What a Finance Expert Would Do if He Won the Lottery

Eric Rosenberg

Updated Mon, Oct 1, 2018, 3:07 AM

Americans spent $80 billion on lottery tickets in 2016, according to the North American Association of State and Provincial Lotteries.
Despite that startling figure, many Americans don’t buy lottery tickets with any regularity, presumably because they’re not willing to take the gamble. (The odds of winning a Mega Millions jackpot are about 1 in 259 million.)
One such American is money pro and creator of Personal Profitability, Eric Rosenberg, who shared his views on playing — and winning — the lottery.

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Who hasn’t dreamed of what they would do with a massive lottery jackpot? With Powerball jackpots regularly going into the hundreds of millions of dollars, who wouldn’t want a chance at taking home the big bucks?

Me. That’s who.

Despite the temptation, I never buy lotto tickets. They’re simply a bad investment. But, if I were to win somehow, let’s take a look at what I would do with that multimillion-dollar payout.

Diverse Investments for the Win

The first place I would put a big portion of my winnings would be a diverse investment portfolio. Investing my winnings would help my investments grow over time, while giving me a cash flow to live on without ever touching the principal. I have my eyes on you, S&P 500.

For every $1 million you invest, you could potentially draw $50,000 per year without drawing down your starting investment, assuming a 5 percent annual rate of return. With $100 million, you could pull out $5 million per year without tapping into your winnings.

It might sound like a struggle to Mark Zuckerberg or Jeff Bezos, but I could get by on $5 million per year just fine if I cut back on incidentals — you know, things like Ferraris and private jets.

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Convert Cash Into Generational Wealth

In investing, we never put all of our eggs in one basket. In addition to diverse index funds, I would put a significant chunk of my wealth into buying long-term investment properties. While there is some risk in real estate, people always need a place to live. That makes rental real estate a great investment.

I would hire a professional to help me scout out the best markets and properties for a buy-and-hold strategy. In addition to the 5 percent I could draw from my stock and bond market investments, a real estate portfolio could pay out an additional cash flow.

Just like I would avoid touching the principal in my stock market investments, I would plan to never touch the equity in the properties. I would want to pass them on to my children and grandchildren to create generational wealth.

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I’d Treat Myself a Little Bit Too

A recent GOBankingRates study found that the most popular use of a lottery windfall would be debt payoff, with 35 percent of respondents indicating that would be the first thing they’d do with their winnings. The second most popular answer (23 percent) was more selfless than you might expect: share it with friends and family.

I have to agree. But, after paying off my mortgage and my sister’s medical school student loans, I’d have to treat myself. I would only work on the projects I wanted to work on. I would spend more time volunteering. I would get some more flight hours in (I’m a private pilot and don’t often fly, due to the $100+ per hour cost). I might even buy myself a fancy car. But when I say fancy, I mean a high-end, reliable Toyota or Honda. Cars are a depreciating asset, so you wouldn’t see me spending big there.

Be Careful With Lottery Spending

The GOBankingRates study also found that the biggest buyers of lottery tickets are those who can afford them least. Those with an annual income under $25,000 per year were much more likely to buy lottery tickets than those with a higher income. These are the people who can afford to gamble the least. A dollar in the bank is worth a lot more than a typical lottery ticket or scratcher.

Though it’s fun to dream (clearly, I am guilty of dreaming about what I would do with a lottery windfall), the Powerball should not be part of your retirement plan. Even if you buy a big stack of tickets, your odds of winning are a rounding error. The chances you would take home a big jackpot are near zero — so, really, don’t waste your money.

If you still want to play the lottery, I advise that you treat it as entertainment. A few dollars here and there probably won’t break the budget, sure, but I know I’m better off putting my money in my IRA than the lotto. That is sure to give me a much better return on investment.

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