Wealth portfolios and elite professional athletes

Gary Fox, Jason West*, Michael Drew

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

Defined contribution pension plans typically rely on some type of lifecycle allocation investment strategy. This approach has recently been shown to be sub-optimal due to the portfolio size effect. The terminal wealth of individuals with steadily increasing earnings over time is significantly less when using a lifecycle strategy compared with a simple contrarian approach. The adverse effect of an inappropriate asset allocation strategy for investors with unorthodox earnings profiles, such as for professional athletes, can be greatly magnified. We demonstrate that strategies that exploit the portfolio size effect vastly dominates terminal wealth earned using lifecycle strategies for individuals who experience unorthodox earning profiles, particularly those generating high investable incomes early in life. While the lifecycle strategy contains some attractive features relating to risk aversion and diminishing utility from wealth, we demonstrate that for unorthodox earnings profiles the case for taking advantage of the portfolio size effect is particularly strong.

Original languageEnglish
Pages (from-to)273-283
Number of pages11
JournalJournal of Financial Services Marketing
Volume17
Issue number4
DOIs
Publication statusPublished - Dec 2012

Keywords

  • athletes
  • contrarian strategies
  • financial planning
  • lifecycle strategies
  • pension funds

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