A Lesson in Locking in Financial Security from an Unlikely Cubs Newcomer

I loved the Cinderella story of this Cubs newcomer even before he displayed his financial savvy. When he signed the big contract, shortly after making the big leagues, it was unusual. As an investment advisor and insurance professional, I applauded his financial acumen.

An Unlikely Hero's Rise to Fame

David Bote exploded onto the scene for the Cubs in 2018 and became a catalyst for their pennant race. He became an instant fan favorite and energized the organization with several clutch hits. His greatest highlight was one of the most exciting feats in baseball, a grand slam. But with this particular at-bat, the drama was even higher. On August 12th, 2018, Bote was down to his last strike, with two outs, bases loaded and down by 3. What happened in the next pitch rocked Cubs nation when he connected for a booming, walk-off grand slam. This rookie’s unlikely presence was a catalyst to the Cubs securing a playoff spot in the stretch.

His meteoric rise to the highlight reels had many wondering where he came from, as he wasn’t on the radar before replacing injured Ben Zobrist in April of 2018. The truth is truly inspiring. He was a baseball standout at a small Christian high school and went to a community college to study for a career as a pastor.

After one year, he earned a ‘throw-away’ draft pick by the Cubs in the 18th round. They liked him enough to toss him a $100,000 bonus to sign up for the minor league circuit. I understand that these players seldom make it to the big leagues, and it was a long shot. But he chose to pursue the opportunity. It's a tough grind, toiling away in the low minors, with little hope of moving up. But he endured for years with the support of his wife. In fact, at his lowest point, when ready to walk away from the sport, it was her encouragement along with his faith that gave him the courage to continue.

It’s true that it’s darkest right before the dawn. Shortly after, something began to click for him. His work ethic combined with great coaching suddenly began to pay off. 2017 became a breakthrough year, with a rapid rise through the minor league ranks. When starting second baseman Ben Zobrist went down with an injury early in 2018, the Cubs felt David was ready. He finally got his shot at the big leagues and he made the most of it!

After Bote’s stellar year in 2018, the Cubs organization were excited about a long future with their new star. Many saw the potential for all-star caliber performance in his future. If David lived up to expectations, he might eventually be offered a huge free-agency contract worth tens of millions a year!

The Art of the Smart Contract

But David was smart. With free-agency years away, he knew to achieve such a contract had many risks. For many years, he’d toiled away, making next to nothing in salary. With the realization that he had finally achieved what he had worked so hard for, he knew he had to find a way to capitalize on his recent success. The risk was too great that an injury, or a sub-par performance could leave him back in the minors or out of baseball for good.

So, he did something virtually unheard of. He knocked on the Cubs door, ready to make a long-term commitment to play for them. He made an offer and the Cubs gladly accepted, glad to ensure a potential all-star would wear blue pinstripes at a bargain price as he continued to mature and improve as a player.

Risk Management in Professional Sports

David successfully ‘locked-in’ his recent success with a solid contract worth $15 million dollars over 5 years! Doing this transferred to the Cubs all the risk of an injury or a downturn in results. As an organization with vast resources, they were better equipped to handle such risks and felt good that they had control of a strong player for years to come. It was a win/win for both parties.

At that point, nobody could predict whether David Bote would have done better by risking an earlier free agency. It really depended on how well he played in the next few years. But the truth is, it didn’t matter at the time! He earned and achieved what he had been playing for all along. He secured a spot on a major league roster, with a very comfortable pay.

I completely understand his philosophy, and this year, I’ve been seeing more and more people that share his values. These are hard-working people that have built a career and saved and sacrificed hard to earn their wealth. They’ve been helped in recent years with strong market gains and a financial strategy based upon growth. Now with retirement looming, many are wondering if it’s time to ‘lock-in’ their gains with a more conservative investment plan.

Transitioning from Growth to Security

Personally, I’m a strong believer in being invested correctly for your risk tolerance. I think it’s important to have an investment strategy and a plan for achieving goals. It’s equally important to consider your risks, such as market risk, inflation, unexpected health costs, etc.

When some people are looking at the retirement phase, they feel fortunate that their financial growth strategy has helped them get to where they always wanted to be. It’s just not worth risking a more secure retirement in order to try to time the market and eek out every last percentage point of gain. They feel it’s time for a different strategy, to transfer some of the risk elsewhere.

This is exactly the role a fixed-indexed annuity can play. It’s a way that people can ‘cash-out’ and not be exposed to the market risk, while protecting their money and still achieving some growth. So, I’m not surprised when I’ve had people approaching me, and asking if it might be wise to include it as part of their portfolio. It’s often a great way of protecting a portion of your retirement nest egg, and can help provide a guaranteed income stream. I’m not against this strategy if it fits with the entire portfolio and meets the objectives of the financial plan.

While I help people with fixed-indexed annuities as part of their financial strategy, I also recommend specific market-based solutions that are aligned with the client’s risk tolerance. Often, I find that people are still gambling with their future in a 401K that contains mutual funds that are volatile or high in fees. Other times, I find that the current strategy isn’t properly diversified due to stocks overlapping within multiple mutual funds.

With a properly aligned market-based portfolio, volatility and market risk can be reduced to a more appropriate level, while potentially still seeing growth. Whether it’s an asset allocation strategy, a Fixed-Index annuity strategy, or combination, the most important thing is that the portfolio is aligned to achieve the client’s goals and comfort level.

So, the question is, how does an individual know if their nest-egg is positioned for a secure retirement? My advice would be to seek the help of a professional. A good financial advisor will have the software tools and expertise to analyze how a person is currently invested and make recommendations that more closely line up with their needs. A good financial advisor is like a consultant that can listen and find the custom designed strategy to meet their needs.

The Advisor's Role

You may not realize, Bote had an advisor as well.

See, most people overlook one fact when it comes to professional athlete contracts. They all use professional agents to help them capitalize on their value. When David Bote went to the Cubs, looking to secure his future, he didn’t do it alone. He had an experienced agent that planted the seed and stood by his side throughout the entire negotiation and contract phrase. Having a solid agent by his side most likely was the key to the contract and probably helped him get such a generous guarantee.

As a professional advisor, I see some strong similarities in how I help my clients position themselves and stand by them through the financial planning, implementation and monitoring process. With the stakes so high, I wouldn’t recommend anyone walk this path alone. And as a final thought on the matter, if you are retired or, or retiring in the next 3 years, you don't want to “Wait ‘til next year….” . Start the discovery process today!

Krista McBeath is an Investment Advisor, Chartered Financial Consultant, a Licensed Insurance Advisor, a Fiduciary, and an experienced tax advisor who specializes in financial planning, investments, and insurance. She utilizes advanced tools for in-depth calculations that analyze tax and retirement scenarios to help her clients avoid a future tax time-bomb. Whether this means enjoying more of your hard-earned money in retirement or passing along assets to loved ones with less tax burden, planning makes the difference.