Investment advice for high earning teenager

Genevieve29

My teenaged son has just signed a professional sport contract which means he will earn a six figure sum each year for at least the next few years.

I'm reasonably clued up on finance and investments for regular folk in salaried roles (pensions, stocks & shares ISAs, JISAs, LISAs and so on) but this is totally new territory for me. It's not just the amounts involved it's the fact that a sporting career can end at any time due to injury / losing form / bad luck, any number of reasons and even without that will inevitably end long before a pension fund can be accessed. I want to ensure that the money earned in these first few years, when he has little in the way of essential outgoings (there are surely only so many pairs of expensive trainers one lad needs?), is invested wisely so that even if his earnings aren't sustained longer term he will be financially secure for life and that things are organised is a tax efficient manner.

We will have access to lawyers, specialist financial advisors, accountants etc. but I'm aware that having money can attract people who would like to relieve you of some of it. I'm happy to pay for good advice but I want to be as well informed as I can be.

I'd be grateful for any advice, experience or pointers to helpful resources - many thanks.

eskbanker

Does he have the option of structuring the arrangement via a limited company maybe?  This can offer substantial tax benefits versus being a salaried employee.

Old_Lifer

In my day, sporting professionals (whose sporting careers might be much shorter than that of an average person)  were allowed  to set-up pensions with a much earlier  start date.    From memory,  I think the Inland Revenue allowed boxers to retire  at age 35.    I have no idea what the position is nowadays.

He/you need professional advice.     Can those already in that sporting profession not point  him/you in the right direction?                                                                                                                                                                                          

steampowered

The investment profile of this person in this position is as follows:
- He is investing for the long term. Since he is unlikely to earn as much in future as he does now, but his expenses in future are likely to be higher, he needs to plan for this money to last decades. 
- He can afford to take a significant amount of investment risk.

Someone in that position should be investing as much as possible. He should not be keeping much money in a cash savings account where the value is going to get eroded by inflation each year.

He would do very well by simply investing all of his spare money into a low cost, diversified investment fund. Those funds are invested into the stock market split across thousands of different companies, so you get the average performance of the markets. The Vanguard funds are a good example. £20k per year into a stocks & shares ISA, the rest into a standard stocks & shares account.

He should avoid "exotic" tax saving schemes which he doesn't really understand. There are a number of cases in recent years where footballers were persuaded to invest into hare brained investment schemes and it has badly backfired. See for example https://www.mirror.co.uk/sport/football/news/nearly-130-premier-league-stars-12334666.

Even property can backfire badly if you don't know what you are doing. Gary Neville often talks about how much money he lost investing in property in Manchester when he didn't know what he was doing. Just stick to conventional stocks & shares.

NottinghamKnight

Does the son have an agent, and also assuming this is a team sport then does the club he has signed for have access to advice and professional services, as OP says always treat even professional advice with some scepticism but he will need some help. The sport would also help, is this football, rugby, esports ?

Genevieve29

To answer some questions:
@NottinghamKnight Yes, he has an intermediary (what 'agents' are called now apparently) and they do have access to advisers some of whom specialise in sport. The intermediary himself isn't very clued up about investments having mentioned some more 'exotic' 'investments' as well as direct investment in property - both of which I would give a very wide berth! But that's fine, that's not where his expertise lies.
The sport is football and there are some scary stats about retired footballers' finances!
Good suggestion re. approaching the club and other players might be able to suggest who they use.
@steampowered My thinking is along the lines you mention, thanks. 
@eskbanker Yes, we need to look at that. I'm not sure he will be salaried, I get the impression he will be paid gross and have to sort out his own tax, NI etc. - it's very early days and I have lots to learn.

Genevieve29

@Old_Lifer I will look into that - thanks

tacpot12

Compared to the type of investors who usual seek advice here, his situation is relatively unusual. His earning will drop substantially when he retires from his professional career, and as you say, he might be unable to earn quite soon if he is really unlucky and sustains a serious injury early in his career. He also has a need to save for his retirement like the rest of us.

When you have professional advisers available to him, you might look at whether Permanent Health Insurance is available to cover periods he cannot work. He needs a policy that will pay out if he can't perform at any level that would allow him to earn a living from his sport.

When his career ends, it is a question for him as to whether he wants to try to live of his earnings without working, or does he want to find work in a new field (or remain in the same sport in a management or support role)?  The most likely outcome is the latter; if it is, he can afford to contribute more into pension arrangements where there is no possibility of accessing his savings until he is aged 55. On the other hand, if he thinks he might want to not work at the end of his playing career, he needs to be sure he can access his investments, or the income from them. ISAs and General Investment Accounts would be an option to ensure he can access his investments before 55. This same decision will affect his investment horizon; if he is investing for retirement, he is investing for a 80 year time horizon, if he doesn't want to work when he can't play the sport at a commercial level, he might only be investing for a 10 year time horizon. This should affect his attitude to risk and will change the choice of investments. 

Ultimately, it is a nice problem to have, and as long as he saves most of what he earns, he will have a good life. George Best is the example you need to make sure he knows about - the George Best quote I like best is "I spent a lot of money on booze, birds and fast cars. The rest I just squandered." 

Genevieve29

Old_Lifer said:

In my day, sporting professionals (whose sporting careers might be much shorter than that of an average person)  were allowed  to set-up pensions with a much earlier  start date.    From memory,  I think the Inland Revenue allowed boxers to retire  at age 35.    I have no idea what the position is nowadays.                                                                                                                                                                                   

Looks like footballers have been subject to the same rules as everyone else since 'A Day' in April 2006.

Apodemus

Arguably, avoiding life-style inflation and the impulse to live the high-rolling lifestyle will do much more for his long-term financial security than the choice of investments.  You can't put old heads on young shoulders, but I wonder if there isn't a network of older, respected professionals who can talk to the youngsters about the financial side of their careers?  

London7766551

Let him enjoy the money at least for his teenage years. You only live once.

That does not mean burn it on stupid things, but enjoy life (ie buy a nice car, few nice holidays and year and nice stuff, but not too much of it) and put some of it away for a rainy day. Investing seems unrealistic for someone so young. When you are a teenage 30 seems a long way away. Go easy otherwise he will withdraw from your advice. At the end of the day it is his money and if you come over too strong he will end up not saving anything, generally speaking of teenagers here.