What would you do with a half million?

[LOL!]

Realistically, a 21 yo concentrating on a career in MLB is not going to spend the time to learn investing. They need to find a hourly investment they can trust. They do exist, just hard to find.

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.

 

[harley]

If he's getting a $500K signing bonus, then I suspect his salary will be near or in the low millions. I would definitely recommend the rookie financial orientation process, and I also agree with Dex's insurance recommendation. I would also have him look for a financial advisor (fee only). I would absolutely not go with ANYONE who approaches him, not even me . Let him (or someone close to him - you, a responsible parent, like that) find one by researching them through normal channels. I assume he has an agent. If so, I would really hesitate to take his/her advice on a financial advisor. They are too conflicted, IMO.

Mostly I would park the money for a while (CDs, money market accounts, etc) after allocating a play fund that is just enough to have fun with, but not enough to Len Bias him. After the endorphins have settled a bit, then start allocating it out via a conservative AA.

Of course if he has a little left over, a fun investment like HFWR recommends would not hurt too much.

 

[CuppaJoe]

Kronk says it would be about $300,000 after taxes. Since he's young, I think he ought to go wild with, say, 10% of it and find a way to preserve the rest. That would be $30,000 to play with, not very much but would teach him the meaning of 10%.

OP, please ask him to join the forum so we can live vicariously. He could think about living the way we do, on just 4% or less of our PFs. Hope he can RE at some point.

 

[jblack]

If he's getting a $500K signing bonus, then I suspect his salary will be near or in the low millions.

The minor leaguers don't come close to the money that the is given out in the major's. As a rookie you start off in single A ball and then move up thru the system, some faster than others, but usually takes at least a few years for the player to develop and get promoted.

Google Answers: MLB and Minor league Minimum Saleries

First contract season: $850/month maximum. After that, open to negotiation

Alien Salary Rates: Different for aliens on visas--mandated by INS (Immigration).

Triple-A--First year: $2,150/month, after first year no less than $2,150/month

Class AA-First year: $1,500/month, after first year no less than $1,500/month

Class A (full season)--First year: $1,050/month, after first year no
less than $1,050/month

Class A (short-season)--First year: $850/month, after first year no
less than $850/month

 

[freebird5825]

Buy us all season tickets and we will dispense advice for free in exchange for hot dogs and beer.

Seriously, he will be approached by many "experts". I will second that he needs to avoid the ones who come out of the woodwork to "help" him. Got a local guy who will give him good solid advice versus the big ring wearing sharpies ?

Congrats to your brother for his opportunity. Keep an eye on him so he doesn't go hog wild with the windfall.

 

[Kittle2020]

All -

Thanks for the input so far. It has been pretty helpful. He is a pretty smart kid, but I just want him to make an educated decision and not get taken advantage of those people "coming out of the woodwork."

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.

The minor leaguers don't come close to the money that the is given out in the major's. As a rookie you start off in single A ball and then move up thru the system, some faster than others, but usually takes at least a few years for the player to develop and get promoted.

Google Answers: MLB and Minor league Minimum Saleries

First contract season: $850/month maximum. After that, open to negotiation

Alien Salary Rates: Different for aliens on visas--mandated by INS (Immigration).

Triple-A--First year: $2,150/month, after first year no less than $2,150/month

Class AA-First year: $1,500/month, after first year no less than $1,500/month

Class A (full season)--First year: $1,050/month, after first year no
less than $1,050/month

Class A (short-season)--First year: $850/month, after first year no
less than $850/month

JBlack is right in that after this bonus, the Minor League salaries are pretty low. So I feel it is all the more important he handles this wisely.

 

[Lawrence of Suburbia]

Lucky sod.

I remember what I would've done with $500,000 at 21, so he'll likely blow most of it and regret it much later.

Can you imagine having the wit to just put it in a diversified account, and not checking on it again (apart from dealing with the taxes) until age 6 or so? What a wonderful (potential) break in life.

Unless he does what I would've done: bought a Porsche, partied, travelled until it was mostly gone.

 

[RunningBum]

1. Have an older brother who can help guide him through this exciting, confusing time. Hey, he's got this already! Good job!

2. 10% or so (even 20%) to blow on a car and/or other toys makes sense to me. It's a nice reward for something he's probably worked hard at to earn, and he'll still have a nice chunk of change and a college education to fall back on.

3. Personally I'd do something like open a Vanguard account and go with something like 70% in the total stock market index fund and 30% in a bond fund, but going to an hourly adviser isn't a bad idea either. Just avoid anyone that gets a commission, who will guide him into an annuity, insurance policy, overly risky investment, or charge a high commission for something that may well not beat the overall market. Most managed funds do NOT beat index funds. Maxing out an IRA sounds like a great idea too.

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?

Congrats and best of luck to him! Hopefully he'll have success and make the bigs and wonder why he was so conservative with the bonus. But if he doesn't, he'll be thankful for investing a large chunk of it.

 

[Moemg]

Lots of good advice . I'd definitely say take 10% and have a ball and put the rest in a secure place . My stepson got two very large inheritances . One when he was twenty and the other at twenty four . He spent them quickly and now regrets it .

 

[dex]

"Often a slip between the cup and the lip" - research insurance a lot can happen between now and a contract with the NBA

 

[unclemick]

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.

 

[RunningBum]

psst Dex...basketball is the NBA...baseball is MLB.

 

[dex]

psst Dex...basketball is the NBA...baseball is MLB.

I'm tired; I got up at 4am today to hike a mountain.
NBA, MLB, NFL, XXX - what's the difference

 

[RunningBum]

I'm tired; I got up at 4am today to hike a mountain.
NBA, MLB, NFL, XXX - what's the difference

Yeah, but you mixed them up yesterday too! Another mountain?

Funny thing, I got up at 4am on Sunday to run up a mountain, actually we went up 2 different mountains, probably about 4000 feet of climb in all.

 

[jdw_fire]

The minor leaguers don't come close to the money that the is given out in the major's. As a rookie you start off in single A ball and then move up thru the system, some faster than others, but usually takes at least a few years for the player to develop and get promoted.

Google Answers: MLB and Minor league Minimum Saleries

First contract season: $850/month maximum. After that, open to negotiation

Alien Salary Rates: Different for aliens on visas--mandated by INS (Immigration).

Triple-A--First year: $2,150/month, after first year no less than $2,150/month

Class AA-First year: $1,500/month, after first year no less than $1,500/month

Class A (full season)--First year: $1,050/month, after first year no
less than $1,050/month

Class A (short-season)--First year: $850/month, after first year no
less than $850/month

given this pay scale maybe psssst wellsley is in order for income supplementation

 

[freebird5825]

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.

 

[dex]

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.

 

[mews]

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!

ta,
mew

 

[HFWR]

NBA, MLB, NFL, XXX - what's the difference

The shape of the balls?

I prefer XXX...

 

[slouch]

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.

 

[Culture]

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.

 

[Culture]

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.

 

[Culture]

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."

 

[freebird5825]

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."

 

[Independent]

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.