What to do if you win the lottery...

thebrofessor's picture
Rank: The Pro | 35,775

First thing's first, do not buy taxable bonds with that much money, that'd be idiotic. That's what munis are for. You're welcome, I just saved you hundreds of thousands of tax dollars.

Next, do some thinking. What's important to you? $25mm is enough to retire on, but not enough to live like a celebrity on, so be careful. Are there any nonprofits you care about? Is there some career you've always wanted to do but it didn't give you the income you needed? I'm thinking things like ski instructor, golf instructor, charter boat captain, things like that. You now have the resources to do those things. or, do you simply want to continue working and allow the money to grow?

Once you've decided your general direction, hire an attorney, estate planning mainly. You want to have this money put into various trusts so that you can access it during your lifetime but also so there are some tax savings and creditor protections put in place. Also, you should be able to divorce proof some of the assets if you put them in irrevocable trusts before you're married. Sidebar: get a prenup signed.

Next, you'll need to manage the money, so I'd interview at least 3 financial advisory teams. Sure, you could manage it yourself, but there are 3 big risks to you losing all of this money: predators, your emotions, and overspending. A good FA will help you avoid all 3 of those and while you'll pay a fee for it, a good advisor at this level of assets is worth his weight in gold. If you need help choosing, feel free to ask.

Predators:

People will come out of the woodwork asking for help, tuition for some summer class, help with medical expenses, help with debt, new clothes, and more. Just say no. If you have a problem saying no, tell them "let me ask my broker," that will usually shut them up because your broker won't advise that you give away all your money. What I'm not saying is don't help ANYone. If I had that much money, I'd definitely clean up all my parents' debt and any medical expenses they needed, but where you get into trouble is by improving the lifestyles of other people.

Your emotions:

It's my guess you're under 30 and have limited experience investing (you mentioned your associate, so that tells me you're an analyst, likely in banking). Your emotions are the devil. At your level of assets, most advisors will recommend something called a "core-satellite" model, which basically has a balanced stock/bond allocation at its core (say 50/50, 60/40, etc.) for the bulk of your assets (say 15mm), and 10mm of satellite strategies, maybe 1mm in a trading account that you control, 2mm cash, 5mm in PE (good advisors will have access to PE deals you can't participate in off the street), and so forth. Sure, you could put the whole amount in vanguard, interactive brokers, eTrade, but how much time do you want to spend on your investments? If you want to do that, knock yourself out. I think it's a stupid idea, and I invest other people's money for a living. If I came into that much money, I'd hire a team to manage it for me, and then I'd go to the beach. Having someone to run your decisions by on a regular basis is important, especially since they'll have more experience than you.

Overspending:

Don't buy a $5mm house, don't start buying ferraris, don't buy a private jet. Assuming you're only spending the interest from your assets, at 2% div yield/muni coupon, that's only 500k/year after tax or a little over 40k/month. Your goal should be to not draw down the principal of this money. On 40k a month you can live a wonderful lifestyle, but you cannot own 3 properties in big cities, eat filet on a regular basis, charter jets to exotic locations for all of your friends, and so on, without overextending yourself.

If it were me, I'd get all the legal/advisory/tax stuff taken care of, and take a year off. Maybe rent a nice place for a year (not just one place, maybe a loft in NYC for 3 months, beachside house in australia for 3 months, backpack europe, and then island hop for another few months in the south pacific) to see how you like it, travel, volunteer, and so on. When you get back to reality, you'll know if you can do that on a constant basis. At this level of assets, you could really just dick around for the rest of your life, but my guess is you'll want something else out of life. It's my guess that "something" isn't investment banking or business school.

Feel free to ask more questions either here or via PM, I have to answer this question from time to time if a wealthy client dies and the kid is wondering what to do.

Mod Note (Andy): This comment from 7/20/16 was originally posted in the thread Just won lottery ticket and received 12 silver bananas so we thought it deserved its own spot on the frontpage

Comments (39)

Best Response
Nov 14, 2016

I really wish I could apply all of this valuable advice.

    • 6
Nov 15, 2016
SureThing:

I really wish I could apply all of this valuable advice.

Amen

Nov 15, 2016

I'm curious as to how many in here actually buy lottery tickets

    • 3
Nov 14, 2016

k thanks, I just DM'd you.

    • 1
Nov 15, 2016

hey gridironceo, can you hook me up with tuition for some summer class, help with medical expenses, help with debt, new clothes, and more?

Nov 18, 2016

Depends, can you hook me up with a bull shit fake job at a discreet and secretive hedge fund? Unfortunately with LinkedIn these days, its impossible to hide success. I can't just lie and say I made all this money from making a company.

    • 1
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Nov 14, 2016

If you win 25mm and the first thought you have is 'I should buy munis' then everyone around you should kick you in the balls. That's like being the dude in the Parable of the Talents (Jesus Investing) who puts his funds in the ground. Vet them advisers and go with 1 or 2 and negotiate fees.

Nov 21, 2016

when were you a prick to me? To tell the truth its like white noise to me now :P

Maybe the guy meant the odds of getting an IB job, not the actual pay off(you earn every single penny)

But yes you need to pay your dues to get the success. Its up to you though to define "Success" to yourself.

But getting an analyst gig, thats just the start, PLENTY of people after an analyst gig settle for a life of mediocracy, and plenty of people come in at the associate level and achieve greatness.

i.e. did you know that the head of Investment Banking at Citigroup majored in Art for his bachelors?

With the American society, life is what you make of it. You can achieve greatness, you just have to work for it, it deosn't come to you on the silver platter

Disclaimer: The post above has been made by someone who is not currently employed in IBD, and has not had an interview yet...

Nov 21, 2016

The banker I was talking about majored in history as an undergrad and almost became a priest. Funny how things work out.

Nov 21, 2016

Which co-head is it, asp monkey?

Nov 21, 2016

Bob Druskin -President and Chief Executive Officer

Disclaimer: The post above has been made by someone who is not currently employed in IBD, and has not had an interview yet...

Nov 21, 2016
aspiringmonkey:

Bob Druskin -President and Chief Executive Officer

Disclaimer: The post above has been made by someone who is not currently employed in IBD, and has not had an interview yet...

FYI, Bob Druskin is not an Ibanker. Yes, he is currently the President and CEO of Citigroup Corporate and Investment Banking. However, his backgrouand is in management and has risen through the ranks of typical management such as CIO, COO, CEO. The co-heads of IBD are Ray McGuire and Alberto Verme.

Nov 21, 2016

for a while have know idea what they are worth because they dont shop around - they are all about the stability - which is worth something - but I have seen people taking it up the @ss earning $55k when they are worth $150 and have no idea because they have been there 15 years and the company 'treats them right' what a joke

Nov 21, 2016

Partially as a function of how much time you spend in the office, there are few jobs in which you can learn so much finance so quickly.

Also in the future, nobody will ever be able to question your work ethic. In the end, the future is what you make of it, but banking is not a bad start.

Nov 21, 2016

what I meant by my post, is that you can get to the top even if you don't have the traditional background.

Disclaimer: The post above has been made by someone who is not currently employed in IBD, and has not had an interview yet...

Nov 14, 2016

Without a doubt I'm buying a house in Costa Rica and opening a coffee/beverage stand near the beach.

    • 1
Nov 15, 2016

same

Nov 15, 2016

in - baristas for days on WSO

Nov 21, 2016

This was strangely funny... two lonely ppl on a Friday night I guess

Nov 21, 2016

Were you at the happy hour yesterday?

Nov 21, 2016

No. Unfortunately couldn't make it

Was the thread an inside jk?

Nov 21, 2016

Speaking of jackbot how well do these lottery firm do. I am considering a job with one internationally. Do they have good returns, perhaps say 40% return rio. Do tell folks

Nov 15, 2016

I would definitely open up a modern wood (scandinavian style) interior coffee shop in Colorado that sells weed/brunch/coffees.

And....of course have a thug life sesh with my crew. My dream is to smoke with snoop dogg ^^

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Nov 15, 2016

There have been at least 5 lottery winners on this forum. Must just be a lucky group.

Nov 17, 2016

You have any insight on what they did with their winnings/job life?

Nov 17, 2016

you serious Clark?

Nov 15, 2016

I'm 0/2 in lotteries lifetime. Third time's the charm though right...

    • 1
Nov 15, 2016

I was thinking about quitting my day job to focus my energies on winning the lotteries. thx for advice, should be useful

edit: I do enjoy these types of what-if scenarios tho

Nov 16, 2016

Buy loft in SOHO, buy ski shack in Vale, buy car.

Nov 17, 2016
WannabeBankerr:

Buy loft in SOHO, buy ski shack in Vale, buy car.

It's "Vail"...BRO.

Nov 17, 2016

I was referring to the less prestigious MM cousin of Vail, Vale.

Nov 17, 2016

You're an idiot

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Nov 17, 2016

So what is the recommended allocation to lottery tickets these days? 10% of discretionary spend? 30% if the Powerball is over $300mm?

Also, don't forget to tell these people to buy loads of gold bullion. And a landfill or aggregates quarry. Set up your family for generations...

Nov 20, 2016
Comment
Nov 20, 2016