How to invest your Mega Millions winnings

The jackpot winner needs a boring investment strategy. Risk is not an option with this much money.

By MSN Money Partner Dec 17, 2013 1:13PM
Two Mega Millions lottery tickets. Credit: Jeff Roberson/APBy Jonnelle Marte, MarketWatch

The Mega Millions jackpot is now up to $636 million, with the next drawing scheduled for Tuesday night. 


Anyone lucky enough to pick the winning numbers may be tempted to make big plays with the cash. But investing pros say that person can live like a rock star even if he or she invests the winnings like a grandma.


Assuming one person wins all of the cash, the prize would be reduced to $341 million, before taxes, if the winner takes the cash in a lump sum. 


That's more than enough cash to cover multiple mansions, expensive cars, business ventures and several trips around the globe. But a lottery winner who invests the cash smartly can "still generate a multimillion-dollar income with very little risk," says Matthew Goff, a financial adviser in Houston. What's more, they wouldn't have to spend their main winnings.


The sheer size of the portfolio means the winner can be boring with their investments and still create a steady income stream. 


First, the winner must consider the cut of the winnings that must go to the tax man. The size of the prize means the winnings would be taxed at the highest tax bracket of 39.6%, reducing the payout to about $178 million. 


Taken to one extreme, investing the entire pre-tax jackpot in 6 month Treasury bills could earn 0.1% a year, or $178,000. Not that financial pros recommend being quite that cautious.


Goff says one option is to invest the majority of the winnings, or 60% of the post-tax cash, in high quality, short-term corporate bonds, where it could generate income of roughly $2 million a year. 


A fifth of the portfolio could be invested in short-term municipal bonds, which offer tax-free interest and would generate about $303,000 a year. About 15% could be put into U.S. dividend-paying stocks issued by large-cap companies, where it would bring in about $535,000 annually.


And the remaining 5% of the prize could be invested in emerging-market stocks, where it could gain about $293,000 a year. Altogether, the portfolio would generate an annual paycheck of $3 million.


To be sure, those annual earnings may be less after taxes. The newfound wealth that comes with winning the lottery would put the person in the highest federal tax bracket of 39.6% for any earnings above $400,000 each year (excluding any municipal bond interest). 


And the initial payout, or what would be invested in the hypothetical portfolio, would also vary depending on which state the winning ticket is purchased in. Winners in states like Pennsylvania, Florida and Texas, which don't charge state tax on lottery winnings, would walk away with the most cash, according to USAMega.com. Those in Maryland, which charges a state tax of 8.75% and New York, which charges 8.82%, would see the biggest tax bills.


Of course, the odds are not in your favor. The chances of winning Friday's jackpot were one in 259 million.


More from MarketWatch


38Comments
Dec 17, 2013 1:28PM
avatar
Many people do not realize the logistical headaches involved in managing this kind of money.  Not saying it wouldn't be a nice problem to have, but it's not like you would or should put it all in your passbook savings account.  And if you hire someone to manage it for you, you better be damn sure you can trust them.  Money has a way of making people do funny (and stupid) things, especially if they aren't used to having access to that much of it.

Dec 17, 2013 3:05PM
avatar

Most folks don't know the first thing on how to deal with this much money. Here are the most important ones:

 

1- Quit your job ! Why? because you have a new full time job now-managing your money.

2- don't tell ANYONE !!!!!!!!!!!! Most might say: if I win I'll give you this or that- don't let your ego spoil friendships/ family relationships. And if you do want to be generous, it can be from the 'heart' instead of a lawyers summons.

3- Hire a lawyer, a accountant, and a financial advisor. Have them separate and distinct from one another. Even though it's my business concerning finance, I would still hire someone that would have a independent & non-subjective view towards your finances. (two heads are better than one)

4- After you do all of this, then go get your winnings. Then find where the Queen Elizabeth is docked and get on it for a year.

Dec 17, 2013 2:44PM
avatar
Now that i know how to invest it, can i win it, please ?
Dec 17, 2013 2:53PM
avatar

Managing this money is a headache I'd like to have.

Dec 17, 2013 4:08PM
avatar
It's best to just get it every year for 30 years. Most people can't handle the money and will blow it, so if you have 14 mil coming to you every year then hopefully by the 5th year you got smart, educated yourself on investing, found out that everyone is after you only for the money and learned to invest it, if not you will live 30 years without worrying about money at the least. If you really wasted 30 years of 14 mil a year and did not learn anything then, you're a dumba$$ and hope you at least enjoyed the ride.
Dec 17, 2013 5:44PM
avatar
Investments, guess what, you JUST caught the investment break of Many Lifetimes, you don't need investments as much as you need to Preserve Capital. The Reason so many folks are BROKE after winning, they listen to far too many folks telling them what to invest in. From failing Business Ideas to crappy Stocks that are about to take a Huge Fall.

When you have $200Mil after Taxes, you don't need no stinking stocks investments, that's optional. Stocks should be the smallest portion of what you engage in. What you can do is invest in what I like to call the Family Business. Invest in sending your trusted Family members to school to Be Lawyers, Doctors, Tech Geeks, and Accountants. Buy several modest Home and make it part of a series of Farms. Get those Tax Benefits while at the same time having your own Food supply. Take advantage of GRAT and avoid future Inheritance taxes. The Govenment already has their 40% take, they don't need another penny.

Once you have established the modest Homes you will live in and how you will handle inheritance issues start looking at starting your own business. You have time, be patience. First order of Business, don't sink a ton of your money in any Business. You seek out investors to put their money in any sound Business start up ventures you envision. That's how Millionaires become Billionaires. You always put as little of your money at risk as possible, period. Remember, you already stuck investment Gold. Give to charities if that's what you want. Don't be a charity for other's bad investment ideas.

If you are not capable of running a business nor anything else and or don't trust your own Family, then you can seek outside help. But be very careful, folks are always out there take advantage of any Mistakes we make. Make sure you find real Professionals and you can track their work History and get info on whether they are Legit and can be held accountable. They work for you, not the other way around. You don't need High Risk anything, you just hit for $200mil, don't get Greedy. Preserve Capital is your most important Goal. Stocks are secondary.  Spend money as if you won $20Mil spread out of 30 Years in stead of the $200Mil you actually have. Eventually if you stagger out your short maturities in Triple AAA Bonds, rates returns will be so HIGH due to soaring National DEBT that your interest investment outcomes will be far larger annually than any stocks., You will never touch that $180Mil Principle. You can play around with stocks out of your $20Mil account. Just don't ever touch the $180Mil Principle of the other account, there is no NEED!

Or you can do what most Lottery winners do, blow it all on stupid ideas by being GREEDY when you already have hit the Investment payout of many Lifetimes. Your choice.

Dec 17, 2013 1:39PM
avatar

Yup a lot of "prep work" would need to be done; Even before you claim the money..

If you could claim with anonymity, all the better...

Some people would find out soon enough anyway..

Dec 17, 2013 3:06PM
avatar
The first thing trying to find a lawyer or  account that is not a scum bag. Good lick with that. Everyone will be to screw  you..... Just be careful  and good luck to who ever wins
Dec 17, 2013 4:20PM
avatar
Dual citizenship and move the money out of the country.
Dec 17, 2013 10:18PM
avatar

Don't know who did the math for this problem, but they need to go back and finish High School. If the tax rate was 39.6%, then the net cash would be $205.96 million, not $178 million.

 

341 x (1-.396)=205.96.

 

And this person is trying to give investment advice.

Dec 17, 2013 4:42PM
avatar

60.4% (remainder after taxes) of $341 million is $205.96 million, not $178 million.

 

Math is your friend.

Dec 17, 2013 5:26PM
avatar

Handling and owning large amounts of capital is nothing new.  Most people do it in their everyday lives.  The difference is in the scale.  It's not just a rental condo anymore but commercial real estate and shopping centers.  Not a few hundred shares of stock, but a few million at a time.  It's not just a little jewelry, but investment grade diamonds, art and volumes of precious metals.  You don't just buy a few things on sale, but instead you buy good businesses on sale. 

You would never try to build a house by yourself and you won't be able to do it all by yourself (not within a reasonable amount of time). You'd assemble a team and use their expertise to make informed decisions. You hire good workers to manage your holdings and do the day by day running of businesses and properties.  You compensate your team and workers well and hold their efforts in esteem to keep their loyalty.  

See, it's not all that hard because you're not alone to do it all.

Dec 17, 2013 2:52PM
avatar
Great, investment advice for one unknown person.  It will, no doubt,  be someone who never reads these pages.  Write some articles for all of us.
Dec 17, 2013 4:04PM
avatar
What I really would like to know is when you collect the money where do you transfer it (what accounts to setup, suggested reliable places, etc.)
Dec 17, 2013 3:56PM
avatar
Not sure I would put that much of the money into bonds right now.  With interest rates being as low as they are, they can only go up and the value of bonds will go down.  Municipal bonds have an added risk, with many cities and towns being nearly bankrupt (see Detroit).  Whoever wins the jackpot better know a lot about investing or take a crash course and get the best accountant, financial adviser and lawyer money can buy.   
Dec 17, 2013 6:19PM
avatar

Anyone and I mean anyone that says Ill keep my job should have the lottery taken from them and give it to someone else, you self righteous people if you are that give up your job so someone that needs one can get one.


Dec 17, 2013 6:15PM
avatar
give me all cash and gold and silver, screw investments, why make some jack **** rich by handling my funds
Dec 17, 2013 8:19PM
avatar
I have heard way too many horror stories about folks who won big and now are in bankruptcy, etc. Be smart if you are lucky enough to win. Be charitable. Put it to good use. If you are lucky enough to win, don't blow it. Keep a cool head. Remember, YOU are in charge of your winnings so be smart. Now all I have to do is win something, because I know exactly how I would handle it.
Dec 17, 2013 4:10PM
avatar
Why would anyone need to invest that amount of money?
Dec 18, 2013 10:19AM
avatar
Losers never win!

So why did you all throw your money away on lotto tickets?
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124
124 rated 1
267
267 rated 2
467
467 rated 3
605
605 rated 4
645
645 rated 5
691
691 rated 6
617
617 rated 7
459
459 rated 8
313
313 rated 9
130
130 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
BIDUBAIDU Inc10
BXTHE BLACKSTONE GROUP L.P10
CELGCELGENE CORP10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.