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Mega Millions lottery tickets are printed on a lottery machine at a convenience store. (AP Photo / Nam Y. Huh)
One in 300 million. The odds are not very good, but your chances of winning the huge Mega Millions lottery are as good as those of the next person. The current jackpot is estimated at more than $ 1.6 billion. That's 1600 million for those who are used to seeing lower prices. According to the USA Mega Lottery website, the lucky winner will win about $ 687 million after tax if he opts for the cash option – a life-changing wealth in every respect. It's fun to dream how you would spend or invest the money if you won. The opportunities would be endless. Well almost.
You still can not buy an NFL team or an NBA franchise. These are reserved for multi-billionaires, not those with only $ 687 million. Nevertheless, you can still afford most of the extravagances of life. Once you have shared the wealth with your family members and your favorite charities, you may need to get down to the task of investing your windfall. Do not worry, many advisers would knock on your door with all kinds of ideas. The help is only 1% fee, after all. But if you are more of an independent investor (which would probably change with $ 687 million), here are some suggestions to get you started.
Diversification will be the key to preserving your capital. This would include an allocation to private equity, public market equities, hedge funds, real estate and fixed income – similar to the model followed by many endowments. Within each sub-fund, a single investment in a company, strategy or fund must not exceed 3%. There is no need to take excessive bets. You would be in the game "stay rich", not in the game "get rich". It's impossible to predict what your actual returns would be, but in the long run you could expect to make about 5-6% of your investment. Each year, depending on your asset allocation mix, market situation and your consulting fees, you will have an annual allocation of more than $ 30 million (pre-tax) without losing your capital. There are many tools for predicting returns by asset class. The projected gross returns in each of the asset classes described below are from JP Morgan Asset Management.
Allocations of Garth Friesen. Expected results of JP Morgan Asset Management.Garth Friesen
Cash
It's not that you need "rainy" money with a net worth of nearly $ 700 million, but having a modest allocation of 5% (about $ 35 million) Cash or liquid short-term investments allows you to react quickly to investment opportunities that arise. . In addition, this can be useful if you find yourself in a situation where you have to quickly buy a yacht, a jet or a minor league baseball team. All kinds of surprises happen in life. Expected gross yield: 2.0%
Capital investment
You can afford to make illiquid investments when you have hundreds of millions of dollars to spend. Private equity investments often require a 7 to 10 year commitment, but returns have always outpaced public markets. You can capture the "illiquidity premium" associated with stopping your money for such a long time. The allocations should include a variety of different strategies: traditional buyout funds, timber, private debt, venture capital, etc. Choose about ten funds in different market segments and geographic areas and allocate them equally. Expected gross yield: 7.25%.
Hedge fund
Hedge funds have not performed very well in recent years compared to the US equity market. There are many explanations (or excuses) for mediocre returns, but one of the reasons is that most hedge funds are actually covered! Few hedge funds have 100% long exposure to the stock market because their investors want a different / uncorrelated yield stream. If investors wanted a 100% beta for the S & P 500, they could simply buy a low-cost ETF. Investors in hedge funds are waiting for the day when a dynamic and hedged portfolio will outperform the broader stock market. Given the late volatility, such a day may come sooner rather than later. Diversify your allocation in hedge funds by not weighting more than 3% of the weighting of a manager or a fund and spread your money among several strategies: long-term / short-term equities, relative value of income securities fixed, credit in difficulty, events, etc. Expected gross yield: 4.25%.
Immovable
The property allowance should not include your beach hotel or your recently acquired castles in France. The primary purpose of real estate allocation is to generate tax-efficient income and potentially attractive long-term total returns. It is also possible to offer you a hedge against inflation, which is important because inflation can be one of the main factors of the erosion of wealth (look in Venezuela to see the devastating effects of hyperinflation) . Investments must include both commercial buildings (office buildings, hotels, warehouses, etc.) and residential buildings (multi-family complexes such as apartment buildings). These investments should also be diversified by region. Some of the best opportunities (and potential returns) are abroad. It's the most difficult allocation to do yourself. Hire a company specializing in the field and be prepared to devote time to due diligence in your castles. Expected gross yield: 6%.
Public actions
Unlike hedge funds, private equity funds or real estate, you can probably invest in stocks of companies as long as you stay in the market and do not try to choose the next Google or Amazon. Index funds or boring and low-cost ETFs can give you exposure to the entire market. It should include an allocation to international and US equities in addition to emerging markets. The goal should be to try to get the return of the market rather than trying to beat it. Entrust stock selection to the high-priced managers in your hedge fund portfolio. Expected gross yield: 6%.
Fixed income
Yes, the returns are low, but you will need a stable source of income for your new lifestyle. Your internal staff and your army of accountants and lawyers will have to be paid; you do not want to be in a situation where you are forced to liquidate one of your office towers to meet the payroll. In addition, fixed income securities have tended to zig when your other assets risk zag. This will not always be the case, but an uncorrelated yield flow is the primary objective of investment diversification and explains why many of the largest long-term investors retain at least some allocation in the bond market. You have to spread the money between the different fixed income sectors: corporate bonds, municipal bonds, US treasury bills, agency mortgage bonds, as well as some high yield emerging market bonds. Expected gross yield: 3.5%.
As mentioned above, the expected combined annual gross return of this asset mix is around 5 to 6%. The goal, remember, is to stay rich and not make investments that risk losing everything. A 5% return on $ 687 million equates to $ 37 million a year – enough for anyone to lead a rock star lifestyle. The jackpot fever consumes the nation, but as the saying goes, "you have to be in to win it". Despite the odds, the dream of winning may well be worth the $ 2 ticket price.
The opinions set out above are those of the author and not of his employer or any other party. These views should not be interpreted as investment, legal or tax advice. Once you have won the lottery, you should consult your professional financial advisors before investing your winnings.
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Mega Millions lottery tickets are printed on a lottery machine at a convenience store. (AP Photo / Nam Y. Huh)
One in 300 million. The odds are not very good, but your chances of winning the huge Mega Millions lottery are as good as those of the next person. The current jackpot is estimated at more than $ 1.6 billion. That's 1600 million for those who are used to seeing lower prices. According to the USA Mega Lottery website, the lucky winner will win about $ 687 million after tax if he opts for the cash option – a life-changing wealth in every respect. It's fun to dream how you would spend or invest the money if you won. The opportunities would be endless. Well almost.
You still can not buy an NFL team or an NBA franchise. These are reserved for multi-billionaires, not those with only $ 687 million. Nevertheless, you can still afford most of the extravagances of life. Once you have shared the wealth with your family members and your favorite charities, you may need to get down to the task of investing your windfall. Do not worry, many advisers would knock on your door with all kinds of ideas. The help is only 1% fee, after all. But if you are more of an independent investor (which would probably change with $ 687 million), here are some suggestions to get you started.
Diversification will be the key to preserving your capital. This would include an allocation to private equity, public market equities, hedge funds, real estate and fixed income – similar to the model followed by many endowments. Within each sub-fund, a single investment in a company, strategy or fund must not exceed 3%. There is no need to take excessive bets. You would be in the game "stay rich", not in the game "get rich". It's impossible to predict what your actual returns would be, but in the long run you could expect to make about 5-6% of your investment. Each year, depending on your asset allocation mix, market situation and your consulting fees, you will have an annual allocation of more than $ 30 million (pre-tax) without losing your capital. There are many tools for predicting returns by asset class. The projected gross returns in each of the asset classes described below are from JP Morgan Asset Management.
Allocations of Garth Friesen. Expected results of JP Morgan Asset Management.Garth Friesen
Cash
It's not that you need "rainy" money with a net worth of nearly $ 700 million, but having a modest allocation of 5% (about $ 35 million) Cash or liquid short-term investments allows you to react quickly to investment opportunities that arise. . In addition, this can be useful if you find yourself in a situation where you have to quickly buy a yacht, a jet or a minor league baseball team. All kinds of surprises happen in life. Expected gross yield: 2.0%
Capital investment
You can afford to make illiquid investments when you have hundreds of millions of dollars to spend. Private equity investments often require a 7 to 10 year commitment, but returns have always outpaced public markets. You can capture the "illiquidity premium" associated with stopping your money for such a long time. The allocations should include a variety of different strategies: traditional buyout funds, timber, private debt, venture capital, etc. Choose about ten funds in different market segments and geographic areas and allocate them equally. Expected gross yield: 7.25%.
Hedge fund
Hedge funds have not performed very well in recent years compared to the US equity market. There are many explanations (or excuses) for mediocre returns, but one of the reasons is that most hedge funds are actually covered! Few hedge funds have 100% long exposure to the stock market because their investors want a different / uncorrelated yield stream. If investors wanted a 100% beta for the S & P 500, they could simply buy a low-cost ETF. Investors in hedge funds are waiting for the day when a dynamic and hedged portfolio will outperform the broader stock market. Given the late volatility, such a day may come sooner rather than later. Diversify your allocation in hedge funds by not weighting more than 3% of the weighting of a manager or a fund and spread your money among several strategies: long-term / short-term equities, relative value of income securities fixed, credit in difficulty, events, etc. Expected gross yield: 4.25%.
Immovable
The property allowance should not include your beach hotel or your recently acquired castles in France. The primary purpose of real estate allocation is to generate tax-efficient income and potentially attractive long-term total returns. It is also possible to offer you a hedge against inflation, which is important because inflation can be one of the main factors of the erosion of wealth (look in Venezuela to see the devastating effects of hyperinflation) . Investments must include both commercial buildings (office buildings, hotels, warehouses, etc.) and residential buildings (multi-family complexes such as apartment buildings). These investments should also be diversified by region. Some of the best opportunities (and potential returns) are abroad. It's the most difficult allocation to do yourself. Hire a company specializing in the field and be prepared to devote time to due diligence in your castles. Expected gross yield: 6%.
Public actions
Unlike hedge funds, private equity funds and real estate, you can probably invest in stocks of companies as long as you stay in the market and do not try to choose the next Google or Amazon. Index funds or boring and low-cost ETFs can give you exposure to the entire market. It should include an allocation to international and US equities in addition to emerging markets. The goal should be to try to get the return of the market rather than trying to beat it. Entrust stock selection to the high-priced managers in your hedge fund portfolio. Expected gross yield: 6%.
Fixed income
Yes, the returns are low, but you will need a stable source of income for your new lifestyle. Your internal staff and your army of accountants and lawyers will have to be paid; you do not want to be in a situation where you are forced to liquidate one of your office towers to meet the payroll. In addition, fixed income securities have tended to zig when your other assets risk zag. This will not always be the case, but an uncorrelated yield flow is the main objective of investment diversification and explains why many of the largest long-term investors retain at least some allocation in the bond market. You have to spread the money between the different fixed income sectors: corporate bonds, municipal bonds, US treasury bills, agency mortgage bonds, as well as some high yield emerging market bonds. Expected gross yield: 3.5%.
As mentioned above, the expected combined annual gross return of this asset mix is around 5 to 6%. The goal, remember, is to stay rich and not make investments that risk losing everything. A 5% return on $ 687 million equates to $ 37 million a year – enough for anyone to lead a rock star lifestyle. The jackpot fever consumes the nation, but as the saying goes, "you have to be in to win it". Despite the odds, the dream of winning may well be worth the $ 2 ticket price.
The opinions set out above are those of the author and not of his employer or any other party. These views should not be interpreted as investment, legal or tax advice. Once you have won the lottery, you should consult your professional financial advisors before investing your winnings.
