With the Lotto Max jackpot reaching $50 million for Friday’s draw, tongues were wagging. Most of my co-workers claim they don’t buy tickets even when the jackpot becomes huge. In a few cases the stated reason is not wanting to have to manage all that money.
It’s certainly true that most lottery winners seem to manage their money poorly. There is no shortage of rags to riches and back to rags stories. So, what would be a good way to handle the money from a $50 million win?
I may not have the best answer, but here is one answer. I would open two discount brokerage accounts and designate one of them the “tax” account. Both the tax and non-tax accounts would get $25 million. Each would hold the same mix of ETFs. One possible mix is equal dollar amounts of each of the following:
XIU, ZCN – Canadian stocks
XBB, ZAG – Canadian bonds
XSP, ZDM – U.S. and international stocks
The idea here is to have the following types of diversity in case of problems:
– 2 separate brokerages
– 2 separate ETF companies (iShares and BMO)
– stocks and bonds (the lower expected returns of bonds vs. stocks is of little concern with so much capital)
At the current dividend yields, the average yield of this portfolio is 2.68%. Every 3 months each brokerage account would get about $167,500.
My simple rule at this point is that I can spend (or waste) the cash that enters the non-tax account in any way I wish. If I feel generous, I can give chunks of it away. The cash that arrives in the tax account is for paying income taxes. At the end of the year anything left over in the tax account that wasn’t needed for paying income taxes becomes free for spending.
The only remaining rule is to avoid ever signing papers that promise future payments. If some friend begs for $250,000, the answer would be that he’ll have to wait until my account accumulates that much. If I want to buy a house, I have to “save up” for it. By never eating into capital or signing papers promising future payments, the money should last indefinitely.