If you’re trying to figure out how to become an entertainment investor, you should carefully weigh the pros and cons prior to investing. Although the entertainment industry might sound like a glamorous way to invest your money, it’s also notoriously risky. Oil and entertainment are often thought to be two of the riskiest investments with some of the highest chances of striking it rich. Risk and reward tend to go hand-in-hand when investing, and you can make and lose large sums of money when investing in entertainment.
The main factor that makes investing in entertainment is so risky is that the market is extremely unpredictable – even seasoned industry pros cannot predict with 100 percent accuracy which projects are going to take off, and which will flop. Although a film may have all the key ingredients, including star power, a well-know director, and an engaging story line, the film can still tank, while another production with none of these elements, can be a surprise box office hit.
You should only invest money into the entertainment industry that you don’t mind never seeing again. Thus, if you are looking to fund your retirement or make quick cash to get out of a negative financial situation, this probably isn’t the investment option for you. However, you don’t need to come up with the budget of an entire film, or a platinum recording to start investing in entertainment. You can become an entertainment investor by funding a local independent film, art project, or recording session. Independent projects typically have lower budgets, and you can even become an investor with only a few hundred dollars. There are thousands of independent films produced, and if you happen to invest in the next Robert Rodriguez, you could see a large return.
You can also increase your odds of making a solid investment by looking at an artist’s previous track record and quality of work. For example, if you’re investing in a band, you should have the opportunity to hear them play before making a decision, and if you’re investing in a film, you should have the opportunity to view the filmmaker’s previous work, a trailer, or a script. However, there are reasons to invest beyond a profit motive, such a contributing to the arts, or funding a project with a message in which you feel strongly about.
One of the safer ways of investing in the entertainment industry is to invest in entertainment stocks or mutual funds. Although people typically don’t bring up the stock market when discussing safe investments, that’s how risky it can be to invest in the entertainment business. The reason these funds are a safer investment option is because of the inherent diversification. By investing in a fund that finances multiple projects, even if one flops, the other successful projects can offset the loss. Large entertainment companies that select multiple projects to produce within a certain period of time are also using this strategy to offset their risk and stay in business. If you aren’t interested in buying stocks or a mutual fund, you can consider funding multiple projects or artists, which substantially offsets your risk. This is a strategy only available to high net worth individuals, but it can be quite lucrative.