Investment Secrets of the Rich and Famous

By Julie Rains on 27 August 2013 (Updated 8 July 2014) 3 comments

Hollywood celebrities, recording artists, and professional athletes are among the highest paid people in the United States. According to a celeb ranking on Forbes, Taylor Swift and Tiger Woods each pull down over $50 million per year while Will Smith surpasses the $20-million mark.

It is true that many with exceptionally high incomes aren't rich due to bad financial management. But there are noteable exceptions we can learn from — Steven Spielberg with a net worth of $3.2 billion and Oprah Winfrey with $2.8 billion, both on Forbes' list of richest Americans. The wealthiest of non-billionaire stars include Bono, Jay-Z, Will Smith, and Ellen DeGeneres with total assets ranging from $100 million to $600 million.

How Celebrities Build Wealth

There's no one-style-fits-all investment formula among celebrities that I could detect. However, I did notice some investing themes worth sharing.

Invest in Yourself

Celebrities realize that their bodies, brains, and brands are their most important assets. The wealthiest find ways to maximize their payouts and leverage their names, generally through contract negotiations and celebrity endorsements. Money spent on promoting and positioning themselves as a brand is more investment than extravagance. (See also: 5 Ways to Make Extra Income Online Today)

Invest in Tech Startups

The most common type of outside investment is the technology startup. Celebs often envision possibilities for tech applications pertinent to their industries and up-and-coming generations. Plus, the deep pockets and media presence of pop culture stars may be attractive to founders of startups who seek investment dollars and publicity.

Examples of technology investments:

Leverage Expertise in Business Ventures

Celebrities often launch or become part owners of entertainment-oriented ventures, such as professional sports teams, luxury properties, restaurants, fashion empires, and television networks. Many of these businesses are closely tied to their areas of expertise.

For example, talk show host and media mogul Oprah Winfrey invested her time and money in OWN (Oprah Winfrey Network), a joint venture with Discovery Communications. Former NBA player Earvin "Magic" Johnson runs MJE (Magic Johnson Enterprises), which includes investments in real estate and private equity funds, a chain restaurant, and a media company. These are departures from Johnson's basketball career but consistent with his urban-oriented, multi-cultural brand image.

Place Money With Investment Managers

Putting money with outside money managers seems like a boring way to make your assets grow in value. This method of wealth building may not seem as newsworthy as a stake in a tech startup or a professional sports team. So, the number of celebs that adopt this tactic may be underreported.

However, I recently learned that Taylor Swift's father is an investment manager for high-net-worth clients. Presumably, Taylor is one of his clients or, at minimum, he provides her with financial advice such as "save your money."

Others who have hired professionals for money management include talk show host David Letterman and tennis stars Andre Agassi and Steffi Graf. Notably, U2 lead singer Bono is a co-founder and managing director of Elevation Partners, a global private equity investment firm.

Lessons for Regular People

Just like the rest of us, celebrities make smart moves and stupid mistakes. We can learn from their successes and failures.

Maximize Earnings

Start by maximizing your earnings throughout your career. Personal finance expert Jonathan Clements advises me that our capacity to make money through a regular job or business is often the most overlooked income-producing asset.

Invest in Tech

With thousands rather than millions of dollars to invest, the average investor may not have the access to or risk tolerance for funding early-stage tech startups. However, you can purchase tech-oriented stocks or a specialty mutual fund or ETF in the technology sector.

Invest in What You Know

Like celebrities, you can invest within your circle of competence even if you don't start your own business. Acquire shares in companies with which you are familiar and make money in ways you understand. (See also: 17 Places to Find Investment Inspiration)

Take Advantage of Online Management Tools

Finally, although private management is largely considered a perk of those with more than $500,000 of investable assets, portfolio management is becoming more accessible to regular people with modest wealth. Online brokerages offer a variety of money-management services, for example. (See also: 5 Best Online Brokerages)

To build and keep your wealth, avoid common celebrity mistakes: Don't count on high income forever, spend within your means, and steer clear of investment scams.

Have you learned anything about investing from celebrity hits and misses?

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Karen

Invest in tech? Are you kidding? Was this writer not around for the dot-com bubble in 2000?

There's nothing wrong with a little tech, but you have to diversify. Sink all your money into one sector and you'll end up like the people who lost millions when that bubble burst. Sure, you might pick the next Skype--but you're much more likely to pick some piece of junk that totally fizzles and does nothing. Remember Boo.com and Pets.com? You don't, because those were total losers. People put their savings in those companies and they went bellyup, despite being hoity-toity internet stocks. You can and will pick a loser.

Bad advice on this one. Stick to diversification. If you want to invest in tech, you have got to do your research and know the industry inside and out--and even then you'll probably lose.

Julie Rains's picture

Re: 90s - I still remember getting a call from a Certified Financial Planner who recommended prudence in theory but nevertheless offered my husband and me the chance to get in on a tech mutual fund before it closed to new investors. We politely declined. The bubble then was largely due to overpriced stocks for companies that were not yet reporting earnings (okay, many of those never earned any money, they just blew through investor cash).

Heck, I remember when Microsoft was referred to as a "small-cap" company because of its newness to the stock exchange despite having the country's highest market capitalization. The point being that tech is grown up even if it took awhile.

For this article, I studied how celebs invest: many have invested in tech-related companies that never made it anywhere and some invested those that have grown substantially in value. The idea is not to buy high flying stocks as in the 90s but to consider buying those that may grow in value over the long-term. Thanks for reading!

Guest's picture

Online management tools certainly do help out a lot with managing investments. But, the main thing before investment- Research. A lot of research about whatever we're planning to invest on. Great post, Julie!