Joe DiMaggio once said, “I’d like to thank the good Lord for making me a Yankee.”
There are several members of the Bronx Bombers who likely feel the same way. Not only have Alex Rodriguez, Derek Jeter, Mark Teixeira and Mariano Rivera won the World Series, they’ve become fabulously rich doing so. A-Rod of course was rich before he joined the Yankees, but he’s certainly gotten richer during his time in pinstripes.
In 2011, Derek Jeter and Mariano Rivera each made just under $15 million, before endorsements, money from the playoffs, or other sources of income.
Mark Teixeira made $23.2 million.
Alex Rodriguez’s paychecks totaled $32 million.[ad#Google Adsense 336×280-IA]If DiMaggio loved being a Yankee 70 years ago, imagine how much he would have enjoyed it today! And how exactly would he invest?
Though star athletes are known not just for physical prowess but also for their smart decision-making on the field, when it comes to managing their money, they don’t always perform like champions.
- Lenny Dykstra, the former Mets and Phillies star, is famously sitting in a California jail after his life spun out of control in the aftermath of an eight-figure financial collapse.
- Sixty percent of NBA players are broke five years after retirement.
- Former heavyweight champion Mike Tyson declared bankruptcy in 2003 after earning more than $400 million in his career.
Investing Like a New York Yankee
With the baseball playoffs underway and the Yankees on the path to another World Series championship, let’s take a look at how several members of the team are investing their money and whether it makes sense to follow their footsteps.
Derek Jeter – Perhaps the most beloved Yankee since Mickey Mantle, Jeter recently built a $15-million, 31,000-square-foot mansion near Tampa, Florida. Real estate in Florida is not likely to recover in the near future, so his timing may be off.
But if you can build your dream home and it will only cost you your base salary for one year – go for it.
Alex Rodriguez – A-Rod has been sharpening his poker skills in some high stakes games in case this baseball thing doesn’t work out. Always smart to have a backup plan. Additionally, he appears to be good at hedging his bets.
Despite being a large investor in Zico Pure Coconut water, he recently signed an endorsement deal with competitor Vita Coco. Either way, he wins. It’s like buying a put on a stock. Although when you buy a put, you usually don’t infuriate your co-investors.
Mark Teixeira – According to the Baltimore Sun, the slugging first baseman is invested in The Geier Strategic Total Return Fund (GAMTX), a mutual fund that “offers a conservative mind set. One that seeks growth without unnecessary risk.”
Sounds like a plan. Except when you look at the portfolio and notice it’s 40 percent in cash, 52 percent bonds, including two other bond mutual funds with much-lower expense ratios than the Geier Fund. In fact, Geier charges a much-higher-than-average 2.11-percent expense ratio. You can park your cash in the bank for free. You don’t need to pay a mutual fund company 2.1 percent to hold it for you. Remember, very few mutual funds outperform the market. So when selecting a fund, keeping your expenses low is critical.
Mariano Rivera – The Yankees’ reliever invested in Sunovia Energy Technology (OTC: SUNV), a company that makes energy-efficient lighting systems.
The stock trades for just $0.02 per share. Mariano didn’t become baseball’s all time greatest closer by being reckless. Sunovia has yet to make a dime and has revenue of just $1.2 million in the first six months of the year, although its net loss has declined significantly from last year.
Rivera has made a lot of money in his career and if he wants to swing for the fences with a little bit of it, I’m not going to tell him he shouldn’t. But hopefully, it’s only a very little bit and the rest of it is invested with precision and control, like the way he throws his cut fastball.
Besides for their freaks of nature bodies, mind boggling salaries and glamorous lifestyles, star athletes aren’t that different from you and me.
Wealth Protection Strategies and Dividend-Paying Stocks
These guys should be looking for ways to protect their wealth and generate income for when their playing days are over. They’ve already hit the jackpot in terms of making money. Rather than trying to do it again in some hair-brained scheme that their cousin’s friend’s uncle is leading, they should find tax efficient strategies that will generate enough money for them to live on for the rest of their lives.
The two best strategies for preserving wealth:
- Muni bonds – Although interest rates are quite low, you can still get quality muni bonds. For instance, you can buy a AA 20-year rated muni with a yield of 4.29 percent, which is equivalent to earning 6.6 percent if you live in a state with no income tax. In a state like California with high income tax, it’s the equivalent of 7.2 percent.
If you’re going to buy bonds you should be prepared to own them for the life of the bond. Yields are so low and prices so high that you may have to endure some pain in terms of the bond’s price while you own it. However, as long as you are holding it to maturity, you’ll get your money back.
Despite the tough economic times that we’re enduring, the fear of muni bond defaults is overblown. AA munis only default 0.03 percent of the time. That’s one in every 10,000.
- Dividend stocks – Buy quality stocks that pay healthy dividends and that grow the dividend every year.
Currently, dividends are taxed at just 15 percent, making them more appealing from a tax perspective than ordinary income. That of course may change in the very near future.
There are plenty of quality companies paying dividends of four to six percent that raise their dividend every single year. That’s important because if you’re holding the stock for the long term and living off the income, you need the dividend to keep up with inflation.
Here are a few stocks you and members of the Yankees should consider:
- Altria (NYSE: MO) – A lot of ballplayers use their smokeless tobacco products. They might as well get some money back from the company. It pays a hefty dividend yield of 6.1 percent and over the past ten years has grown the dividend by an average of 11.7 percent per year.
- Northeast Utilities (NYSE: NU) provides electricity to customers in three states in New England and is in the process of acquiring NSTAR (NYSE: NST), whose customers are in Boston and the surrounding area.I’m sure Yankees players wouldn’t mind collecting the 3.3-percent dividend (growing at 10 percent each year), knowing that every time a Red Sox fan leaves the light on in the bathroom, they’ll get paid.
- Eli Lilly (NYSE: LLY) – The next time a ballplayer is nailed for taking human growth hormone, it’s possible it came from Eli Lilly. The drug giant makes Humatrope, which is supposed to be used in children who are not growing properly. But it can also be used to hit 40 home runs in a contract year.Lilly’s stock yields a healthy 5.3 percent. It hasn’t raised the dividend in a few years but the company should have no problem continuing to pay the current dividend due to cash flow and a payout ratio of less than 33 percent.
Now, that I’ve got the Yankees’ finances figured out, let me get to work on getting A-Rod’s bat back in the groove during the playoffs.
— Marc Lichtenfeld[ad#jack p.s.]
Source: Investment U