You may know Ashton Kutcher from That 70s Show or Dude, Where’s My Car? But Silicon Valley knows him as one of the star founders of A-Grade Investments, a venture capital firm that the celebrity investor started with Madonna’s manager, Guy Oseary, and billionaire Ron Burkle. The firm has reportedly turned $30 million in assets into $250 million in assets in less than 10 years.
How do some celebrities go from an angel face on the silver screen to an angel investor? Barring investment flops, like Eva Longoria’s restaurant investments or Kevin Bacon’s less-than-six-degrees of separation as a victim of a Ponzi scheme, many celebrity investors have found great success due to smart investment strategies and, surely, due diligence.
Here are three smart investment moves that celebrities are making with their portfolios:
At Berkshire Hathaway’s annual shareholders meeting in May of this year, CEO Warren Buffett advised investors—as he has throughout his career—to invest in what they know. He calls this comfort zone the “circle of competence,” and he claims to maintain investments within a relatively small circle of industries that he understands.
This golden rule is no different for celebrity investors. Venus Williams, for example, has found success in sports investments, including a stake in the Miami Dolphins. Meanwhile, Beyoncé’s investment in tech startup Sidestep has seen great success. The Sidestep app lets music fans purchase merchandise before, during or after a concert, which they can then skip the line to pick up or have delivered. Even Madonna invested $1.5 million in Vita Coco coconut water after drinking the beverage regularly on her tour. Vita Coco is now the leader in coconut water.
What do millennials like? We like organic food. We like our polar ice caps cold. And we like goat yoga and wellness retreats. Impact investing is popular with millennials and younger investors, and celebrity investors are riding that cultural wave and bringing it to new heights. Jessica Alba, Matt Damon, Gwyneth Paltrow and other celebrities are investing in health food companies, meditation apps and other environmentally and socially conscious companies.
For the past 30 years, the MSCI KLD 400 Social Index, made up of companies with outstanding Environmental, Social and Governance (ESG) ratings, has outperformed the S&P 500 by nearly 1%. Companies with strong ESG ratings have been shown to have positive financial returns. So, why not make money while doing good?
Leonardo DiCaprio is most likely the biggest impact investor at the moment. This year, Leo invested in Aspiration, a non-traditional alternative to banks. The company promises that deposits made into its Spend & Save accounts will be 100% fossil-fuel free, meaning they will not be used to fund drilling or oil pipelines. The company has now raised more than $100 million in venture capital and angel investments and continues to gain more than 100,000 new customers each month.
Why are tangible assets such a good investment? Because they aren’t tied to stock market volatility. But here’s the catch: only tangible assets that appreciate, rather than depreciate, are worth the investment. That’s why investing in real estate (e.g., buying and flipping houses) and art are so popular among celebrity investors. And in Beverly Hills, there’s no shortage of good interior designers or expensive artwork.
When investing in real estate, whether to sell later or to rent to tenants, you need to know your demographic. And nobody knows their demographic better than Ellen Degeneres. She has made a killing buying homes, fixing them up and selling them at a substantially higher price to other wealthy celebrities. Though real estate is a long-term asset, Ellen and her wife, Portia De Rossi, have managed to make cash quickly with dozens of home sales. They purchased a home for $40 million (yes, that was the price before renovations) and sold it for a $15 million profit. They’ve since sold homes to Will Ferrell, Ryan Seacrest and other Hollywood big shots.
Then, there are the art collectors. Jay-Z and David Geffen hold works from famous artists in their homes. Geffen’s art collection, valued at $1.1 billion, includes works from Jackson Pollock and Mark Rothko. Likewise, Jay-Z has an original Andy Warhol Rorschach on his wall. He and Beyoncé, his wife and fellow celebrity investor, purchase art from up-and-coming artists that they believe will become important names in the art world. Like vintage designer handbags, artwork is valued based on the prestige of the artist and its rarity in the market. Hobbies like collecting art are not just a way for Hollywood’s elite to show off, they are also sound investments and an exciting way to diversify one’s portfolio. Especially since when celebrities collect up-and-coming artists, they can juice that ascent by transferring a bit of their own star power.
Whether you watch football, listen to hip hop or tune in for the Oscars every year, your favorite celebrities are making smart investing choices that you or any investor can learn from. While some celebrity investors have jumped onto the hype of a doomed startup, there are plenty of others that have done their homework and built their own venture capital firms. So, think like rapper Nas, whose firm QueensBridge Venture Partners has backed Lyft from the start, and “reach for the stars.”
[Editor’s Note: To learn more about this and related topics, you may want to attend the following webinars: Basic Investment Principles 101 – From Asset Allocations to Zero Coupon Bonds and Advanced Investing Topics: Unicorns and Pre-Unicorn Scalable Private Company Propositions.]
Kristina Parren is an associate editor with Financial Poise. Since graduating from the University of Michigan in film and screenwriting, she has worked as a copywriter and grant writer across multiple industries, including healthcare, finance, manufacturing and travel. In addition to her work as an editor and copywriter, she is an avid wildlife conservation activist,…
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