Imagine the self-restraint needed if you received a multi-million dollar signing bonus or advance from an employer? It’s the blessing and potential curse that professional musicians, actors and other celebrities wrestle with when they reach a certain level of success.

Coming into a lot of money at once can trigger what experts call “sudden wealth syndrome,” an affliction of people who have trouble adjusting to the quick shift from penny pinching to privilege. It often leads to overspending and can sometimes leave the person worse off financially than before they hit the big payday.

Investing for the long game and building a balanced portfolio may not be sexy, but it will set you up for a sound financial future.

Planning for tomorrow

“It all boils down to cash-flow planning from day one, all the way through retirement,” said Paul DeLauro, senior vice president and manager of wealth planning for City National Bank.

But unfortunately, people who make large sums of money quickly can lose it almost as fast if they don’t manage it properly – celebrities included.

Career changes can also leave those who come into sudden wealth cash-strapped. Consider that an injury or illness can end a performer’s career in an instant. Or that a musician’s second album may not be as successful as the first.

Sudden wealth can be a problem in particular for younger celebrities, many of whom will likely have a longer retirement timeline to fund and less knowledge of investment management to fall back on. Older media and entertainment professionals can also have trouble adjusting to a different lifestyle once they stop performing or touring, with less or no money coming in. 

An investment plan is likely the last thing celebrities want to worry about after making it big. Still, DeLauro said, more are realizing the importance of building a conservative, balanced and professionally managed portfolio, especially after seeing so many of their peers lose large sums of money on risky bets and so-called “guaranteed returns.”

Of course, some never learn, which is why DeLauro believes it’s up to the financial services industry to better train them for the long game of life.

The “Entourage” effect

One of the biggest challenges performers have is managing pressures within and around them to act the part of the celebrity.

“It’s the Entourage effect,” said DeLauro, referencing the HBO TV show about four buddies navigating the life of Hollywood’s rich and famous. “It’s cliché, but nonetheless true.”

DeLauro believes celebrities should enjoy their newfound wealth, while also saving and investing for the future. That means allowing themselves to buy a few toys, like a flashy sports car or a yacht, but keeping purchases within reason.

“They should retain some play money,” said DeLauro. “They will benefit from the emotional outlet that comes from buying some fun stuff. It’s true for all of us” within our own financial means.

But he said celebrities need to be on alert for what he calls “creditors, predators and thieves” that are looking to take advantage of their new financial status. Many celebrities have lost huge sums of money they entrusted to people or investment schemes they believed were legitimate – and that in some cases made them feel like they belonged to a special class of investor.

Consider the rich and famous – and the ordinary investors – who lost millions by investing their money with Bernie Madoff, only to discover that it was all part of a multi-billion dollar Ponzi scheme.

“Be highly skeptical of everything. Question everything,” DeLauro said. “Surround yourself with a team of professionals with different incentives, all working for your best interest. Build a plan to protect your wealth if you want to be successful.”

Wealth preservation ‘trumps everything’

For individuals who make large sums of money up front and aren’t sure how long their success will last, the focus should be on wealth preservation, said Jonathan Gold, director of RBC Wealth Management International in London.

“They’re earning far more than anyone could ever make for them in a financial services organization,” Gold said.

As a result, they should seek investment advisors and relationship managers who can maintain their purchasing power now and in the future. That includes their rainy day fund, retirement fund and establishing a portfolio and estate plan so future generations may also benefit.  

“It’s about protection of current and future wealth,” Gold said.

They also need to diversify their assets, like all investors.

“Too many assets [may be] high-risk and are correlated to each other. If one goes wrong, they all go wrong,” Gold said. “They may have a number of different investments that sound interesting and fun, but do they have the right people that can step back and view the bigger picture?”

DeLauro recommends that his clients treat the lump sum they receive from a bonus or contract as though it’s the only income they’ll ever earn. That means spending and investing it wisely for the long-term.

 “It’s about building a nest egg, not blowing it,” DeLauro said. “Wealth preservation trumps everything.”

The value of the brand

To drive home his point about protecting and preserving wealth, DeLauro said he often highlights to clients the economic value of their personal brand. It can be an incentive to make prudent investment decisions

“They should focus on cultivating their brand,” DeLauro said. “If they can focus their behavior on the economic value of their image, they will be successful.”

Some celebrities try to build their brand through side business investments, such as restaurants or clothing and accessory lines. While it has been hugely rewarding for a few, such as Paul Newman and his salad dressing, or Victoria Beckham and her fashion house, the risk of losing money is high.

Of course, many celebrities also engage with philanthropic causes as a way of giving something back to their communities and bringing added value to their personal brand.  

“Social capital can be just as important as the actual capital,” said DeLauro. “ A lot can be done to stroke the ego, but doing good for the community is also good for the soul.”

There’s a lot of good that can come from reaching the top of your game, including the wealth that comes with it.  The key is managing it in a way that makes you look back on your legacy with pride and no regrets.