Celebrity Investing Mistakes: Learning From Johnny Depp
As one of the biggest movie stars of the past couple of decades, it goes without saying that Johnny Depp has made a tremendous amount of money. However, his current financial troubles highlight the truth to the old saying, “it’s not how much you make, it’s how much you keep.”
The depth of Depp’s financial difficulties became public in the course of his contentious divorce from ex-wife Amber Heard. Legal filings by his former business managers at TMG, who Depp is suing for allegedly mismanaging his wealth, reveal that Depp spent $18 million to buy a yacht, $30,000 each month on fine wine, and $3 million to blast the ashes of the late journalist Hunter S. Thompson, who Depp was friendly with, out of a cannon.
The firm also claimed that they had warned the actor that the $2 million in monthly expenses he was racking up was not sustainable. Whatever the truth to the allegations of mismanagement, it is clear that Depp’s spending habits were lavish, to put it mildly. Without opining one way or the other on the sustainability of Depp’s fame and ability to continue to bring in substantial sums of money, it should be mentioned that the principle of setting aside a portion of your current earnings, however large they may be, for a rainy day holds true for celebrities as well as for those who aren’t famous.
Depp’s attorney has claimed that some of his client’s expenditures, including $75 million worth of real estate owned by the actor in different locations worldwide, are in fact sound investments. Even if this is this case, an investment portfolio composed strictly of real estate raises issues of diversification and liquidity.
While real estate can be an excellent long-term investment if you need to raise cash quickly other investments such as stocks, bonds, or mutual funds typically offer better liquidity. In addition, the principle of diversification holds that a portfolio composed of a broad range of asset classes helps damp down on volatility while providing solid results over the long term.
With a new management firm handling his assets and a number of promising films coming up, Depp looks to have put himself in place to right his financial fortunes. In the meantime, his money troubles demonstrate that fame or a large income don’t insulate an individual from suffering financial reversals of fortune – in fact, it can make doing so more likely if a large income lulls a person into believing that he or she can spend to their heart’s content. Financial discipline, for stars and regular Joes alike, is essential when it comes to building and safeguarding your financial nest egg.
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Samuel Rad is an award winning fee-based Financial Planner with Affluencer Financial Advisors in Los Angeles, California. Mr. Rad has multiple licenses in the investments, real estate, and insurance fields. He has spent a considerable amount of his career lecturing at universities and companies, on financial topics such as financial planning, retirement planning, and estate planning.
He currently lectures at UCLA and West Los Angeles College.