Yesterday's post on Denny Neagle's financial woes generated some interesting comments on the need for personal responsibility in the personal finance world. One point personal finance bloggers understand well is that nobody knows your financial situation better than you do. Up to a certain point, everybody should know basic investment and financial planning concepts - they need to take some responsibility for financial decisions. This definitely includes the cost of different approaches to managing assets.
Having said this, I believe I am probably not as hard-nosed as some of the commentators. I understand exactly what they are saying when they argue that it was Neagle's fault in being taken advantage of; but, still, I try to put myself in some of these athlete's shoes. At the time they sign professional contracts, they are young and naive. Supposedly they have agents working on their behalf = there may be a whole back story here that hasn't come out. Where was the agent who undoubtedly received big bucks as his representative? I believe that major league baseball (maybe the union) has a list of approved agents and possibly approved asset/wealth managers.
Somewhere along the line, I believe, these young people signing these massive contracts should be exposed to the various views on how to invest. At the table should be a rep explaining that many very astute market participants (including Warren Buffett, John Bogle, and Burton Malkiel) believe a large portion of assets would be best invested in low-cost, well-diversified, index funds structured with an allocation that reflects risk tolerance. In the case of athletes, the asset allocation would take into account that there is no need to take an inordinate amount of risk given the size of the contracts.
Then, if the athlete, on the advice of his agent, goes the limited partnership/alternative investments/ high priced hedge fund route, I join others, wish him/her the best, and have no sympathy if he/she ends up like Neagle.
To me, all of this points to the need for strong financial literacy programs in high school. The athletes who blow enormous wealth get the publicity. The average person ripped off by the financial services industry goes unnoticed.
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