Compound Interest and Major League Baseball

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When Roberto Martin Antonio Bonilla started his career as a professional athlete in the mid-1980s, it is very unlikely he thought that the first day of July would be named after him within Major League Baseball. July 1st is Bobby Bonilla Day, and it is a day that is most talked about in personal finance circles because it is intrinsically tied to compound interest.

Legendary players such as Babe Ruth and Joe DiMaggio also have their own days. While Bonilla was a great player and a six-time All-Star who won a World Series in 1997 with the Florida Marlins, he was not at the level of the Babe or the Sultan of Swat. Investors and financial planners are more familiar with Bobby Bonilla Day than baseball statisticians, and the reason for this is related to the conditions in which he was dismissed from the New York Mets in the year 2000.

The Mets were looking for young players to rebuild the team in 1999, and Bonilla knew he would be cut; after all, he was near the end of his playing career and starting to accumulate injuries. He also knew that the Mets would honor the remainder of his contract, which called for nearly $6 million to be paid upon release. Bonilla and his agent could have exercised the right to a lump-sum payment; however, they presented the Mets with a deal that would not only defer payments for a decade but also split them up into annual disbursements until 2035.

In addition to this schedule of payments, the Mets agreed to pay annual compound interest at the rate of 8%. The first payment went out in 2011, thus creating Bobby Bonilla Day on July 1st. This annual payday will continue until he turns 72, and by then, he would have collected $29.8 million thanks to the power of compounding. It would be easy to imagine Bonilla taking some of that cash and depositing it into a high-yield savings account to squeeze even more profit out of his arrangement with the Mets.

Why Bobby Bonilla Day Matters to You

While you may think that the Mets dropped the ball with this agreement, it is important to note that this happened before the 9/11 terrorist attack and the global financial crisis of 2008. The team could not foresee such catastrophic events taking place, and the 11-year deferment seemed like a great deal because the Mets thought they were making 10% on a fund managed by the late Ponzi schemer Bernard Madoff, who died in federal prison earlier this year.

Now that you know the background of Bobby Bonilla Day, it should be clear why it is celebrated by investors and financial planners. Any situation that can turn $6 million into nearly $30 million is not only worth celebrating but also emulating. You do not have to wait until your career is almost over like Bonilla did; the beauty of compound interest investing is that it works better when you start out young, and it gets better as you get older. You may not have $6 million contractually owed to you at the start, but you can work towards that goal through disciplined contributions to your compounding account.

Bonilla did everything right: He chose compounding spread over many years, thus significantly reducing his tax liability. He also put that money out of immediate reach in order to lower the chances of spending it or using it to fund a speculative investment. Bonilla was smart as a right fielder and third baseman; he has also been very smart with regard to investing because of the way he handled his exit payment from the Mets. Whenever you have a windfall, such as an employment bonus or extra money from a tax refund, you should borrow a page from Bonilla’s personal finance book and use it to fund a compound interest portfolio while you are still young.

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