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How much can someone make with $150mn?
October 6, 2013 12:05 PM   Subscribe

Miley Cyrus is worth $150 million. Supposing she had that all in cash, if she wanted to retire today, how much could she count on making a year on investments, indefinitely? That is, given current conditions/interest rates/etc. I have the impression that people with that much money can do a lot better than your average rube like me with a 401k, but I'm not sure that's correct or by how much.
posted by ftm to Work & Money (22 answers total) 5 users marked this as a favorite
 
If she had it all in cash, she wouldn't have any in investments or other interest-giving financial instruments.

If she had $150mm in cash and put it all in a "high yield" savings account, at a 0.9% APY she would make $1.3 million a year in interest.

That said, I assume you're right and that a financial planner would have all sorts of better ideas than just a savings account.
posted by Sara C. at 12:24 PM on October 6, 2013


There is no definitive answer to this question because you could do so many different things with this kind of money. Real estate, private equity portfolio, buying a business, etc. Even just buying an annuity involves a myriad of options.

You could also burn through it all and go bankrupt, which too many celebrities, pro athletes, etc do.
posted by wutangclan at 12:29 PM on October 6, 2013


The rule of thumb is you can extract 2% per year while maintaining your capital. There will be years where that means your capital grows by a lot and other years where that means you lose 20%.

So call it $3million per year she can spend.
posted by Justinian at 12:29 PM on October 6, 2013 [2 favorites]


There is no high-yield investment that doesn't involve risk. Most of the "wealthy celeb goes broke" stories are about people who had "friends" advise them on "can't miss" investments.

Historically, the stock market has yielded about 10% per year. There have been "corrections" like the Depression and recent crash, but if you just hold on long enough, there is always a recovery. So an investment in mutual funds is safe if she a) waits long enough and b) the US government/financial system doesn't suffer an irrevocable crash.

As a younger person, Miley can buy and hold. As she gets older, it's typical for people to be advised to switch more of their investments into lower risk instruments, because they need the money sooner.

I'm not a financial adviser but it comes down to: There is no magical type of investment available to rich people that the rest of us can't have. Their advantage, especially for a younger rich person like Miley, is that they are unlikely to suffer a crisis (loss of job, medical emergency) that makes them sell their investments prematurely at a loss. So they can think long-term.
posted by drjimmy11 at 12:30 PM on October 6, 2013 [3 favorites]


It depends on what your goals are; sometimes when you make enough money you can afford to *not* pursue higher return, in exchange for less risk. If you were willing to hold till they matured, 30-year Treasury bonds are currently returning 3.72%, so you would be getting a check for $465K every month for the next 30 years.
posted by wnissen at 12:30 PM on October 6, 2013 [6 favorites]


Just as a basic dum-dum move, if she were to invest that money fully into a money market savings account at my credit union, she'd currently get a yearly return of .2% on it, which would mean she'd make $300K a year doing absolutely nothing. A money market has slightly better return than a regular savings account, but less than a CD or something similar. If she wanted to get a little better, she could start a cascading series of CDs, which would get .35% interest at 1 year, but up to 1.6% for 5 years, so if she divides the money up equally into 5 $30mil investments, one each invested in a 1, 2, 3, 4, and 5 year CD, and then rolled them all over into 5 year CDs as soon as they matured, she'd eventually be looking at $480K a year. You wouldn't normally want to do that because of the maximum insured amount from the FDIC or NCUA being much less than $30mil, but the vast majority of people would be doing extremely well to be making that much money just to be sitting around watching TV or whatever.
posted by LionIndex at 12:31 PM on October 6, 2013


I serve on the Board of Trustees for a non-profit organization with a portfolio that is in the millions of dollars (though much less than $150 million). Unfortunately, the return on fixed income investments (money market accounts, CDs, bonds, etc.) is pretty much the same as what's available to your average individual investor.

Someone with $150 million likely has access to more exotic investments like hedge funds that are closed to others, but this doesn't necessarily make them better investments. For good examples of things gone wrong, consider all the celebrities that have made and lost millions (such as MC Hammer, Willie Nelson, Burt Reynolds, Donald Trump).

On one hand, you can pay far less in fees when you have assets in this range. On the other hand, you have some new headaches such as having to set up multiple accounts because you easily exceed FDIC limits.
posted by tomwheeler at 12:34 PM on October 6, 2013


She can also figure on a general average inflation of 2.5-3% which means that her annual returns ($300K to $1.3million as mentioned above) would be worth less and less every year.

Since she's turning 21 this year, and still has substantial earnings potential (that wrecking ball endorsement deal should be coming in any day now), she'd secure her retirement (and probably her dad's retirement) and then put the rest in some riskier investments, and convert those to more conservative as she gets older.

Whether I like a celeb or not, I always hope they get good financial advice, and see the value in paying for good financial management people. It's gotta be hard to plan a realistic future inside the reality distortion field.
posted by Sunburnt at 12:45 PM on October 6, 2013 [1 favorite]


The general rule is that you can sustainably withdraw 4% of your savings indefinitely. That includes accounting for inflation. So without any other future income she can pretty safely spend $6 million a year in 2013 dollars, increasing over time due to inflation.
posted by dfan at 12:51 PM on October 6, 2013 [4 favorites]


I'm not a financial adviser but it comes down to: There is no magical type of investment available to rich people that the rest of us can't have.

That's not exactly true. Anyone can stick money in a mutual fund, sure. But investors in registered hedge funds are generally required to have more than $1 million in liquid assets; for unregistered hedge funds it more than $5 million. The reason is that such funds use riskier strategies than traditional mutual funds, and therefore ought to be aimed at "sophisticated" investors, according to the SEC's way of thinking. Whether they're worth it is a whole 'nother question, but the definitely not accessible to any old investor.

Plenty of private equity firms only seek capital from wealthy investors, also ---mostly institutional, but you can be sure whatever individuals get in are also very wealthy. Ditto venture capitalists.
posted by Diablevert at 1:12 PM on October 6, 2013 [5 favorites]


Apologies for the piggyback question: is Miley Cyrus really worth that much? That recent NYT article about Daniel Radcliffe estimated his worth at $80 million; does Cyrus really have nearly twice his wealth?
posted by torticat at 1:57 PM on October 6, 2013


Miley Cyrus owns the "Miley Cyrus" brand. Daniel Radcliffe was paid well for a bunch of movies over the past ~15 years, but has a relatively smaller earning capacity at this point.

Nobody would fill an arena to see a Daniel Radcliffe concert, or line up to buy his new CD at midnight. Miley owns a very valuable asset, and that might be figured into any estimation of her net worth.
posted by Hatashran at 2:16 PM on October 6, 2013 [2 favorites]


Further to "owning" "the Miley Cyrus brand", Miley Cyrus most likely literally owns some kind of shell company that was created for the purposes of furthering her brand. This is why the Olsen twins are so wealthy.

The business opportunities as a pop star slash free floating celebrity are a lot better than the opportunities for an actor, in terms of sheer dollar value. If you're Daniel Radcliffe, you're an employee who is hired by a company to do a job. For which you are paid handsomely, it's true, but that's where the relationship ends. If the movie makes half a billion dollars, you still only see the $10 million they paid you*. However, if you're packing arenas every night, all that money is coming to you, not some company that hired you.

The converse is that the pop star thing is much riskier, since there's only a tiny window for actually bringing in that kind of money.

*This is why a lot of actors start production companies.
posted by Sara C. at 2:24 PM on October 6, 2013


You would have to account for taxes on investment earnings as well, which, if she did not earn another dime of outside income would have to come out of those investments as well. So that also erodes her earning power a little bit.
posted by cecic at 2:26 PM on October 6, 2013


As mentioned, it depends on what she does with the money. She may get greedy and give it all to the next Bernie Madoff, or at the other extreme she could decide that she has enough and doesn't need to grow her wealth any more, just preserve it. This is what Suze Orman does, and she was widely ridiculed when she stated that most of her money is in bonds, when her advice to the general public is to invest in stocks. The rejoinder to that of course is that she has millions of dollars and just needs to keep it safe, meaning lower-risk, lower-return investments, as opposed to her middle income audience saving 15% in a 401(k) and hoping it grows into enough to be able to retire.

Similarly, the 4% safe withdrawal rate assumes you are trying not to eat into your principal; if you have so much money that you don't care if that $150 million turns into $50 million by the time you die, you can withdraw more than 4%.
posted by payoto at 3:31 PM on October 6, 2013


How much income she could generate would be more or less a function of how much risk she was willing to take. Extremely conservative (really to the point of being stupid if you have that much money) would be in the 1-2% range. Decent returns for a conservative portfolio would be about 4% above the inflation rate. So, as mentioned above, she likely could make around 6 million a year without spending the principal down, but really, why not spend the principal down if you are so inclined? If I was in that situation I would entertain spending / donating something in the 5% annual range.
posted by jcworth at 3:55 PM on October 6, 2013


If you wanted to invest in the safest thing without having to worry about FDIC limits, you could do T-Bills. A ten year yield is 2.6%. That's respectable. So you ladder them, splitting the investment into equal parts so that the bills mature annually, you take the interest and reinvest the principle in another 10 year bill. There are things you can do to buy in discounts, which increase your yields.

This is the no-risk investment strategy. You're not going to make piles of dough, but you'll make a decent chunk.

If interest rates go up, your T-bills will yield more.
posted by Ruthless Bunny at 4:55 PM on October 6, 2013 [2 favorites]


torticat: according to Celebrity Net Worth*, she is.

*I don't know exactly how they CNW gets their estimates, but they are often cited as a "source" so they're probably as accurate as you're gonna get without actually knowing the celeb in question.
posted by radioamy at 9:09 PM on October 6, 2013


With $150M, you should be able to influence small state governments and civic councils into routing money your way. Privatizing a small utility and handing it over for a 30 year contract to a private entity should ensure you a nice income.
posted by benzenedream at 10:34 PM on October 6, 2013


ftm: "if she wanted to retire today, how much could she count on making a year on investments, indefinitely?"

Your question isn't stated as such, but basically comes down to "how are University endowments and pension funds managed?" You may be interested in reading an annual Yale endowment update to get an idea of how they operate. The answer is that while they have access to pretty much the same things as in your 401k, they have a few alternatives that make up a disturbing amount of their overall portfolio.

They allocate 35 percent to private equity, which is a) huge and b) a black hole. They then allocate 18 percent to 'absolute return' --code for performing arbitrage in options and credit default swap markets etc -- for which they estimate a profit of 5 percent with a risk of 12 percent. Apparently they really like the lack of correlation there. They're also heavily in real estate, though I don't know how much of that is university occupied property.

Anyways, those asset classes are basically offlimits to us mortals, and I'm not sure it's worth the price of entry -- they employ a large staff unit for private equity, and it's basically impossible to come up with a fair market value for their holdings. It could be that when the
2013 update comes out we find out their holdings were more like Zynga than FB. Or Madoff.

Based on these investments, they feel comfortable spending between 4.5-6 percent. This is a number designed to basically allow Yale to live forever. And given that they've basically grown the Fund substantially, they may be underspending a bit. Assuming Miley Cyrus intends to live forever, 4.5 percent of $150M is 6-7 million dollars a year in income.
posted by pwnguin at 12:23 AM on October 7, 2013 [3 favorites]


Not to be unduly argumentative, but I would quibble with pwnguin's answer slightly: the way Harvard and Yale manage their endowments is an aggressive, unusual and riskier investment model that's not the standard rich-person package by any means. It's definitely becoming a more popular model, but I wouldn't presume you could look at what they're doing and assume that's what a pop star's advisors have her doing. (Nor, frankly, that Yale's fund managers have the right of it when they presume the college is safe to draw down 5 percent a year without impacting their principal. Yale and Harvard both lost big in 2009, though they've recovered since.)
posted by Diablevert at 10:25 AM on October 7, 2013 [1 favorite]


Her "$150 million" worth would likely be much, much less if she were to retire, as her estimated worth is likely also based on future projects and continually working... not her current library of content, investments, etc.
posted by Unsomnambulist at 3:47 PM on October 7, 2013 [1 favorite]


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