Get Rich in Three Steps

This article is published with permission from InvestmentU.com.

Last week, I gave a talk to Oxford Club members at the beautiful Ojai Valley Inn & Spa resort. I arrived on Sunday afternoon. The night before, the resort hosted a big celebrity wedding. Attendees included Ben Affleck, Jennifer Garner, Matt Damon, Ellen DeGeneres and Howard Stern.

In fact, I was told I was likely staying in the suite where Jennifer Anniston had spent the night before (if only I’d arrived a day early!).

Celebrities stay at posh resorts like this because, well, they can afford to. Of course it helps to be paid a few million bucks for a movie, but there are plenty of people with huge incomes who wind up broke (i.e., many ex-football players and boxers).

The key to being wealthy is not just to get paid a lot from your job

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although that certainly helps. What you do with the money you have is what truly creates wealth.

Three steps to wealth

Here are three things you can do to follow in the footsteps of several wealthy celebrities … and you won’t need a platinum record to do it.

1. Start a side business

Many celebrities now have lucrative side businesses. For example, rapper Jay-Z is worth an estimated $500 million and has his hands in several side businesses that generate substantial income. He started a record label and clothing line and is now representing athletes as an agent.

Actress Jessica Simpson is worth a cool $100 million. She used to be known for wearing Daisy Duke shorts. Today, she’s just as well-known for her line of shoes that are sold in Macy’s, Zappos, Dillard’s and many other stores. Her company also designs and sells apparel, handbags and jeans.

You can do the same. If you love designing clothes, start selling a few items online or out of your garage. If you’re interested in real estate, get your license and sell houses. You don’t have to be the biggest producer in the office. If you sell a couple of houses a year, you’ll make an extra few thousand dollars that can then be invested and turned into even more money.

2. Trust the right person

When you hear about celebrities who went broke, it’s usually not because they spent too much (although that is part of the problem). The real issue is that they lost a ton of money in speculative investments. Typically, they trusted someone they shouldn’t have.

Years ago, when boxing champion Sugar Ray Leonard was in his prime, his attorney told the media that Ray couldn’t even spend the interest his investments were making for him because it was so much. Unlike many professional athletes, Ray trusted the right person.

Today, despite overcoming a drug problem, Ray is worth an estimated $120 million.

So who should you trust to manage your money? As Alexander Green is fond of saying, “No one cares more about your money than you.”

If you’re reading this column, it’s because you have an interest in investing. Even if you’re a new investor and believe you don’t yet have the skills, you can manage your own money.

Read. Learn as much as you can about investing. It’s not rocket science, especially if you…

3. Invest conservatively

Many bankrupt celebrities, particularly the athletes, invested in very speculative schemes that didn’t work out. Why someone making $10 million a year would take unnecessary risks is beyond me. But they do.

To make money — even a lot of money — you don’t have to take on significant risk, as long as you’re patient.

For example, someone who invests in Perpetual Dividend Raisers (companies that raise the dividend every year) can expect to average 12% annual returns over the long term. If you earn 12% per year, your money triples in 10 years and goes up nearly 10 times in 20 years.

The kinds of stocks I’m talking about do not come with excessive risk. In fact, quite the opposite. The Kimberly-Clarks (NYSE: KMB) and Genuine Parts (NYSE: GPC) of the world tend to be much less volatile than the overall market. They go down less when the market sinks, and, because of their rising dividend every year, they outperform the market over the long term.

For example, Kimberly-Clark, the boring diapers and toilet paper maker, outperformed the S&P 500 by 43 percentage points over the past 10 years. Genuine Parts beat the market by 102 percentage points. Reinvesting all dividends, Kimberly-Clark outpaced the S&P by 64 percentage points and Genuine Parts beat it by 139.

Be smart, patient

A friend of mine knew the money manager of a ballplayer who would have been a sure thing for the Hall of Fame if his career hadn’t been tainted by steroids. But the guy made a ton of money during his playing days. His money manager had him in conservative income-generating investments. Today, he collects seven figures a year in income just from his investments.

You may not have the nest egg that he did (unless you happened to hit 400-plus home runs), but you can still generate significant income from your investments, while lowering your risk.

And best of all you can do it yourself, without having to rely on your entourage. That leaves a lot more money to be spent on things like college tuition, paying down a mortgage or nice vacations where you nearly run into Jennifer Anniston.

Marc Lichtenfeld is a senior analyst at Investment U. See more articles by Marc here.

The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock. Nothing published by Physician’s Money Digest should be considered personalized investment advice. Physician’s Money Digest, its writers and editors, and Intellisphere LLC and its employees are not responsible for errors and/or omissions.