“The 7 biggest investment mistakes celebrities make,” by Daisy Carrington, CNNMoney
Todd Morgan, co-founder of Bel Air Investment Advisors, helps the rich and famous stay in the black and avoid big money mistakes.
He says celebrities frequently put more money in their homes than they can ever hope to get out of them.
“They overload their homes; they put too much money into them thinking they’re investments, but these aren’t your usual types of homes,” he said, noting that the market for ultra-luxury property is very small.
Some clients are also too eager to buy second and even third homes, which can drain their finances.
“I tell them, if you’re not going to use [the place] all the time, it’s better to rent.”
Many celebrities believe that buying a plane or a boat will, over time, save them money. Not so, said Morgan.
“Planes and boats, those are the two biggest items people seem to buy and sell. When they do end up selling them, they sell them at a discount,” he said.
Morgan says many of his celebrity clients are dazzled by tech companies — even the ones that will clearly never turn a profit.
“In 2000, there was a cadre of entertainment people that loved to invest in high-multiple tech stocks. They told me I was too old to understand that the real change was happening in technology. I told them, ‘I’m not too old, the math doesn’t work!'”
He recalls that clients who insisted on making these tech investments were lucky if they recouped 50% of their original investment.
Clients can be quick to jump on the bandwagon when it comes to investing in whatever’s being touted as the “hot new thing,” said Morgan.
He recalls one wave of excitement over a series of tech stocks that “never made sense.”
“Friends were calling friends, people were bragging at cocktail and dinner parties about how much money they were making,” he said. “In the beginning, they were making money. It ended after a year, and it didn’t end well.”
There’s no shortage of celebrity-backed restaurants. Everyone from Jennifer Lopez to Robert De Niro has invested in food establishments. Some ventures have been a success, others… not so much.
“Percentage-wise, more (celebrities) invest in restaurants than traditional clients,” said Morgan. “They like going to restaurants; eating in them, seeing them, touching them. People like to invest in things they can see.”
While some restaurants do make money, it is a risky venture. According to the United States’ National Restaurant Association, the U.S. sees 60,000 new restaurants each year — and 50,000 closures.
The financial crisis of 2007-2008 scared many people into quickly liquidating their investments.
“The best clients are the ones who, when things get bad or ugly, say ‘Put some of my money to work.’ The worst say, ‘Sell 30% of my stock portfolio, I can’t take it, I’m scared,'” said Morgan.
“Non-professional investors get carried away,” he said. “They become too short-term oriented and worry too much about tomorrow, instead of next year.”
Some celebrities struggle to recognize that their stars may eventually fade.
“The problem with the entertainment industry is, as you get older, you won’t necessarily have the same success and paydays that you had when you were younger,” said Morgan.
Many of his clients don’t seek him out until after their earnings begin to suffer.
“Some [stars] had a very successful run in their 20s and 30s and now have suddenly realized the $20 million movie is not in the cards going forward. That’s when they seek out a financial adviser to keep them wealthy,” he said.