If you won the lottery tomorrow how would you invest the money?

EthanR answered 2 years ago …

Interesting question, given the fact that a rather high percentage of lottery winners end up broke in just a few years! Great article below on this subject:

http://articles.moneycentral.msn.com/SavingandDebt/SaveMoney/8lotteryWinnersWhoLostTheirMillions.aspx

Therefore, asset preservation is the first item on my list. The only problem with this question is that you haven't said if the Lotto was paying 1 million or 100 million, and that could make a big difference in my answer. So I will assume we are talking say 5 million.

First decision that I make is to take the lump sum, not the annual payments. Take it while you can get it! I assume the taxes will already taken out and paid to Uncle Sam.

The second thing I do is to pay off the mortgages on three rental properties that I own. Now they are secure and there is a lifetime of income from them.

Third thing I do is to set up an annual automatic withdrawl system from my bank to gift the tax free maximum (currently $12,000 per year) to my only three living relatives. That's a small investment in their future. If they need more than that for legitimate things, we can talk about that too.

Fourth thing I do is to contribute an annual sum of $20,000 to my favorite charity, which is each of the three animal shelters in my city. These people take care of hundreds of the most innocent of victims, the dogs and cats who are routinely abandoned by insensitive people. Perhaps I would even offer $500 to each person who adopts one of the dogs or cats in the shelter on a particular day. But they don't get their money until and unless they can verify a month later that they still have the pet!

Of the remaining money, 65% of it would be dollar cost averaged each month into the following:
Vanguard 500 fund (S&P 500 Mutual Fund)
QQQQ (Nasdaq 100 ETF)
DIA (Dow 30 ETF)
GLD (Gold ETF)
Fidelity Advisor High Income Advantage Fund (Bond Fund with the best last 5 year performance record, a compound annualized return of 15.28%)

Hopefully these investments will offer both stability and an annual average return of perhaps 7-10% a year.

10% of the remaining money would go to buy a summer home on a beautiful lake or river somewhere in a very rural part of the Northern United States, perhaps Maine or North Dakota, Minnesota, etc. Just take me out of the brutally hot summer of Florida! I want to canoe or row on the lake in lovely 75 degree weather.

20% of the remaining money would go into a money market. Part of that money would be used to start one of the many businesses that I always dream about, but never do! I would have to get someone else to run it though, as I will be on the lake, with my cell phone turned off!

The last 5% of the remaining money would go into my travel fund. There are a whole lot of places that I have never seen, and I would take several trips over the next few years. And oh yes, I am going to hire a personal chef, who will create only organic meals, and a fresh glass of homemade juice every morning. No hotel food for me!

I think this allocation creates a healthy balance of lifetime economic security, charitable giving, and self-enjoyment. And that's what lottery winnings should be about.