What Olympics Prize Money Can Teach Us About Investing
Though Olympics prize money amounts haven’t changed in over a decade, if invested today those winnings could still earn solid returns well past an athlete’s competitive years.
The U.S. Olympics Committee provides no financial support for Olympics hopefuls, and few receive lucrative sponsorship and endorsement deals. The rest rely on personal finances and creative means in order to compete.
Prize money is reserved for medalists, and though the amounts have remained unchanged for a decade, investing it can help them reach long-term goals well past their athletic careers.
When they’re not training for the games, many Olympics hopefuls in the U.S. have normal jobs just like the rest of us, working as accountants, teachers, office workers, and more.
They work because the U.S. Olympics Committee does not pay salaries nor offer stipends for training or competing in the games. And only a select few who compete in the most popular 28 sports will ever see a lucrative endorsement deal or corporate sponsorship.
Some athletes have even resorted to more creative funding efforts, such as raising money via crowdfunding campaigns.
For U.S. athletes, the glory of competing also likely outweighs the chance at earning prize money bonuses of $25,000 for winning a gold medal, $15,000 for silver, and $10,000 for bronze.
If these amounts seem small compared to other countries’ cash prizes (e.g., Singapore’s $1 million gold medal bonus or Malaysia’s $600,000 gold bar), it may be because they’ve been the same for over a decade.
If they do win a medal bonus, athletes may wish to invest the windfall, use it to pay down high-interest debt, start an emergency or safety net fund, or any number of other financial priorities.
But by investing their prize money, over time and left untouched, it could combat inflation and grow to become a solid nest egg.
Going for Long-Term Gold
For Olympics medalists returning to compete in subsequent games, the risk factors of injury, age, and the increasing competition from younger athletes is always present.
And unless they’re repeatedly dominating their sport, the likelihood of securing another financial windfall from a medal bonus or a lucrative endorsement is nearly nil.
This is particularly true for anyone competing in less mainstream sports (canoe slalom or trampoline, anyone?) where no professional league exists.
For example, let’s say a 40-year-old Olympics gold medalist invests her prize money in a Betterment account today with a long-term portfolio.
Hypothetical Growth of Prize Money Over 20 Years
For more information on this chart, visit our Goal Advice & Projection Methodology.
In our hypothetical example, when she logs in to her Betterment account and visits the Advice tab, she can get a good idea of just how much her pre-tax prize money investment of $25,000 could grow to in 20 years, when she’s 60 years old.
She can also get estimates based on different market outcomes, e.g., her prize money could grow to almost $120,000 in 20 years based on average market performance. Perhaps she sets a goal today that she’ll want to purchase a vacation home, fund a training center, or start a coaching business when she’s older.
By investing early, time is on her side.
For younger gold medalists, a prize money bonus of $25,000 invested today could result in a substantial amount of money by middle-age, and counter any loss of value due to inflation, or worse, wasteful spending.
Inflation: An Investor’s Worst Enemy
But because markets are unpredictable, consider that at just 2% inflation a consumer’s purchasing power would be cut in half over a period of 36 years. At 3%, also the long term average, that purchasing power would lose half its value within only 24 years—a very realistic time period for anyone to be retired.
Of course, what this means is that the impact of inflation will vary based on how athletes are saving and investing, and their post-athletic investment considerations should to reflect this.
As we watch our athletes compete in the games, we likely won’t be thinking about their personal situations, unless their sport is popular enough to warrant a highlight reel or sports montage.
But for those fortunate enough to win a medal and collect prize money, it is important to put that money to good use or invest wisely to secure their post-Olympics financial futures. For them, goal-based investing could certainly make sense.
This article is intended for educational purposes only. The information provided is educational in nature, and is not intended to be relied upon as financial advice. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature.
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