Ryan Howard & Investors Pay Dearly
From Lack of Verification!
From Lack of Verification!
by: Brendan Magee
There certainly are far worse things in life to happen to you then being the victim of theft, but realizing the people that are stealing from you are your mother, father and brother would have to be one of the worst things that could happen to anyone. Such was the nightmare that Ryan Howard woke up to in 2012 when he opened the financial books to a company he started as his career in baseball started to take off back in 2006.
Being as busy as he was with the life as a professional baseball player he turned the day to day running of the business and its financial management to people he felt he could trust implicitly, his family. In openning up the books he comes to find out his initial $8 million dollar investment in the business and the money he was paying his family to provide for his financial future was being treated more as their personal piggy bank then his.
He found out his Mom, the company's financial officer paid out over $2.7 million to family members for services that were never rendered. All this comes to head in series of lawsuits and counter lawsuits back and forth between family members where the lawsuits are eventually settled out of court. In other words, it cost Ryan Howard more money to have the financial mess go away. The emotional and family scars can't be handled as conveniently. Going on blind confidence just didn't cut it.
A lot of this turmoil could have been avoided if, from the beginning, Ryan had a system in place to verify that the jobs assigned to his family members and the money being spent were being done as agreed upon.
Investors often times suffer unneccessarily because they assume their money is being handled as it should. Just like Ryan, they are doing business with people they trust. They don't follow through or see the need to verify that what is supposed to be happening with their money actually is.
For example, a couple I met with a few weeks ago. They have their money in a life cycle fund promoted by many of the mutual fund companies. Basically, the investor picks a year in which they feel they are going to retire. The mutual fund will diversify accordingly and as the date of retirement approaches the diversification will be adjusted so that less money is in stocks and more is moved to bonds and cash. So the investor walks away after depositing their money in this fund feeling they are diversified. The mutual fund company said that that was what they were going to do so why doubt a big reputable company that everyone has heard of, right?
So in our coaching session we look at the fund and how it has diversified this couple's money. It is allocated amongst three different kinds of investments: 60% in U.S. Large Company Stocks, 30% in International Stocks, 6% in Bonds, and 3% in Cash. With this discovery Jim says "That's not diversified." Worst of all he finds out that the majority of his money is in an investment that has experienced a 40% loss twice in the last 15 years. He's taking on a lot more risk than he had been aware of or would have agreed to. Ouch! He's not a baseball player earning millions of dollars a year. This is serious money that can't be played with.
Like Ryan Howard, Jim and his wife, would have been better served with an awareness of what they wanted done and the ability to verify that their wishes would be carried out. This awareness only comes when the right questions are asked from the beginning. "How do I measure diversification/", and "How do I verify that the allocation of my portfolio will be carried out over a lifetime of investing?" These are the questions that every investor needs to ask. The price of not asking the right questions and having the ability to verify how your money is being handled is way higher than Ryan Howard or any investor knows they're going to pay.
Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments call 610-446-4322 or e-mail brendan@coachgee.com.
