Mar 9, 2006, 6:56 am
Investment — Hanging on to all those millions — can be as tough as winning in the first place
If you won the lottery, as eight Nebraska meatpackers did last month, splitting a $365 million jackpot, what investment would be at the top of your wish list?
Without a plan, "the reality is that 70 percent of all lottery winners will squander away their winnings in a few years," said Peter Toll, president of Family Heritage First in West Linn and past president of Oregon's Financial Planning Association.
To get the inside skinny on innovative investment options, we turned to three local investment advisers and financial planners for what they would do with $15 million, the amount each of the Nebraska winners got after taxes.
Scott Anderson, senior vice president and financial consultant for the Lake Oswego office of D.A. Davidson & Co.: "I'd diversify my windfall across asset classes with midcap, small-cap, large-cap and international stocks. Because of my age (47), I'd have an all-stock portfolio, and I'd hire a good trust attorney to help me create an estate plan.
"I had a client that won the lottery in California, $14 million. Within seven years, he was broke and had creditors calling.... After a few million-dollar business mistakes, and living high on the hog, he had nothing to show for it.
"So I'd skip the new house and the new cars, and protect the base of that principal to provide me with an income for the rest of my life. If I didn't spend a dime of it for 10 years and instead invested the $15 million in the S&P 500, then — if the S&P kept pace with the past 10 years, which included one of the worst bear markets in history — it would still grow to nearly $28 million by 2016....
"If I took any out, it would be no more than 4 percent per year. That would give me around $400,000 after tax the first year and more each year after. With dividend reinvestment and compounding interest at the S&P's historical rate, I'd still have $19.5 million after 10 years.
"...If I won $1 million 20 years ago, I would, in hindsight, have bought property in the Pearl District or somewhere along the Vancouver side of the Columbia River or a rental at the beach. Or put $1 million into Northwest stocks like Intel, which now would be $32.4 million, or Microsoft, which now would be $348 million."
Scott Barchus, a CPA and principal for Wealth Advisors in Lake Oswego: "I would probably invest in a few things: international emerging markets, local startups and double-exempt municipal bonds.
"There is tremendous opportunity in Latin America, India, China and other countries in the Far East. What's hot about the emerging-market countries is the human capital and the natural resources....
"I'd also get into the venture capital market for small companies starting up here, especially in the technology and medical fields. There's a tremendous amount of startup companies in the Northwest, all looking for startup capital. They often do that in the form of private placements, but in order to participate you have to be an accredited investor (which requires $1 million in assets)....
"Many startups never make it, but in terms of the upside potential, you could see from 15 percent to in excess of 100 percent....
"Finally, from a tax standpoint, I would include a big chunk of municipal bonds. I think anyone with a windfall like this would have to consider taking on double-exempt bonds to avoid some of the 40 to 45 percent tax rate you'd otherwise have to pay."
Rick Grimshaw of West Linn, first vice president of wealth management/senior portfolio manager for Smith Barney: "If I had a $15 million windfall, the first thing I'd do is eliminate all debt, from the rest of the house payments to credit cards....
"Then I'd invest enough in assets like stocks, bonds and mutual funds to pay for my ongoing expenses and special expenses of other family members: college, elderly parents, down payments on my children's first homes. This way I could choose whether to continue working or not.
"Finally on my wish list, I'd work with an attorney to create a family foundation — and give a lot of it away."
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