Many of us, at some time or other, have daydreamed about how nice it might be to be a sports star. But as great as bringing home millions may sound, I was surprised to find just how many athletes see their dream turn into a financial nightmare.

Sports Illustrated recently compiled some statistics on how athletes manage their money, and the numbers were alarming:

  • Two years after retiring, 78% of former NFL players have gone bankrupt or are financially tapped out because of job loss or divorce.
  • Within five years of retirement, an estimated 60% of former NBA players are broke.
  • Lots of former champions are hawking their championship rings. You wouldn't expect to see that unless someone really needs the money.

I think you get the idea: Having a lot of money doesn't mean you'll keep a lot of money. Indeed, even many lottery winners have found themselves broke or near broke after squandering millions.

What's up with that?
It's instructive to look into why so many athletes lose control of their dollars. It seems that one common mistake is misallocating their money, putting too much into business ventures that go bust (remember that few small businesses turn out to be big winners) and too little into vehicles such as the stock market.

Some believe that putting money in stocks might sound kind of wimpy and boring compared with exciting businesses with colorful stories and promise. But check out the anything-but-boring long-term returns below from some familiar companies. (I'll add their Motley Fool CAPS ratings and recent dividend yields, too, in case you're in the market for some investing ideas.)

Company

CAPS Rating
(out of five)

Dividend Yield

20-Year Average
Annual Return

Coca-Cola (NYSE:KO)

****

3.1%

12%

Wells Fargo (NYSE:WFC)

***

0.8%

15%

Procter & Gamble (NYSE:PG)

*****

3.1%

13%

Clorox (NYSE:CLX)

****

3.5%

12%

McDonald's (NYSE:MCD)

****

3.9%

12%

ExxonMobil (NYSE:XOM)

****

2.5%

13%

Lowe's (NYSE:LOW)

***

1.8%

17%

S&P 500

   

8.4%

Data: Motley Fool CAPS and Yahoo! Finance.

If a top athlete invested just $100,000 of a signing bonus or first-year salary in the S&P 500 20 years ago, it would have grown to $500,000. That might not seem like great growth, but it sure beats losing money. That $100,000 invested in stocks earning 12% over those two decades, like the ones above, would have turned into nearly $1 million.

Fast-forward to today, and an athlete who parks $1 million in stocks or funds and averages 12% for 20 years would end up with $9.6 million. You and I may not have a million to invest, but even just $10,000 can turn into almost $100,000 over 20 years.

More unforced errors
Misallocation is just one mistake top athletes make with their money. They also tend to count on advisors who may not deserve their trust. That's something we all face. Not everyone realizes this, but some financial advisors operate with conflicts of interest. They may receive a commission, for example, if they get us to invest in something even if it isn't the best investment for us. My colleague Amanda Kish has reported that some wealthy investors are beginning to shun advisors.

Another common mistake is trying to keep up with our peers. We may see our colleagues buying McMansions or expensive cars and think we should be able to do the same, but we may not realize that these colleagues are deep in debt and destined for financial trouble.

What to do
It's hard to believe, but you and I are already better off than many big sports stars and lottery winners who have squandered their money or made mistakes allocating it, ending up with very little. If we focus on our future and save and invest effectively, we can have much brighter retirements than them, too. That's a dream that all of us can reach.

Learn more:

Longtime Fool contributor Selena Maranjian owns shares of McDonald's, Coca-Cola, and Procter & Gamble. Coca-Cola and Lowe's are Motley Fool Inside Value selections. Clorox, Coca-Cola, and Procter & Gamble are Income Investor selections. The Fool owns shares of Procter & Gamble. Try any of our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.