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A $370M Lottery Jackpot and A Story of a Lottery Winner

I noticed a lot of coverage today about the $370M Mega Millions Lottery jackpot. I found some of the trivia in the coverage interesting, like:

The odds of picking the six correct numbers and taking home the mountain of cash are 1 in 175,711,536. That’s “175,” as in millions. Those odds are even worse than one of those carnival booths where you pitch a dime and try to get it to land on a piece of glass.

1 in 175,711,536. Astonishingly small. Of course, it’s $1 per ticket, and with a $370 Million jackpot, it seems like the expected value of a ticket would be higher than $1… assuming that you don’t end up splitting the pot with someone else.

Personally, I’ve never been a big fan of the lottery. I do have a little libertarian voice in my head that says, “Go ahead. If people want to gamble, it’s their money.” Of course, I have this other voice, call it my nagging sense of social justice that says, “This is just a regressive tax on people who are bad at math or have a low-level gambling addiction.”

I never play, which is why when I ask my wife,

“What would you do if we won the lottery?”

She tells me,

“You have to play to win, honey. You have to play to win.”

In any case, I’ve always been fascinated with the stories of lottery winners who blow many lifetimes worth of money in a matter of years. Similar to professional athletes who blow fortunes after they retire, I’ve always felt that these cases prove that no amount of money can substitute for being educated in personal finance, and being prudent with money.

Well, there is an inspirational story here of a lottery winner who actually handled his money well. Graceful Flavor, which I typically read for Apple-related news, had a nice write-up on this story. The original article actually breaks down what this winner spent his money on:

  • $45 million: Safe, low-risk investments such as municipal bonds
  • $35 million: Aggressive investments like oil and gas and real estate
  • $1.3 million: A family foundation
  • $63,000: A trip to Tahiti with 17 friends
  • $125,000: Mortgage retired on his 1,400-square-foot house
  • $18,000: Student-loan repayment
  • $65,000: New bicycles, including a $12,000 BMC road bike
  • $14,500: A used black VW Jetta
  • $12,000: Annual gift to each family member

Let’s just walk down the understated brilliance of how this man, Brad Duke, actually allocated his money after winning a $220 Million jackpot. You see, Brad spent time researching the stories of other lottery winners, and I think there are lessons here for all of us who may (hopefully) be faced with a small windfall someday.

  1. Municipal Bonds. This is exactly right. Largely risk-free, this guarantees Brad a tax-fee investment that will provide regular income, indefinitely, and will likely match inflation over time. This provides a wonderful base of income for him, indefinitely.
  2. Aggressive investments. This is likely his riskiest endeavor, but with a base level of income guaranteed, he has freedom here to be more aggressive, and try to scale his assets over time.
  3. Family Foundation & Gifts. Nice clear breakout of what he’ll be giving to charity, and gifts to family members. Note the lack of family members “on the payroll” – a sure-fire track to the money problems.
  4. Trip to Tahiti & Bicycles. You have to celebrate. $128K is not a large amount here, and it represents some fun with the winnings. Most personal finance experts agree that if you try to save every single dime, you can end up feeling deprived, and it can lead to impulsive behavior. This trip sounds like a great way to have fun, do something extravagant
  5. Student Loan & Mortgage Paid Off. In the world of debt, student loans and mortgage are the best possible forms of leverage. Low interest, with tax advantages, and typically a large payoff on the investment. Still, once you have ample assets, reducing debt reduces risk. It’s that simple.
  6. The Used Jetta. This is probably what impresses people the most. He sold his 2005 car, and bought another used car! This is a good sign of someone who isn’t frugal because they have to be, but because they just don’t like to waste money.

It’s hard to say what you might do with a windfall of $100,000 or $100,000,000. Oh, I guess it’s easy enough to guess, but I have a feeling that reality is always more complicated than idle dreams.

Living in Silicon Valley, it is not uncommon to have friends and family who come across fairly large windfalls. A company goes public, or is sold. A relative passes on an inheritance. The fact that so many people who have large windfalls in their lives end up losing the money in short order is a warning. Managing money is difficult, and the right habits and the right attitude towards it will likely benefit you at any asset level.

Of course, you do have to play to win.

9 Comments Post a comment
  1. Heinrich #

    Strange about the lottery winners. Even if they initially invested their windfall all with a bank ( while they where figuring out what to do with it) they would earn so much interest in a months time the could live lavish lifestyles.

    Interest per month on only $5Million is $20 000.00(p/m) at 5% per annum. Does’nt take a genious to figure that out.
    Even the dumbest accountant in the world would for about $500.00 dollars share this wisdom if only they would ask.

    September 12, 2007
  2. KATAVIA C. #

    I WILL BE A WISE WINNER SOON!

    January 20, 2009
  3. Pat in North Carolina #

    I was so hoping to win the $144 million in last night’s drawing (4/9/09), but someone in DC won it. I had actually sat down and started writing on where I’d spend the money. My list started with 10% of the lump sum awarded to would have gone to my church , then I’d give 5M each to my 2 sons and my ex-husband, with a 2M trust for my 12-year old granddaughter, and also allow for 5M for myself. The remaining money would have gone to buying from my landlord the 3 homes on the property where I live and pay rent ($470/mo), and then i would build a large 5 bdrm home with modest furnishings. I also had on my list my two brothers and their daughters, my ex-husband’s sisters and also listed a number of friends whom I’d give a substantial amount of money.
    The only thing I’ve never read in these sad stories is that no one seems to give the Lord his10%. That has always been first in my thoughts whenever I’ve played, and when I’ve won (small amounts $6 or $12, etc, I have always given 10% to the church in addition to my usual tithe.
    Thank you.

    April 9, 2009
  4. I would invest in chiquita bananas. cant go wrong. who doesnt like banaynays?

    July 14, 2009
  5. k41150 #

    Pat in North Carolina: “…no one seems to give the Lord his10%.”
    Frankly, it’s none of your business what anyone does with their money. If you want to give away fictional money to an imaginary sky daddy’s minions, that’s your choice but don’t presume to say what others should do. Arrogant.

    July 30, 2009
    • Sky Daddy's minion #

      Pat is right! People are supposed to give back 10%! You must be a scientologist. I pity you! Her, arrogant? Ha! You are arrogant!

      March 12, 2012
  6. Muffy #

    The media doesn’t care about these kind of stories. They want everyone to believe all lottery winners lose it and are too dumb to handle money. Well, I never believed that. Tuesday’s Mega Millions is 75 million, and I have said it a few time before. If I happened to be the lucky one with the winning ticket, I will proves all the naysayers wrong. Will we live good? Hell yeah. Will we go crazy? Hell no.

    September 18, 2011
  7. Rex #

    I’ve been thinking about the problems that seem to arise from suddenly winning a large sum of money. I’ve known people who’ve inherited large sums and they definitely weren’t as careful with it as the people who left it to them. There’s something to be said for working for what you want in life. I think everyone would like to think that if they won a lottery they would be responsible. It’s just that the word responsible takes on new meanings when what used to be a week’s paycheck becomes “pocketchange”. Being accountable to someone or setting up safeguards to keep you from being silly with your winnings sounds like a good idea. I think that if you are currently envious toward people who have things that you don’t you’re a prime candidate to go overboard. I don’t know though. It just seems strange how people can manage to spend everything so quickly. If you had $50 million in the bank you would have to spend like $167,000 a month for 25 years to spend it all. That seems a little high to me. Oh well, if it ever happens to me I’ll have to post a blog on what I’m doing so everyone can give great “advice” on what I’m doing wrong.

    October 28, 2011
  8. MJM #

    Rex…

    Your figures about spending seem a bit odd to me. While I’m not an investment guru (I dabble with trading) I think I understand markets a bit.

    Most states have muni bonds available that pay 4-5%. The income from them would be totally tax free.

    If you took 50 Million and put it into a 5%, 25 year maturity muni bond, the annual income would be 2.5 Million.

    Divide that by 12 months, and you have income of just over 208k /mo. Tax free. For the same 25 year duration that you mentioned.

    BUT…. At the end of 25 years, you still have the original $50 Million.

    That’s my free investment lesson for everyone, and you don’t need to send me a fee.

    Good luck to all of the winners.

    December 1, 2011

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