$50 Million In Cash… Just Gone!
The Dynamic Wealth Report
October 6, 2009
All of the online blogs are talking about her. Some of the trashy
newspapers are digging up old pictures. The latest storm to hit the
celebrity world is news about Courtney Love’s finances.
The name should ring a bell for those of you listening to grunge music
in the 1990s. Courtney was the wife of world famous Nirvana front man
Kurt Cobain.
You might remember him as the idiot who blew his head off with a
shotgun… he thought life was too difficult.
Cobain left behind a wife (Courtney), a daughter (Francis Bean), and a
music catalog worth hundreds of millions. Some estimate the royalties
alone generate several millions every year. It’s reported that just a
few years back Courtney was in a financial pickle. She needed to raise
some cash and she sold part of her dead husband’s music catalogue for
$50,000,000.
Now just a few years later, Courtney’s back at square one. She’s in
another financial crisis. Apparently she blew the first $50 million and
has a whopping $125 left.
Of course these might all be rumors. I have yet to find a reliable
source.
If this story is even remotely true, it’s a sad state of affairs. I
guess having that much money is difficult…
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This story got me thinking… What should Courtney have done with her
money?
My answer might shock you.
Remember, I’m not some fancy money manager. I don’t have an MBA or any
other fancy initials after my name. Nope, all I have is some common
sense…
If I were talking to Courtney, here’s what I would have told her to do.
First, take $2.5 million dollars and go crazy.
That’s right, go wild. Buy clothes and shoes. Take all your friends on a
‘round the world trip. For a few months, don’t worry about the money.
Pick up the tab. Buy a new car or two. Tip your waiter $10,000 cash.
Party it up. (That’s one thing I’m certain she can do – party like a
rock star!)
Blow the first million or two just for fun!
Get the need to spend out of your system… then plan for the long run.
After she’s done with that first chunk of change, she should put 20% of
the money (about $10 million) in nice, safe, secure government bonds.
This guarantees a nice steady stream of income without much risk.
Bonds are yielding around 3.2% right now. With $10 million invested,
she’d make $320,000 a year in income. That’s her safety cushion. It’s
not exciting, but then again, it’s not supposed to be.
What’s next?
I’d next suggest she take half of the money and put it in dividend
paying stocks. A nice assortment of leading companies from around the
world. She shouldn’t focus on just the US markets. Look to major
European and Asian corporations as well.
Focus on companies paying a nice dividend that’s been growing over time.
I like dividend paying stocks for three big reasons.
First, dividends are hard to fake. It gives me some comfort these
companies are actually making money.
Second, it gives us the combination of income and growth. We make money
from the dividends and still capture the upside potential of growing
stock prices. The average dividend yield for S&P 500 is just over 2.5%. Yet, more than 40 companies have yields over 5%... not a bad return.
The third benefit is dividend growth. As companies grow, so do their
dividends. As a matter of fact, the average dividend growth rate since
1940 is 5.7%.
A diversified portfolio of dividend paying stocks could be throwing off
dividends of about 5%. If that dividend grows by just 5% for the next 20
years, Courtney would see her income grow to more than $3 million a year.
Nice work if you can get it!
The last 25% I’d split up two ways. I’d invest 15% in emerging growth and
small capitalization ETFs. The last 10% I’d keep in a mix of cash and
short term treasury bills. That way Courtney has a stash of money for
those unexpected emergencies… like paying your lawyer to get you out of
jail, or for a needed detox/rehab clinic.
If Courtney’s smart, she’ll find someone to help manage her money.
Unfortunately, I think that train has left the station. At least you
know what to do if you ever find yourself holding $50 million in cold
hard cash.
More signs the IPO market’s heating up… one of Brazil’s largest banks
and America’s largest property and casualty insurance company are set to
go public this week. Banco Santander Brasil is looking to raise $7
billion. Verisk Analytics is raising $1.7 billion. The successful
completion of these two offerings will attract others to the
marketplace. Hold on tight, this market’s just getting hot.
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