# Where to invest lottery winnings



## runner39 (Mar 11, 2010)

first off I didn't win the lottery, just a hypothetical situation, taking the recently 649 winnings of 20million where do you put it?, obviously trying to keep the taxes to a minimal


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## CanadianCapitalist (Mar 31, 2009)

I'd invest it in a diversified portfolio mostly in stocks and live off the proceeds. A 2% portfolio yield would mean an income of $400K before taxes. Plenty to live on and not touch the principal for a long time.


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## runner39 (Mar 11, 2010)

CanadianCapitalist said:


> I'd invest it in a diversified portfolio mostly in stocks and live off the proceeds. A 2% portfolio yield would mean an income of $400K before taxes. Plenty to live on and not touch the principal for a long time.



how much fixed income? would you consider a bond ETF, as far as stocks would you consider an ETF or individual dividend stocks?

you mentioned $400k before taxes which is dividend yield, does one pay tax on 200k (50% capital gain) or the whole 400k because it is a dividend yield? I guess what I am asking is dividend yield considered capital gain (I am still a novice in investment concepts)


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## the-royal-mail (Dec 11, 2009)

I think we need to take one step back. What are your goals for the rest of your life? Do you want to move to Beverly Hills and start living (and maintaining) the high life? Or would you just pay off your now-meager debts, quit your job and continue living as before, perhaps buying a new house and car?

IMHO you should answer these questions for yourself first.

In my own case, I would stop working and simply live off the principal. I see no reason to invest and seek out returns with that much money handed to me, given present circumstances. For an average guy like me, $20 million is far more money than I would ever need over my life. Even if I hand out a couple million to family, that's still $18 million, a tidy sum that would be nowhere near exhausted if I bought a new car and house. I could actually be happy with $1 million.


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## FrugalTrader (Oct 13, 2008)

runner, here is an article I wrote on how dividends are taxed.


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## CanadianCapitalist (Mar 31, 2009)

runner39 said:


> how much fixed income? would you consider a bond ETF, as far as stocks would you consider an ETF or individual dividend stocks?
> 
> you mentioned $400k before taxes which is dividend yield, does one pay tax on 200k (50% capital gain) or the whole 400k because it is a dividend yield? I guess what I am asking is dividend yield considered capital gain (I am still a novice in investment concepts)


Oh, sorry. I'd keep the same portfolio allocation I have and I write about on my blog: 80% stocks and 20% bonds. Both stocks and bonds will be invested in broad market index ETFs / index mutual funds. 

The portfolio income will be a mix of dividends, foreign dividends and interest. Canadian dividends are treated favourably but I'm afraid the tax on interest and foreign dividends will be taxed at close to marginal rates.

Come to think of it, with such a large portfolio, it may be better to structure it to be tax efficient by skipping fixed income entirely and investing say 70% in Canadian stocks and the rest in international stocks.


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## CanadianCapitalist (Mar 31, 2009)

the-royal-mail said:


> I think we need to take one step back. What are your goals for the rest of your life? Do you want to move to Beverly Hills and start living (and maintaining) the high life? Or would you just pay off your now-meager debts, quit your job and continue living as before, perhaps buying a new house and car?
> 
> IMHO you should answer these questions for yourself first.


Agreed. My post should be seen in the context of what I'm implicitly assuming the goals are. i.e. continue to maintain the same or slightly higher lifestyle than present.


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## Four Pillars (Apr 5, 2009)

I wouldn't worry about dipping into the capital a bit now and again. 

I think this sort of portfolio should be 100% equities or close to it. So what if it drops 70% - you still have a ton of money.


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## humble_pie (Jun 7, 2009)

runner in the remote chance that you really did win a 20M lottery or inherited the same, won't you please run asap to a top-notch investment counsel. Look for the CFAs, nothing less.

you see, the very rich don't have portfolios that look normal. They hardly need bonds, for example. So all the usual constructs that you've heard about, and which you're trying to apply, aren't relevant.

on the other hand, if you're posting about your own portfolio and it's a normal one, say something between 10k and a few hundred thousand, perhaps you could say so.

no dividend yield is not considered capital gain. It's taxed as dividends. These are not the same thing as distributions from income trusts.

there's another investment student whose thread is nearby in this forum. He or she has received some great advice from spidey & moneygal. If you're actively working on your own circumstances, then the same suggestions could apply to you.


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## runner39 (Mar 11, 2010)

humble_pie said:


> runner in the remote chance that you really did win a 20M lottery or inherited the same, won't you please run asap to a top-notch investment counsel. Look for the CFAs, nothing less.
> 
> you see, the very rich don't have portfolios that look normal. They hardly need bonds, for example. So all the usual constructs that you've heard about, and which you're trying to apply, aren't relevant.
> 
> ...



just started the thread out of curiousity, as far as my own portfolio I have also received some great advice from various posters on this forum and using the search engine, have to say thanks to all the posters (people) for their advice on my portfolio, winning the lottery is well wishfull thinking but it would be interesting

one question humble pie, you mentioned the wealthy do not need bonds, why? wouldn't they be a long term low risk investment for them


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## runner39 (Mar 11, 2010)

I think I just found an answer to my question regarding bonds for the wealthy, bonds create interest income which is something the wealthy want to minimize, correct?


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## Sampson (Apr 3, 2009)

I'm very interested (and somewhat surprised) by the responses from the prominent bloggers.

I expose my money to market, interest rate, and currency risk (among others) only because I risk not achieving my objectives without so. If I had that sort of money, my focus would move away from maximizing returns (while reducing risk as much as possible) and simply getting sufficient returns to do what I want to do. Call me cheap or frugal, but $200,000 per year is good enough for me to live on.

My team of accountants (I've always wanted a team... ) would help minimize tax liabilities, and I think I'd contribute a lot to charities through trust accounts etc.

2% return is good enough for me.


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## MoneyGal (Apr 24, 2009)

I think the question of whether the wealthy need/have bonds in their portfolio is not cut and dried. When I was an advisor, the house philosophy was "why expose yourself to risk that isn't required?"


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## the-royal-mail (Dec 11, 2009)

MoneyGal said:


> "why expose yourself to risk that isn't required?"


Great wisdom!


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## CanadianCapitalist (Mar 31, 2009)

Sampson said:


> I'm very interested (and somewhat surprised) by the responses from the prominent bloggers.
> 
> I expose my money to market, interest rate, and currency risk (among others) only because I risk not achieving my objectives without so. If I had that sort of money, my focus would move away from maximizing returns (while reducing risk as much as possible) and simply getting sufficient returns to do what I want to do. Call me cheap or frugal, but $200,000 per year is good enough for me to live on.
> 
> ...


The problem with investing $20m in bonds is that after inflation and taxes, it will be hard not to tap into capital. If I instead invest $20m in stocks, I could fairly safely spend the dividends and not worry about outliving capital in my lifetime. Add to it the preferential tax treatment for dividends, I think a strong case can be made for an all-equity portfolio.

If volatility is a concern, I'd add a bit of bonds to the portfolio but I'd personally prefer mostly equities.

Added: I should add that I'm 36 and would aim to invest not just for me but hope to leave an inheritance for the kids. If I were 60 and wanted to consume capital, I might think otherwise. I guess it once again comes back to what your investment goals are.


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## MoneyGal (Apr 24, 2009)

Crap. I am in the wrong snack bracket here. I honestly think I would have difficulty spending 2% of $20M, even after tax (and inflation).


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## Oldroe (Sep 18, 2009)

The first thing I would do is have 2 checks wrote one for me and one for the wife. So when she gives her family a bunch theirs nothing to fight about. I would take 500k and buy some stuff my old boat would be new and a second one that's a little more versatile, suburban for hauling, a yellow corvette.

I would set up a fund with lawyers for my nieces and nephews to borrow for real estate, minimum interest rate and subject to all repo laws.

Then I would hire 2 fp with a 5 year time frame to get my income stream setup. Then I would take the same amount and do the same thing, and the same amount in laddered gic.

Other than that not much would change still retired, wouldn't see any more winters


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## humble_pie (Jun 7, 2009)

ah, MG, but the question then becomes Was that house brimming over with mega-millionnaire clients and were you a CFA with many years of experience dealing largely with clients who were persons, families and even whole dynasties with wealth in excess of 10 million ...

it's true that a prudent rule for the elderly piddling rich is to conserve the principal. But i'm assuming that the dynastic rich in every country not only wish but also intend to grow their capital as a priority, and can easily tolerate the concomitant risk.

here is a somewhat extreme example, yet situations like this recur especially with conservative advisors who are not focussed on the special needs of the mega-rich as dynastic families. It's not uncommon in both a trust situation and in an outright ownership situation to see a scenario like this: the managers throw on the bonds and the fixed income products, and little attention gets paid to serious growth. The income accumulates & gets taxed at 100%. The income beneficiaries, who tend to be the older generation, often don't understand what is happening. The managers get away with this blinkered & self-defeating approach by claiming they're avoiding risk, and so far the courts have protected this even though there are cases where the ultimate or capital beneficiaries have sued (next paragraph.)

meanwhile the capital beneficiaries, who tend to be the younger generation but in some cases can even be sophisticated outside charities, are fretting & fuming. Because their chances of inheriting a decently-grown portfolio several years in the future - sometimes many years in the future - are being relentlessly destroyed by a flock of cobwebbed old sheep all nodding over the principal & bleating about the prudent man rule.

frankly i don't see that any of this concerns this forum, and we'd be better off sticking to real-time problems, but in the event that some lucky lottery winner did stumble upon us, we would all serve best by urging him or her onwards to a gluskin sheff or a similar firm. Those CFAs are important, because they are the rank of advisors who are most tightly bound by an ethics code.


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## MoneyGal (Apr 24, 2009)

Well. Not to divulge all my secrets, but you had to have more than a million in investable assets you'd place in our shop in order to have us consider taking you on as a client. 

Also: we tended to do a lot of structured tax planning (i.e., setting up multiple corporations and trusts) for tax arbitrage, and we also used corporately-held life insurance for the same reason. 

Finally: all advisors tend to attract similar clients. The shops I worked in were conservative: asset allocators and bond-heavy. But this is relatively rare in the advisory world.

Editing to add that Humble, I take your point, for sure!


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## Berubeland (Sep 6, 2009)

If I won 20 million the first thing I would do is enroll my gifted son in the best program money can buy. He's 2.5 and starting to read. Then my next act would be to tell my husband that he can go buy whatever house he wants (probably a new one) as long as it has an office area close to the living area rather than in the basement. 

Next I would find myself a derelict multi unit building of my own and sell it off when it was in A-1 shape netting myself a healthy return like I've been making for the landlords I've been working for all these years. 

In 10 years I would probably double my money. I really like bringing properties back from the brink. Problem the same guys that got the property that way are never the guys that pay decent money. I just like deals and making money and making it for myself would be much better.


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## runner39 (Mar 11, 2010)

what about putting money into Swiss bank or Cayman Island bank account, worthwhile for a lottery winner?


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## CanadianCapitalist (Mar 31, 2009)

runner39 said:


> what about putting money into Swiss bank or Cayman Island bank account, worthwhile for a lottery winner?


Banking secrecy ain't what it used to be. Tax authorities are going to extreme lengths to catch tax dodgers. Example: purchasing stolen banking information from insiders.

Whether I have $20 million or $20, I'd rather pay my taxes and sleep well at night. Just not worth it, IMO.


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## the-royal-mail (Dec 11, 2009)

I thought lottery winnings were not taxable.


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## runner39 (Mar 11, 2010)

the-royal-mail said:


> I thought lottery winnings were not taxable.



the lottery money is not taxable but the income from interest and investments is


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## runner39 (Mar 11, 2010)

CanadianCapitalist said:


> Banking secrecy ain't what it used to be. Tax authorities are going to extreme lengths to catch tax dodgers. Example: purchasing stolen banking information from insiders.
> 
> Whether I have $20 million or $20, I'd rather pay my taxes and sleep well at night. Just not worth it, IMO.



I guess the only way to beat revenue Canada is to take up residence in the Bahamas

when I win the lottery I am moving


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## MoneyGal (Apr 24, 2009)

Deemed disposition on all your assets when you leave.


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## the-royal-mail (Dec 11, 2009)

Interesting point. If you had $20 million, why WOULDN'T you take up residence in the Bahamas or Cayman Islands? That's an excellent idea. You could buy all the health care and home care you would ever need right up to your final hour in the sun!


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## Oldroe (Sep 18, 2009)

I would be very comfortable investing 2-3 million if it was 20 million I would get help.

You see people all the time lose everything with one financial planner and firmly believe I would need 2 FP and have my accountant help over see everything.

Think I'd just pay the tax on div. and distributions and concentrate on fun.


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## lister (Apr 3, 2009)

For that sum of money or more I'd put away $1M in various GICs for safekeeping. The rest would be invested so I can live off the dividends, distributions, etc and not touch the principle. I'd like enough so I can buy a bigger condo, a cottage (spread out over a decade, say) and a couple of new cars, one fun like a 370Z and one practical like a SmartCar. Aside from that and maybe a trip a year I'd have a similar lifestyle to what I have now which is a good upper middle income lifestyle.

What I'm really curious about is what people here would do for family and friends. Give them varied lump sums of the principle to do as they please with? Give them a monthly "allowance" from the dividends you make? Or give them a lump sum, get power of attorney, invest it and have them live off the dividends? The latter would be better tax-wise would it not?


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## Square Root (Jan 30, 2010)

Keep in mind that a good advisor will charge maybe 50-75 BP's for this size portfolio. That's $100,000-150,00 per year. Not much to do in the Bahamas except get drunk and fat.


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## msimms (Apr 17, 2009)

if you invest in large cap equities and treasuries, I don't think you have the change a the way you things, just purchase larger amounts of stock and bonds.


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## Tesla (Mar 20, 2010)

Thats easy give myself some 100k GICs I know 365 = 36.5 million. Get some decent money. at 5% and a 100k GIC everyday thats over a million a year. So I'd do that. Maybe buy a few condos in random places and travel alot too. Also make sure my 2 sisters, and mom and dad never have to work or worry about money ever again.


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## Bank Guru (Mar 8, 2010)

Buy 4 high end townhouses and rent them out. I'd probably buy a majority stake in a national company and manage it. Particularly in something i'd enjoy... like, real estate or a social media venture. 

I'd definitely take off for 2 months and live like royalty lol


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## goertzen (Nov 18, 2009)

*$1M CIPF protection*

What you do about the $1M CIPF protection limit at brokerages? Use multiple brokerages? Other insurance? Or just don't worry about it?


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## Square Root (Jan 30, 2010)

These are predictable posts. However, I suspect the money would totally change your thinking over a period of a few years as you got used to being wealthy. You would become a different person for better or perhaps worse. Hard to predict the outcome but the track record for sudden wealth is not very good for many people.


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## goertzen (Nov 18, 2009)

*80% bankrupt*

An often quoted stat is that 80% of lottery winners go bankrupt within 5 years. People who are bad with money when they are poor are also bad with money when they are rich. I'll also go out on a limb and say that those who are bad with money are disproportionately the ones who buy lottery tickets.


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## MoneyGal (Apr 24, 2009)

...Here's a recent, decent study on the financial fortunes of lottery winners. 

Findings are that winners of large jackpots are more likely than the general population to declare bankruptcy...


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## cannon_fodder (Apr 3, 2009)

lister said:


> For that sum of money or more I'd put away $1M in various GICs for safekeeping. The rest would be invested so I can live off the dividends, distributions, etc and not touch the principle. I'd like enough so I can buy a bigger condo, a cottage (spread out over a decade, say) and a couple of new cars, one fun like a 370Z and one practical like a SmartCar. Aside from that and maybe a trip a year I'd have a similar lifestyle to what I have now which is a good upper middle income lifestyle.
> 
> What I'm really curious about is what people here would do for family and friends. Give them varied lump sums of the principle to do as they please with? Give them a monthly "allowance" from the dividends you make? Or give them a lump sum, get power of attorney, invest it and have them live off the dividends? The latter would be better tax-wise would it not?


I've often dreamt about this scenario. If we won a substantial amount I'd say we'd give about 40% away to family/friends. Since I've demonstrated an ability to be careful with money, I'd offer my time to handle the money for them. If they wanted it in a lump sum, and I felt that they could manage it, then I'd give it to them. Most of my family, though, has not been good with their money and I'd look into some sort of annuity for them after taking a portion of the lump sum to get them into a nice house.

I'd also like to set up a charity and have my mom run it. It would probably add years to her life as she really gets a charge out of helping those less fortunate.


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## Square Root (Jan 30, 2010)

MoneyGal said:


> ...Here's a recent, decent study on the financial fortunes of lottery winners.
> 
> Findings are that winners of large jackpots are more likely than the general population to declare bankruptcy...


Surely not the people on this forum? The study deals with winnings up to $150,000-not really that large. Would be interesting to see how people do when they win big amounts-say $10million.


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## msimms (Apr 17, 2009)

goertzen said:


> What you do about the $1M CIPF protection limit at brokerages? Use multiple brokerages? Other insurance? Or just don't worry about it?


Register the securities in your own name, get them mailed to you, and stick them in a safety deposit box. Just like old grandpa used to do.


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