At Springwater, we’re looking forward to celebrating Independence Day this week with family and friends. As an aside, please remember to be very careful with your fireworks, and keep your pets safe and happy.
Earlier this week, in our role as financial advisors, we acknowledged Bobby Bonilla Day.
Who, you might ask?
Bobby Bonilla is a former major league baseball player, who played from 1986 to 2001. From 1992 to 1994, Bobby was the highest-paid player in the major leagues, earning more than $6 million per year. He played for several teams throughout his career, but he is most remembered for his second stint with the New York Mets from 1998 to 1999.
After a sub-par 1999 season, the Mets released Bonilla, but they still owed him nearly $6 million. In what would later prove to be a brilliant decision, Bobby and his agent offered the Mets a proposal – he would defer payment of the $6 million for 10 years, at which point the Mets would pay him about $1.2 million a year for 24 years, starting in 2011 and ending in 2035. The total payout to Bonilla would be nearly $30 million.
The Mets organization accepted Bonilla’s offer, in part because Mets owner Fred Wilpon was heavily invested with Ponzi scheme fraudster Bernie Madoff, and the 10% annual return Wilpon thought he was earning on his investments was better than the 8% interest the Mets would be paying on Bonilla’s initial $6 million.
While it may sound like Bonilla and his agent performed some type of mathematical magic, the deal is simply a great example of the power of compounding. If you need a refresher, compounding is when the interest you earn on your money also earns interest, and so on and so on.
While you may never be offered millions of dollars to leave a job, or a guaranteed 8% return on any investment, you can still apply Bonilla’s strategy to your own finances. You can capture the benefits of compounding by not spending today, and instead investing those dollars for the future. When you’re young, time is your friend for saving and investing. And saving today, at any age, will give you financial flexibility in the future.
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