1. You just started with a firm as a personal wealth advisor, specializing in professional athletes. You have been assigned a client, George "The Animal" Steel, that plays Full Back. He has signed a fully guaranteed $10 million contract for his last three years in the NFL (evenly spaced per year), as he is close to retirement age for a Full Back.

Currently, "The Animal" has a $2 million home on which he owes $1.8 million with an interest rate of 4%, and it is costing his $110,000/year (including property taxes). It's a 30 year, fixed-rate mortgage. He has, as well, built up $500,000 in a 401(k) with the NFL. He will contribute another $100,000 per year to this for the next three years, and the NFL will contribute $200,000 per year. This is only available after he turns 55. He has no other assets.

"The Animal" understands he has almost no chance of getting a job in broadcasting after retirement, and so he plans to open a gym - called the Animal House. His plans would require total capital of $1 million dollars, needed in approximately two years to allow for the build time of one year so he can start running the gym immediately upon retirement. The gym will likely lose money for the first two years, but he is convinced of success and is patient. Projections on the gym indicate it will lose 250k per year for the first two years, and then net 240k per year on average. "The Animal" is very disciplined and believes he can comfortably live on 240k per year.

"The Animal" and wife have two young children (4 and 2). The parents are planning for the youngsters to attend college, and they expect the all-in costs to be $400k for each child for a four-year degree. Any further education will be the responsibility of the children.

a) What are the major risks facing "The Animal" and his family? What do they need to plan for?

b) Construct an asset allocation plan that will provide moneys for the gym opening, income protection in case the gym fails, the education of the children, and retirement. The concern over the 401(k) should also be addressed, since you can advise "The Animal" on how he should allocate these moneys. The 401(k) can only invest in mutual funds. The other moneys can be invested in anything, as your client is a qualified investor by SEC standards.