winner Scotty McCreery will have to be country strong to handle the temptation of his new wealth, a financial expert told DailyFinance. "Show business can certainly be here today, gone tomorrow," said Mitch Slater, senior vice president of investments at UBS Financial Services (UBS) in Westfield, N.J. "You just don't know how long that success is going to be. You have to make sure the money lasts long after the success is gone."
We asked Slater to outline a financial plan for McCreery that isn't the same old song. The teen received more than $250,000 in for taking the top spot on season 10 of Idol and in advances for the album he'll record. Plus he'll earn tens of thousands for granting Idol licensing rights, according to reports, on top of the change he's making from the 173,000-plus iTune downloads this week of his single I Love You This Big.
As a middle-class 17-year-old who's embarking on a high-risk profession, McCreery is a special case, Slater said. But no one is so special they can forget about security. Slater, whom we should point out has no association with McCreery, devised what he called a "four-bucket" strategy for the newest Idol.
Investing for Four Phases of His Future
Slater suggested McCreery should pursue a college degree at some point, so his first bucket should be a university-backed 529 college fund. He can put some money in, and leave it there for a year or two while he gets his music career under way.
"The money grows tax-free until he takes it out for education," Slater said. The adviser notes that this suggestion doesn't imply pessimism about McCreery's long-term singing prospects (which improved when he signed with Mercury Nashville this week), just realism. "Here's my answer: Taylor Hicks and Lee DeWyze," the money maven said, referring to two Idol winners who weren't breakout hits. "They're not all big successes."
McCreery's second bucket should contain growth-focused but low-risk money markets, CDs and other cash equivalents for short-term needs. The interest is paltry, but "that's safety," said Slater, who handles the portfolio of social media guru Gary Vaynerchuk.
The third bucket should address his plans for 10 to 15 years in the future, when he might want a house down payment. A portfolio of 60% stocks (20% of that in international ventures) and 40% bonds is a solid way to go, Slater advised. The performer could invest in a traditional S&P 500 index fund, basically a composite of 80% of U.S. equities. "It's something that typically for every 10 years outperforms cash, with the caveat that in the last 10 years, nothing outperformed cash," Slater said. On the bond side, McCreery could further ensure his returns with Treasury Inflation-Protected Securities (TIPS). Their interest rate increases as the Consumer Price Index rises.
In his fourth bucket, Slater would have McCreery put higher-risk investments that can build wealth for retirement. Social media and natural gas plays come to mind -- "things that are truly part of the decade ahead," the adviser said.
Whatever the young star does with his money, he needs to drown out the cheers before handing it over. This is no audition. Once he invests, he'll pay penalties to undo any damage. McCreery turns 18 in October, meaning he'll have full control of his assets. Then he can decide for himself on a plan to which he can say, I Love You This Big.
"There is no rush to invest this money now," Slater said. "I have found that making decisions when you inherit money or suddenly become successful are best done over time. Everyone in the world will want to be his financial adviser. Sometimes the best advice is to wait."
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