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Old 06-18-2009, 07:26 PM   #41
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Pay yer taxes - put all the rest in Target Retirement(age dated VG of course). Then go back to living the way you did BEFORE the bonus.

Not to be poop head but sometimes careers don't work out the way you'd expect.

And for heaven's s sake don't read books or do a lot of looking for active managers - unless they can put up cash or gold in escrow to guarantee their promises.

heh heh heh - You can learn to party responsibly in the stretch after the career takes off.
Those season tickets and hot dogs and beer are looking better and better...keep that great advice comin' along.
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Old 06-18-2009, 08:32 PM   #42
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Yeah, but you mixed them up yesterday too! Another mountain?

.
No that day I got up at 4am and decided to go back to sleep.
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Old 06-18-2009, 08:53 PM   #43
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I don't really see the point of CD laddering unless he wants/needs to supplement his low minor league salary a bit, or maybe a partial ladder to fill the gaps of the off-season. I'm not clear if that monthly salary is only during the season?

.

1) I agree with the after-tax 10% 'have fun fund' - it makes the money real. (My oldest brother suggested the same thing, many many moons ago, when the stock investment that paid for the last 2 years of my college education came through.)

2) Yeah, Vanguard and fee-only advisor - you folks go look for them, and ignore the 'helpful financial advisors' who come to you!

3) One advantage of a CD ladder is that you can lock up the money - therefore, your brother can say, "Gee, I'd love to invest in xxxx, but I can't right now - everything is in Treasuries" (Practice in front of a mirror until he can say that with a straight face! )

4) Yes, be sure to max out IRA eah year - another great way to lock up the $$ where the vultures can't get it.

and congratulations and good luck to your brother!

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Old 06-19-2009, 08:34 AM   #44
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NBA, MLB, NFL, XXX - what's the difference
The shape of the balls?

I prefer XXX...
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Old 06-19-2009, 10:21 AM   #45
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Research insurance policies that would pay him $ if he gets hurt and can not play in the NBA.
+1

A friend of mine only played 1 year for the Mariners before being injured badly enough to not be able to play professional sports again. He now is a public high school baseball coach - with a much smaller salary. Luckily he did save almost all of his 1st year salary so he's in a good situation financially.
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Old 06-19-2009, 10:48 AM   #46
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Uh, why not? There is plenty of down-time during season (think of all that travelling and hotel-room time) and even more in the off-season. And learning to invest is not rocket-science nor brain-surgery. To learn investing takes about the same amount of skills as learning to cook a hamburger or to drive a car.
Not saying it can't happen, just saying it most likely won't happen. I was the most fiscally responsible, mature 21 yo I know, and I didn't put any effort into really learning about investing until I was about 29-30.

I am going to have to strongly disagree with your with regards to how difficult it is to invest. It is easy to simply learn the low-cost, indexing mantra. However, it is much more difficult to understand why it is true, and if you do not understand why it is true, you are susceptible to conversion by a charismatic charlatan out to get your money.
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Old 06-19-2009, 10:51 AM   #47
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Some themes I saw....Look into an advisor that charges by the hour, if invest in funds use Vanguard, nothing wrong with doing some CD laddering, etc.
Vanguard is not the only fund family that is reasonable. However, all their funds are no load and low fee, and they have very few (if any) nut-ball funds (think triple leveraged short funds). Therefore, it is harder to go wrong with them.
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Old 06-19-2009, 10:55 AM   #48
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I cannot emphasize enough that your brother has to learn to say no. People generalyl come out of the woodwork once you hit it big. Make up a great excuse, "I would love to help you, but 98% of my money is tied up in beaver cheese future and I have to pay a 90% penalty to take it out early. Sorry."
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Old 06-19-2009, 11:14 AM   #49
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Yes, indeed, the smell of greed has an undeniable stench.

I'll loan you some of my personal favorites...

"It's all invested."
"It's all in my Roth IRA and I can't touch it til I'm 59 1/2."
"My brother is handling it for me." (making sure you aren't there that day, or have some fun if you are )
"I donated most of it to charity for tax purposes."
"I spent it to bail out my uncle's farm foreclosure."

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Old 06-19-2009, 01:44 PM   #50
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When you're 21, retirement is a million years away. But, living on a minor league salary for the next 1-5 years, and possibly getting injured, are things that you can understand.

So I'd forget the retirement investing and focus on the next few years. Here's my list:
- Get a tax accountant (he probably already did this)
- Spend 10% of the after tax on a car (or other toys that interest him).*
- Put the rest in a CD ladder that will provide living expenses over the next 5 years.
- Tell all potential advisers that "it's already tied up".
- IF he ends up with a good major league deal, he can spend the bonus on fun stuff as it comes out of the CDs.

This reminds me of a great line about winning the lottery:
> The good news is that you can spend your money on ANY one of those things you used to dream about.
> The bad news is that you can spend your money on any ONE of those things you used to dream about.

He's been dreaming about being a ballplayer for 15 years, the big problem will be discovering that $300k doesn't really go that far.
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Old 06-19-2009, 02:32 PM   #51
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Yes, indeed, the smell of greed has an undeniable stench.

I'll loan you some of my personal favorites...

"It's all invested."
"It's all in my Roth IRA and I can't touch it til I'm 59 1/2."
"My brother is handling it for me." (making sure you aren't there that day, or have some fun if you are )
"I donated most of it to charity for tax purposes."
"I spent it to bail out my uncle's farm foreclosure."

"I'm paying child support to the whole darn college cheerleading squad."
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Old 07-17-2009, 10:00 AM   #52
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Once again, I appreciate everyone's advice. The monthly salary only occurs during the season. Thus, every year from October - February, he will need to live off of the bonus. For this offseason, he can just set aside what he needs during those 5 months. At the same time, he can set up a CD ladder, which should give him some cash flow in Oct 2010 - Feb 2011.

Can someone explain the difference between a CD Ladder and a partial ladder? Is it really just skipping certain rungs/maturities to customize when you would like cash flow?

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given this pay scale maybe psssst wellsley is in order for income supplementation
Could you please elaborate on this and how it can provide income supplemenation? Not familiar with wellsley.

Lastly, he obviously won't qualify for a Roth IRA. I would assume it is still worth it for him to set up a regular IRA, correct? Not sure about if his employer offers any 401k plan.
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Old 07-17-2009, 11:08 AM   #53
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Yes, he can always set up a non-deductible IRA, and he is young enough that it should create quite a nest egg when he needs it.

Rita
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Old 07-17-2009, 01:55 PM   #54
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Why does he need to live off of the bonus from Oct - Feb? If I were him, I would do this....

1) Invest the signing bonus for the longterm. SP500 index fund would do nicely if he knows nothing about investing.

2) Pretend he didnt get a signing bonus and in the off season, do the same thing he would do if he didnt get a signing bonus. He shouldnt be living off of the bonus on the offseason. He should get a job in whatever field he is interested in and will want to work in when his baseball career is over. Unless hes in the top 1% of players, his career will be short and he wont make mega millions. If his career is over at age 29 , whats left of the $300K or so he can invest now isnt going to do much if he cant get a good job because he hasnt done anything but play ball up until now.
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Old 07-17-2009, 02:28 PM   #55
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Why does he need to live off of the bonus from Oct - Feb?
I should have clarified. He will most likely be a college student for the next 3 off-seasons.

When I say live off his bonus, draw enough to live off of (i.e $1,500 month). The remaining $300k+ remaining, he will be able to do a mix of investing, which could focus on CD laddering in the near term to supplemental income in the off-seasons.
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Old 07-17-2009, 02:49 PM   #56
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The Wellsley comment was for the Vanguard Wellsley fund, which is a mixed stock/bond fund that provides a decent return for income, along with some growth possibilities. I think some people use this for income and diversity rather than a CD ladder plus stock and bond investments to get the fix they want.

I questioned the CD ladder before, but now I see why it work for the off-season income. I don't know the terms for laddering, but it seems like setting up ladders for the offseason only makes sense. I don't invest in CDs personally, but I don't know that it makes sense (or whether you can) get $1500 CDs for each month, so you might have a $7500 CD that matures each October to last the offseason.

Maybe I shouldn't have answered because I don't invest in either Wellsley or CDs so I'm not expert, but since I think I know the right answers, and it's a very interesting case, and I wasn't seeing answers, I thought I might as well.
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Old 07-17-2009, 06:49 PM   #57
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Well, opptimistically this is just the Begining and he will make alot more in the future..
If that is the case? I'd Spend 50%( After paing taxes of course) and Put the other 50% left in a simple Bal. Fund like a Vanguard VWELX or VWINX and forget about it, for now and focus on his skills and performance.. to Get Into The BIG leagues of Millions..( I have had Better Bal. Funds like FPACX, OAKBX and HSTRX for past several yrs) Investing in Bal. Funds is just like Hiring a Guy or Firm to do the work for you.. and you pay about the same extra 1/2-1% fees to own them vs having to play with a Bunch on your own ... And for most people, do alot better job of it and take you out of the Decision making process, which for most? Is a Good thing..

An $500k Really isn''t that much ( -36% taxes = $320 net? ) but A Hundred grand tied up for 30-40 yrs can be doubing every 8-12 yrs.. But, odds are he'll need that $ to buy a Place etc.. in the near future.. He ain't gonna want to stay at Mom & Dad's with all the Girls comming around...lol.. If your not married? You best hang out with him if you can also...LOL

And Best get himself a decent CPA to keep him out of trouble and Hide his Money in IRA's, ROTHs etc.. if he can..

and a Decent & Halfway Honest Agent can do wonders as well.. but they take 10% or more in return..
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Old 07-21-2009, 01:33 PM   #58
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I'd invest most of it, leaving 20-30k to plaqy with. Unfortunately, this year that means I would have quickly turned that 500k into 300k.
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Old 07-23-2009, 06:14 PM   #59
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Once again, I appreciate everyone's advice. The monthly salary only occurs during the season. Thus, every year from October - February, he will need to live off of the bonus. For this offseason, he can just set aside what he needs during those 5 months. At the same time, he can set up a CD ladder, which should give him some cash flow in Oct 2010 - Feb 2011.

Can someone explain the difference between a CD Ladder and a partial ladder? Is it really just skipping certain rungs/maturities to customize when you would like cash flow?



Could you please elaborate on this and how it can provide income supplemenation? Not familiar with wellsley.

Lastly, he obviously won't qualify for a Roth IRA. I would assume it is still worth it for him to set up a regular IRA, correct? Not sure about if his employer offers any 401k plan.
the vanguard wellesley mutual fund is paying a dividend of about 4.7% which if taken over a year would produce about $14k (on a $300K investment), enough for his off season expenses
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Old 07-24-2009, 12:04 PM   #60
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the vanguard wellesley mutual fund is paying a dividend of about 4.7% which if taken over a year would produce about $14k (on a $300K investment), enough for his off season expenses
I understand now, thanks. After looking at other Vanguard fund options there seem to be ones paying higher dividend %'s (100% bonds), but I assume the Wellesley is preferred b/c it is a balanced fund paying the highest dividend %. This would get him exposed to stocks in a more conservative way.
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