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Financial Planning
Apr 2023

A Lesson in Diversification from Tom Brady

By Alex Black, CFP®

Have you heard of the riches being made in Crypto or NFTs? Can you believe that you missed the opportunity? Perhaps these questions have been bounding around in your head. While there are some who have made fortunes in the new marketplace that is digital assets, others have lost everything. For those who have been entertaining the idea of investing in this marketplace, you have some impressive company. Not only has the everyday investor taken notice but also famous actors, celebrities, and sports figures have speculated on the future of digital assets. One of these celebrities and their foray into digital assets caught our attention as an opportunity, not to discuss what we think the future of digital assets will be (we have no idea), but to think about right sizing your bets.

Tom Brady is considered by many to be the best NFL quarterback ever, but if football is not familiar territory, you may recognize him from the exploits of his divorce from ex-wife Gisele Bundchen. While the purpose of this post isn’t to comment on either, we do hope to shed light on something Brady has also been in the news for, which is his affiliation with the crypto currency exchange FTX.

Brady, along with several other high-profile individuals, invested early in the Crypto exchange. According to George Glover of Yahoo Sports, Brady’s investment was more than $84 million. To most of us, that is an extraordinarily large investment, and though we might think it is peanuts to someone of Tom Brady’s profile, it actually amounts to something significant. Over Brady’s 23-year NFL career, his football earnings were $333 million. If we assume that 50% of those earnings went to pay taxes, Brady bet 50% ($84M/$166M) of his football earnings on this one investment. While he was likely assured by his team of advisors that it was a good bet, placing this large a percentage of your earnings on any single investment is dubious at best. If you are not familiar with the scandal surrounding the crypto currency exchange, FTX, then this may be a surprise to you, but along with several others, Brady’s $84 million investment has evaporated.

Brady’s blow up should be a reminder to us all, even if you think you have a sure thing or you feel like gambling, diversification and right sizing your bets is an extremely effective way to protect yourself. When considering investments, we are huge believers in diversification, for reasons just like the example above. While we prefer exchange traded funds and mutual funds, for those who favor individual securities, which offer the opportunity for significant upside, it is wise to put a cap on the size of such investments of an amount you are willing to lose. Doing so helps prevent a retirement nest egg from being decimated, like Brady’s did with FTX.

The information provided herein is for educational purposes only, and should not be construed as advice, including, but not limited to tax, legal, insurance, investment, or retirement advice. For your specific planning needs, please seek the advice of Integris Wealth Management, your tax accountant, attorney, insurance agent, or other professional as appropriate. Investing involves the risk of loss.

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