Recently I had an interesting email from a Financial Thing reader. The email read as follows.:
“Hey Laurence.. I recently pocketed a windfall from a lucky lottery win. I’m only 28 and have very little investing experience. I wondered if you could give me some pointers as to how to invest this money to secure my future”.
– Jack V, Scotland
I have to start by saying this isn’t financial advice and you should consult a tax professional.
Most lottery winners end up squandering away their lucky fortunes because they don’t have a financial plan in place.
Winning the lottery is a very unique situation because the odds of hitting a lottery jackpot are astronomically not in the ticket buyers favor. For example, you have a 1 in 139,838,160 chance of winning the Euro Millions jackpot which at today’s writing, stood at £45m. To put this in perspective, here are some interesting odds:
Winning the Euro Millions lottery: 1 in 139 million
Death by lightning strike: 1 in 1.5 million
Death by dog attack: 1 in 86,781
Death by wasp or bee sting: 1 in 59,507
But occasionally, the lottery Gods bless (or curse) one or two lucky souls who seem to spend just a few pounds to hit gold.
We hear many stories of lottery jackpot winners having terrible luck and going broke in a relatively short period of time. Take Jack Whittaker, the American builder who won $314m in 2002. He lost it all and ended up in bankruptcy in just five years. And Englishman Mickey Carroll who won £9.7m at aged 19 years old. Mickey spent his winnings on lavish items such as cars, rendering himself broke in 2006. Mickey even wrote a book entitled “Be Careful What You Wish For”.
If these lottery winners would’ve had a solid financial plan in place, the sad endings could have been avoided.
So what should you do if you are the lucky recipient of the golden lottery ticket? When you come into a sum of money, paralysis of analysis can occur because there are so many investment options. If you have a game plan written down, it will be easy to execute.
Investing is not complicated, and in fact, while the amount of money available to invest may differ, the strategy remains relatively the same no matter how much money you have to invest.
I thought it would be fun to document a hypothetical example of my tips for investing a lottery jackpot and how I would specifically invest lottery winnings based on three different age ranges for people who have little to no experience investing.
The suggestions are very similar no matter how much the winnings. Here’s a description of each investing choice and why.
Vanguard S&P 500 Equity Tracker Fund using a Lifetime ISA
Read all of the Lifetime ISA terms and conditions here: https://www.gov.uk/lifetime-isa
The UK government allows residents from the age of 18 to under 40 to open a Lifetime ISA which was created to help first-time homebuyers get their feet on the property ladder. The contribution allowance is £4000 a year and the government adds a 25% cash bonus every time you contribute up to a maximum of £1000 a year. This is essentially free money and should be used because all of the investment growth is tax free!
If you already own a home, you can still take advantage of this ISA but you can’t withdraw money until you are 60 or unless you become terminally ill. One important note here is this ISA needs to be open for one year or more to be able to use the money to purchase a home and has a maximum purchase price limit. If you’re not planning on buying a home indefinitely, it’s a good idea to get the ISA opened and to contribute a small amount of money to get the time clock running. Also, you cannot contribute to the Lifetime ISA after age 50.
Note that the £4,000 Lifetime ISA counts towards your annual limits of £20,000 total per year. Lifetime ISA’s can hold cash or stocks and shares and can be opened through
Unfortunately, you cannot open a Lifetime ISA at my preferred brokerages such as Fidelity or Vanguard, but you can open one at such as Ajay Bell and Hargreaves Lansdowne and purchase index ETF’s (exchange traded funds). I expect Fidelity to offer a Lifetime ISA in the future.
Vanguard S&P 500 Equity Tracker at AJ Bell
Vanguard US Equity Tracker Fund using an IFISA and taxable account
This equity tracker fund can be purchased directly from Vanguard or you can find a similar product through Fidelity. This tracker fund has low annual fees and tracks the broad stock markets such as the S&P500, Nasdaq & Dow Jones. Vanguard’s fund generally beats the performance of most actively managed funds (Invesco for example) run by highly paid managers. This Vanguard fund owns thousands of companies and is a passive fund which is why the fees are incredibly low.
It is always best to use your ISA allowance first and when that is maximised, use a taxable account.
You can read the more in-depth article about why I love this fund here
Vanguard US Equity Tracker Fund at Vanguard
Peer to peer lending
If you are a reader of this website you’ll know I am a fan of peer to peer lending. Think of peer to peer lending as you being the bank where you lend money to borrowers looking to purchase property or borrow for personal or business reasons. Peer to peer lending comes in secured forms where there is collateral backing the loans and in unsecured personal lending forms.
Although the sector has experienced some ups and downs, there are some good companies that offer peer to peer lending investments with steady returns.
If you want to read more you can check out my peer to peer lending guide.
Bitcoin
Bitcoin is an incredible asset class that I really like. It’s also a complicated asset class for most people to understand so I suggest reading my cryptocurrency guide to learn more. I think Bitcoin is a far better choice than cash due to the inflation rate pushing up the cost of goods and services. Inflation means every year you let your cash sit in the bank, the cash is losing value.
Bitcoin gives you the opportunity to hold an asset that has been increasing in value since its release in 2010.
Bitcoin isn’t for everyone but I believe having some exposure to Bitcoin and/or other cryptocurrencies is wise if you can stomach the volatility and you don’t mind taking some risk for high returns.
Buy To Let property
Rental properties have a high entry cost point but can provide steady monthly income and future price appreciation. With a lack of affordable UK housing, rental demand continues to increase.
There are some companies that offer turnkey buy-to-let properties with rental guarantees or you can purchase your own buy to let and self-manage to increase returns.
Now I have described my investment choices and reasoning, below are a few investment scenarios and allocation examples:
Scenario 1: Investing a £500,000 win
Ages 20-49
Vanguard S&P 500 Equity Tracker: £4000
Vanguard US Equity Tracker Fund using an IFISA: £16,000
Vanguard US Equity Tracker Fund using a taxable account: £280,000
Bitcoin: £50,000
P2P Lending: £50,000
Buy To Let property: £100,000
Ages 50+
Vanguard US Equity Tracker Fund using an IFISA: £20,000
Vanguard US Equity Tracker Fund using a taxable account: £250,000
Bitcoin: £25,000
P2P Lending: £80,000
Buy To Let rentals: £125,000
Scenario 2: Investing a £1,000,000 win
Ages 20-49
Vanguard S&P 500 Equity Tracker: £4000
Vanguard US Equity Tracker Fund using an IFISA: £16,000
Vanguard US Equity Tracker Fund using a taxable account: £500,000
Bitcoin: £100,000
P2P Lending: £100,000
Buy To Let rentals: £280,000
Age 50+
Vanguard US Equity Tracker Fund using an IFISA: £20,000
Vanguard US Equity Tracker Fund using a taxable account: £350,000
Bitcoin: £100,000
P2P Lending: £100,000
Buy To Let rentals: £430,000
Scenario 2: Investing a £2,000,000 win
Ages 20-49
Vanguard S&P 500 Equity Tracker: £4000
Vanguard US Equity Tracker Fund using an IFISA: £16,000
Vanguard US Equity Tracker Fund using a taxable account: £1,000,000
Bitcoin: £200,000
P2P Lending: £200,000
Buy To Let rentals: £580,000
Age 50+
Vanguard US Equity Tracker Fund using an IFISA: £20,000
Vanguard US Equity Tracker Fund using a taxable account: £800,000
Bitcoin: £150,000
P2P Lending: £250,000
Buy To Let rentals: £780,000
In these scenarios, I would have a higher risk tolerance below 50 years old, and the younger I was, the more I would invest in riskier investments such as the tracker funds and Bitcoin as I have longer recovery times between market fluctuations due to retirement being further away.
At aged 50+ I’d be looking more towards income generation through buy to let’s and p2p lending.
The more sizable the investment, the more diversification comes into effect.
So there you have it, if I won the lottery, that is exactly how I would invest my lottery winnings. These tips are a general rule which can be adjusted depending on risk tolerance and time to retirement.
You can use these tips for investing lottery winnings for your regular investing strategy throughout your lifetime. Nothing really changes.
I do hope you get lucky and hit those magic lottery numbers and if you do, be sure to let me know.
– Laurence
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** This page is for information purposes only. This information is not financial advice and has been prepared without taking your objectives, financial situation, or needs into account. You should consider its appropriateness for your circumstances. All investing carries risks. Opinions expressed on this page are opinions based on my own personal experiences. The FSCS and FDIC do not cover investments and your capital is at risk. Please don’t invest more than you can afford to lose. **
