We often consider Hollywood stars to be beyond worrying about money, but they have the same investment concerns, and face the same risks, as ordinary people like us.
Acting can be a very lucrative career, but it is also a volatile one. In some ways it can be like investing in penny stocks—there are lots of people who want to act, and only a few make it REALLY big. For those who make it big, their careers might last or they might not—there are never any guarantees.
Even an actor with a history of success can fall off the map—think of Macaulay Culkin after Home Alone or Dave Chappelle when he took a break from his TV show and comedy work.
While some stars step away from the spotlight to other lucrative careers, others haven’t found the same success. Stars such as MC Hammer and Lindsay Lohan have had their money troubles when the fame (and the money that comes with it) slowed down.
How do some stars protect themselves from the volatility of a Hollywood career? The answer is diversification.
Diversification is an investment strategy that works to reduce your portfolio’s exposure to single risks by spreading your investments across several different investment classes, sectors, and companies.
A number of clever stars diversified their income streams while the money was good, to reduce the risk of money troubles when the spotlight fades. Take George Clooney for example.
George Clooney is an incredibly popular Hollywood star. He is an accomplished and award-winning director, producer, writer, and actor. He can command millions of dollars (or tens of millions) per movie. Recently though, George has been in the news for reasons other than his acting career or his family life—his tequila company.
In between all of his other projects, George Clooney helped found a tequila company with friends Rande Gerber and Mike Meldman. Recently, the trio sold their venture—Casamigos (Spanish for “house of friends”)—to global beverage giant Diageo for as much as $1 billion dollars.
This was obviously great news for Clooney, and it also helps us to understand some of the advantages of investment diversification. While Clooney’s acting career made him a millionaire, there was no guarantee that he would keep getting those acting jobs forever. Diversifying into the alcohol business helped protect Clooney from the volatility of Hollywood—as a separate industry from filmmaking, it is unlikely that a single economic event will impact both the movie industry and the tequila industry at the same time.
Generally, diversification reduces the chance that a single risk will negatively impact your portfolio. In Clooney’s case, the diversification had an additional benefit—the income from his investment in Tequila outperformed the income from his acting career.
George Clooney isn’t the only star who has made diversification part of their lives, here are a few other names you might recognize:
The list goes on, including celebrities involved with restaurants, fashion brands, sports franchises, and venture capitalism. Not all of the efforts succeed, but they do diversify the financial risks each star faces.
You might never build a billion-dollar tequila brand. However, you can reduce the risk your investments are exposed to by spreading your investments across several different investment classes, sectors, and companies. This can help you preserve your portfolio’s value over time—leaving you more when you need it.
If you look at your own portfolio and find that you’re depending on your good fortune never running out, consider how George Clooney might deal with that situation.
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