What To Do if You Win the $550 Million Powerball Jackpot
NEW YORK (TheStreet) -- If you're lucky enough to win Wednesday's $550 million Powerball jackpot, and you're not already a seasoned investor, you'll need to learn a lot overnight. In fact, even if you are a seasoned investor, you still might have a lot to learn about taxes, estate planning and managing your new found stardom.
On the subject of investing, consider that the Securities Investor Protection Corporation only insures your brokerage account up to $500,000. That means you'll need to take extra care in choosing where you park your money before you even think about what to invest in.
Also, your new-found riches may immediately elevate you from the 99% to the 1%, or quite possibly from the 1% to the 0.1%. If the fiscal cliff didn't mean anything to you before, perhaps it will now.
TheStreet has reached out to our stable of money managers, contributors and market experts for insight on how to invest a multi-million dollar windfall.Here's what they had to say in their own words.
Marc Courtenay, Advanced Investor Technologies: Finding a brokerage-house/steward that can handle investments in the hundreds of millions of dollars: My suggestion would be to find one that isn't publicly traded and has a stellar reputation for customer service and not putting pressure on the customer. An example would be Fidelity Investments. They have conveniently located offices that are pleasant to visit, and they will offer you a generous number of free trades when you open a large enough account. Where to invest money with respect to today's political and financial climate?: Begin with the stocks or preferred shares of the biggest, best-of-breed U.S. companies. They should pay at least a 2% dividend yield. I would suggest they subscribe to a respected investment educational service. Also invest at least 10% in physical gold (or use a physical gold publicly traded fund like the Central Gold Trust (GTU) or the SPDR gold shares (GLD) and 10% in physical silver (or ETFs like Physical Silver Shares (SIVR)). You should consider investing $10 million to $20 million with the 20 best money managers (Registered Investment Advisors) or mutual fund managers you can find, based on how they've performed. Bill Gross' PIMCO total return fund would be a good example. And ask your brokerage firm to provide you with an "Asset Allocation Strategy" or a diversified "Financial Plan" and a list of the best-performing funds for each asset class. Anything else that a lottery-winner would have to "learn overnight": Learn to ask a lot of questions and learn when to do "nothing -- sitting on your hands while you slowly, carefully decide what to do with your winnings. Ask successful people for a CPA recommendation, because the first thing you'll need to do after you verify your Powerball winnings is to calculate how much you need to pay in taxes. This way you can set aside enough money in cash or cash equivalents. Remember that your money in the bank is insured by the FDIC. Find out the current FDIC insurance limits per account.
Steve Cordasco, Cordasco Financial Network: Very simple: 100% U.S. Treasuries and a good tax attorney and estate planner. Let's do the math: 500,000,000 at 1.66% = $690,000 a month pre-tax. There is no need for risk assets. My motto: You can only eat so many steaks.
Rocco Pendola, Director of Social Media, TheStreet: Find somebody certified to handle your money and immediately fire them if they try to get you to invest it. Pay them double whatever they charge your friends just to keep them honest. Save it. Live off it. Don't invest it. Because Steve is right. There's no need to make this more complicated than it is. You're rich. Don't create problems for yourself by even using a fraction of your newfound wealth for something risky. Stay away from penny stocks, gambling, fine wine and women and you won't end up broke and on Oprah inside of 24 months.
Jeff Brown, Jeff Brown Finance: The first rule: Take it slow. With $500 million, you should be set for life. Even if you simply put it in checking accounts and earned no interest at all, you'd never have to worry about running short. So I'd slam the door on any advisers who offered "hot" investment advice that had to be taken immediately. I'd set aside a large chunk -- oh, let's say $50 million to $100 million -- for expenses, putting it into safe, accessible holdings like money markets. Then I'd put the bulk of the rest into broad index-style funds investing in stocks and bonds, because making market-matching returns would probably be enough to keep up with inflation. After that, I'd carefully look for an adviser very knowledgeable about taxes and estate planning.
Richard Saintvilus, contributor to TheStreet: The first thing that I would do is hire a tax attorney, certified public accountant and a certified financial planner. I would then spend the next year taking courses in political science. Because of the celebrity that my new wealth will bring, I would suddenly become a politician in my own family. Therefore, I don't think winning the jackpot is the type of problem I want to have. My immediate concern would be "how can I keep this a secret." In fact, I would repay 5% of it to the lotto authorities if they agreed to not publish my name in any connection with the prize. I just don't want to deal with all of the immediate expectations and "duty" that comes with it. My lifestyle would change, but not too drastically. But everyone close to me would expect their lives to change as well. How does one "fairly" manage all of these expectations? It becomes impossible to keep both your wealth and your sanity.
Jonathan Heller, KEJ Financial Advisors: Sudden wealth in the form of lottery winnings, can often be a curse and not a blessing. Money does not equate to happiness, and a sudden windfall can have consequences for the recipient. How often have we heard of new-found lottery winners losing everything? The new millionaire needs to be very careful; sudden wealth often brings "friends", family members and financial "advisers" (aka salesmen) out of the woodwork looking for a piece of the pie. A good tax professional is paramount; a CPA or CFP that can offer guidance regarding the tax issues, but one that is not selling investments. A fee-only adviser, one that is not compensated through the sale of products, annuities, insurance, etc., and can educate and guide is imperative. Estate planning also needs attention. The new millionaire needs to be careful not to distance him or herself from their finances, but needs to be an active participant. Handing over wealth, and not staying in the game in terms of the decision-making can be very dangerous. Fortunes have disappeared in cases where the client has had little or no knowledge of where the money was invested, and it's too late to educate yourself once the money is gone. It's also important not to rush into any decisions. A sudden fortune can be life changing, and it's ok to take a breather and get used to the idea before making any rash investment decisions.
Brian Sozzi, Chief Equities Analyst and Decoding Wall St. Portfolio Manager for NBG Productions: Congrats real-life fortune teller, YOU have just scored it big by hitting the Powerball jackpot. Now, I have been told before that I am a real-life fortune teller as well, so let me set up what is likely to happen next in your life. After screaming and yelling, or damn near fainting, you will hurriedly do a Google search using this keyword: "What to do if I win the lottery." With pen and paper nearby, you meticulously scribble down the oh-so easy basics, from banding together a team of lawyers and financial advisers to planning to crawl into a hole to avoid relatives to buying an island (land masses with lots of trees are still super affordable). Yes, you should definitely gather counsel by undertaking a thorough vetting process. But, here is the stone cold truth: none of the Google derived advice is EVER from anybody that has managed a lick money or let's be real about it, has EVER been enormously wealthy. The wealthy don't want to give you, the common person turned uber-rich, any advice on where to park money in the Cayman Islands or what charity would be the best to snuggle up to for tax breaks. Moreover, all of the initial internet advice will have you appearing weak as hell in front of fee mongers (aka your "counsel"), instead of looking and sounding confident (trust me, despite your newfound wealth, if you sound newbie-ish on the topic of money your account will be labeled "Dumb Whale"). What I offer are strategies in order to come from strength in this unfamiliar world of wealth, while establishing a foundation to build on winnings.
Place Money with a Money Manager at a Middle-Market FirmThinking a day earlier you never heard of Goldman Sachs (GS) or only knew it as a bunch of highly paid individuals that allegedly work 24/7: You are the common person, so stay humble and place the money with a middle market firm that could make YOU his/her #1 client. To a financial adviser at a KeyBank (KEY), for example, you are probably the whale account that will get preferential treatment on special money-making opportunities. At Goldman Sachs, you are still low on the totem pole to hedge funds managing billions of dollars. P.S. use FINRA to background check advisers.
Build a Warren Buffett Portfolio, FinallyFor years you have heard Warren Buffett extol the virtues of buy and hold forever investing. However, 200-point down days on the Dow has crushed your trust in the Oracle's value-building investing principles. Now, though, you have an infinite investment time horizon, so develop a list of companies with Buffett qualities (durable competitive advantage, for instance) and then share with your middle market financial advisor for him/her to execute the trade or suggest similar investments. Names on my list would be Amazon (AMZN), Starbucks (SBUX), Caterpillar (CAT), and FedEx (FDX). Notice no financials (regulations are killer) and tech (sorry Apple, in 20 years who knows where you will be).
De-Lever Your Personal Balance SheetOnce you cash in that lottery ticket the next day, I would FIRST pay off every single debt you have outstanding. Then, on day three, book appointments with lawyers, etc. My reasoning: you want to enter the meetings with as clear a head as possible, and a fresh balance sheet to present (also shows you have a savvy financial mind, and won't be taken advantage of by MBA and CFA braggarts).
Leave a Legacy of NOT Being Money DumbDo not be the dope that is a lottery disaster story, made so by blowing the money on assets that don't yield returns and ultimately, suck you dry. An island, a jet, and a McMansion are great examples of vanity investments, not profitable investments. I would go so far as to not buy entire blocks of homes in wealthy neighborhoods, too much government and Mother Nature attachment. Over time you will want to build a portfolio of hard assets, two that spring to mind are classic cars (these things aren't rolling off the assembly lines any longer) and a stake in a sports team (which will put you around other rich, winning people that could lead to business opportunities that earn you more riches!).
What would you do if you won the Powerball jackpot? Share your ideas in the comments below.
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