how crucial it is to master each week¹s playbook. Missing one scheme or substitution or poor clock management can cost you a game, season and even your job. Think of your family¹s balance sheet (assets less liabilities) as well as your income statement (income less expenses ) both now and in the future as your family¹s playbook ­ a roadmap for your future. Future monies you will receive that may include a pension from the state(s) in which you have worked and/or a pension from your university or employer must be accounted for in your financial projections. This income, in addition to income earned from social security, coaching clinics, videos, etc. are all crucial to achieving your family¹s goals. It is also important to understand how various types of income will be taxed as well as your options for receiving lump-sum payments vs. over the course of your (and even your spouse¹s) lifetime. The instability of the coaching profession is partially offset with the stability of having a pension to supplement your retirement. Do not underestimate the importance of these benefits toward your goal of financial independence.

Position Coach vs. Coordinator

Some coaches enjoy being position coaches for their entire careers; others are destined to be head coaches or coordinators. When it comes to your finances, it is best to have a financial advisor who can serve as the head coach for your family. Whether it be advising you on what type of mortgage to consider, how much to invest biweekly into your retirement account or whether you have adequate disability or life insurance in place, you need to have someone that can look at your big financial picture. This will help to help better educate you on any personal finance areas your family needs to be aware of. Just as an offensive coach may not know the team¹s defensive schemes, not all financial advisors are able to consult on all of your financial decisions. Make sure to build a solid financial team for your family or you may risk a major planning opportunity that can cost you more than a game.

Jason Cole, CFP®, is a Managing Director at Abacus Wealth Partners. He has a background and expertise in working with coaches and athletes. His email is Jason@abacuswealth.com.






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