Getting transparent investment advice is an obvious one, but what about the other two?
By now, you’ve most definitely heard about Mavis Wanczyk of Massachusetts winning the $758.7 million Powerball. As the winner of the largest undivided lottery jackpot in United States history, you’d think that she had it made. She never has to worry about money again, right? All of her dreams have come true, she doesn’t have to work again, and she has the financial freedom to do almost anything her heart desires.
But have you heard the news as of today? Ms. Wanczyk is currently under police protection. According to the New York Times, “police have installed patrols around Wanczyk’s home to protect her from press, gawkers, and potential criminals.” It’s unfortunate—and honestly I’m surprised that she disclosed her name and location—but it could have been avoided if she had followed a few simple precautions.
I’m going to look at 3 things you can do if you won Powerball, or came into some other large windfall of money. Whether you’re the beneficiary of an inheritance, cashing out of an investment, or a divorce, you should strongly consider the following.
Tip #1: Remain Anonymous
I remember a few years ago when there was a woman I was called upon to provide investment advice to. She had just won $200 million and was doing her homework on building a team of advisors. When asked what she was going to do first—I’m paraphrasing—but she responded simply with, “I”m going to go hide in bed.” She was determined to remain anonymous. And initially, she has the right idea. Why?
The minute you announce to the world that you suddenly have a ridiculous amount of cash, everyone and their uncle will come out of the woodwork looking to get their hands on it. Everyone is going to want to give you advice. The problem with this is that most—if not all—of these people will absolutely not have your best interests in mind. They only have their eye on how they can get a piece of it.
To avoid this, don’t announce that you won. If your state rules permit—and fewer than ten allow you to remain anonymous (you can remain anonymous in New Hampshire by setting up a legal trust for the winnings), don’t tell anyone—except people you can absolutely trust to put your interests first. This leads me to my next recommendation…
Tip #2: …Separate Yourself from The Money
What? But I just won (or inherited) millions of dollars! Now you want me to get rid of it?
Not exactly. But I do suggest that you put some distance between you and it.
First and foremost, separate yourself from the people who are going to ask for money. It might be friends, family, or acquaintances. You’ll be surprised at who comes out of the woodwork after years—sometimes decades—to try to get a piece of the pie.
By having someone else (a professional) handle it for you, you can point people to them and say “I’m sorry, but I don’t control the money anymore”. You don’t want to let your money become a jail rather than provide you with the personal freedom you always dreamed of.
You’re probably still thinking,”Tim, I JUST won millions, now you want me to get rid of it?”
Not at all. You need to build a team of advisors to help you manage your winnings. Typically, this should include (at the very least) legal representation (they can help you establish and manage a legal trust for the money), an Investment Advisor (to build an investment strategy that allows you to live off the interest instead of spending the principal), and a tax advisor to handle the significant potential impact of taxes associated with the winnings.
It’s important to note that most lottery winners never seek to have their money work for them. They tend to be overwhelmed by the windfall, and end up spending the money outright without considering the consequences. Winnings of this magnitude should generate returns for all the things you want to do or own—without touching the base.
To accomplish this, ask yourself how much money do you need to live on—how much do you want to spend. We suggest that you consider dividing your investment based on my life expectancy, and set a budget to live off money that can grow—rather than shrink over the rest of your life.
Tip #3: Develop a Relationship with an Investment Advisor You Trust
So now you’re wondering how to get truly unbiased advice. How do you find an investment advisor who will keep your best interests in mind?
The answer is simple: seek out your own. I’m going to repeat this, but anyone coming to you is going to have their own paycheck in mind, so it’s critical that you go out, do your own research, and find an investment advisor that is transparent and can handle this kind of financial challenge. How?
There are two aspects to this. First, there are a gazillion investment products. If a financial advisor is selling a product where they’re making a commission, they’re going to sell the thing that makes them the most money. If a financial advisor is incentivized to grow your assets, they will follow the money for you—and make the appropriate decisions for you based on your need. There’s transparency in this: they’ll tell you about the investments and products that make sense for you.
Second, have a varied investment skill set. You want a team of people who each specialize in portfolio management, investment research, growth strategy, finance, and more. You want an advisory team that can solve big financial problems. In this case, the problem (which is a good one) is how you are going to structure things so you don’t worry about money—so your money works for you—and gives you a paycheck. And do it in an insanely transparent way. They should be able to say to you,”here are your assets, here’s what we charge.” That’s it.
I’d like to add a final comment on selection about geography. Sometimes people look outside their geography to further strengthen their anonymity. Often an investment advisor will want you to keep the money local—but by going outside of your normal geography, you can work with people who don’t know you, don’t know your community, and are better able to avoid “leaking the news”.
What Happens Next is Up to You
At the end of the day, if you win the lottery—or come into money some other way—its up to you to be responsible for what happens to it. You can hire trusted advisors, but—trust AND verify. No matter how good your advisors are, you still have the responsibility to stay on top of your money. It’s like a plant, if you don’t shed some light on it, it will not grow.
Finally, in remaining anonymous, separating yourself from the initial cash outlay, and building strong and professional relationships with those who have your best financial interests in mind, you will have a better chance of living off of your winnings, and avoiding the pitfalls associated with them.
Have you had experience coming into a sudden windfall of money? How did you handle it? What roadblocks did you experience?