What If The NBA Legend Who Blew Through $154 Million Had A Savings Plan?
Poor Allen Iverson: the 11-time NBA All-Star, who earned over $154 million during his 15-season career, is reportedly in deep financial trouble.
I thought it would be fun to take a look at his salary (excluding his endorsement history) and have students run a few scenarios (using Excel) assuming that Allen put in a “pay yourself first” process and saved a certain percentage of his earnings, invested them in a “boring” S&P500 fund which could focus his mind on playing basketball.
First his salary history (from Basketball Reference):
This becomes an excellent Excel skill builder to see if students can structure and solve for the question being asked: What if Allen Iverson had a regular savings plan (saved a certain percentage of his salary each year) and placed his savings in an S&P500 fund? How much would he have in that portfolio today?
The data elements in the spreadsheet (AllenIversonSavingsPlan) include:
- Savings rate: Try 1%, 5% and 10%. This is the only input required and the spreadsheet will do the rest.
- S&P500 Returns for the period of his career: I have embedded them in the spreadsheet (from NYU dataset)
- Each year his account balance needs to be adjusted based first on Additional Savings (assume they occur at the end of the year) and the return of the S&P500 return for that year. So, investment returns will only apply to starting balances in a given year.
Note the simplicity of this approach. It basically requires two actions: 1) Direct a portion of your salary into an investment account 2) Use an S&P500 Index Fund as your investment vehicle. Total time required to set-up: probably less than an hour.
So, what if you had whispered this simple idea in his ear when he was an NBA Rookie, here is where he would be today:
- if he saved only 1% of his salary = portfolio value at end of 2014: $3.3 Million
- If he saved 5% of his salary = portfolio value at end of 2014: $16.5 Million
- If he saved 10% of his salary = porfolio value ” ” ” ” : $33.0 Million
That should not be too difficult now, should it, especially in the fat years when he was earning upwards of $20 million?
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.