By Lazaros Ioannou, Business Development Director, APC Sports Consulting, Nicosia, Cyprus
Athletes usually create their wealth at a very young age and within a short period of time. Therefore, the creation of long-term wealth is of utmost importance.
Whatever goals you have set yourself in your financial freedom plan, whether educating your children or retiring on a yacht in the Greek Islands, investing is the key to getting you where you want to be.
By investing your money, you are getting your money to generate more money and, over the long term, you benefit from higher potential returns than you get from a savings account.
With a proper investment strategy, which you can set up with the professional assistance of your financial advisors, you can use your money to build up your assets and use them towards the major financial goals that you have set, such as buying your dream home; buying your dream car; starting your own business; or paying for your children’s education.
Investing nowadays is not simple and requires investors to be constantly educated and informed on the variety and complexity of investment vehicles available.
If you choose, for example, to invest your savings on the financial markets, you have the opportunity to benefit when companies perform well; or if you choose to buy and sell real estate you can benefit from the increasing values.
In fact, the investment opportunities are almost endless.
Before you start investing though it is critical to understand the relationship between risk and return. There are different types of investments, each associated with a level of risk and return.
Risk is the chance that the return from an investment will be different than the one expected. Low risk is associated with low potential returns, while high risk is usually associated with high potential returns. Investing, is making a trade-off, by giving up security, believing that your money will grow faster in the long run. You can choose the level of risk that you feel comfortable taking in exchange for a chance for higher returns.
In this post, we look into four ways through which Money Smart Athletes can create long term wealth.
- Your savings account
The money you deposit in your savings accounts are essentially being lent to the bank, which loans it out to other people. The low return you get is associated with the minimum risk you have since deposits are protected up to a certain amount by authorities, such as the FDIC in the USA and EDIS in Europe. Savings are an important part of your plan and you should have your emergency money saved in the safest possible way with low risk and easy access. However, when you put your money in a bank account instead of investing it, your money is only resting, it does not really work for you and there is no possibility of great growth.
When you own stock in a company, you partially own the company and have a right to a portion of the company’s value. You can profit by how the market values the asset you own. If the company posts a big profit, investors will want to own its shares, driving up demand for them and thus increasing their price. You can profit by selling your shares at a higher price than the price at which you bought them. To profit from the stock market you need to be guided by a professional financial advisor. And, always remember, shares can go down as well as up!
Being an entrepreneur and investing your money in a new or existing business, is not an easy matter, as it requires not only money but also your time and an entrepreneurial mind set. That aside, it is an ownership investment with high potential returns. People, such as Bill Gates of Microsoft and Elon Musk of Tesla, have made huge personal fortunes by being entrepreneurial in creating products and services and selling them to the market.
- Real Estate
Buildings that you buy to rent out or repair and resell are considered ownership investments. The latest financial crisis, followed by the housing market crash, is a good illustration of the risks associated with investing in real estate. The house you purchase to live in is not considered an investment, as it is not purchased with an expectation of profit.
Diversification is the name of the game when you are deciding on your investment options.
You should always try to keep your investment portfolio as diversified as possible so if one investment is not performing well, you may recover or minimize any potential losses from your other investments.
Making money through investing requires research, studying and following market trends, especially in the case of stocks and shares, and evaluating and comparing financial returns on different investments, not simply knowing the basics about investments. You need to be guided by a licensed professional on setting up an investment strategy based on your financial plan goals.
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