How to invest your winnings (What would you do if you won the lottery?)

Member Name: AndrewPo

Product:	What would you do if you won the lottery?
Date:	12/07/08 (856 review reads)
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If I won the lottery I would first of all be very surprised, then thank the kind person who bought me the ticket. I have never done the lottery in my life. I do however own National Savings Premium bonds, which in the past have been a better bet, although even they are losing their appeal for all but higher-rate tax-payers (but I digress - Maybe I shall write a review about the pros and cons of Premium Bonds next)

I have invented a far better way of playing the lottery called "The Inverse Lottery". To play this, you don't need to buy a ticket, just choose the numbers (or use the same numbers each week) and watch the draw. Most weeks you will effectively win £1, with the very small chance of losing millions. Choose several sets of numbers for a greater chance of profit, or possible nervous breakdown.

The main problem with lotteries is the publicity. Winners are immediately hounded by the press and their family and friends they never knew they had, who somehow feel they deserve some of the spoils. If you earn or inherit lots of money, or make money from clever investment, people in general do not think they deserve some of it, but with winnings it seems to be different. The media then revel in the way you subsequently mess up you life and end up poor.

If I really did come into the sort of money that lotteries used to pay out, what would I do? I'm afraid I would be boring, and invest it, and only spend or give away the investment returns, the dividends and interest. I certainly would not waste it (I hope). I would not buy a big house, at the moment. I got out of the housing market a while ago, preempting the downturn, and I am renting a fantastic property, worth far more than my old place, and yet costing less to rent, than many people's mortgages. The best use of a wind-fall now for many people would be to use the investment returns to rent a better lifestyle rather than buy one. The moving costs and stamp duty on a million pound property would, in some parts of London at the moment, pay for two years rent of the same place (i.e. free accommodation) If prices dropped by 25% as is being predicted you would be hundreds of thousands of pounds richer in two years if you rent, which is still significant for a lottery winner. I am not necessarily condoning selling your house and renting just for the sake of it though. That's a risky thing to do. Only if you were to move anyway.

But where to invest? Every day the newspapers, TV and internet tell us that the "Credit Crunch" falling house prices and inflation will make us all poor and investment is futile. Sticking my hypothetical lottery winning in the bank will leave it exposed to income tax at 40% and inflation, currently running at 3.5% or 4.5% if you believe the official figures and over 10% if you take the money-supply figures (central banks flooding the world with newly printed money which will eventually filter through to real prices) There is also the chance of the bank going under and losing everything over £35,000 in each bank, so the money would need to be spread around. I could invest in government bonds (Gilts) which are completely safe, but pay just 4.5% and therefore don't beat real inflation. There are however index-linked Gilts which do beat RPI inflation by about 1.5%. But how dull. Zero Dividend Preference Shares (see my review on other Investment Trust "Almost Crash-Proof") can pay out a healthy 7% APR or so with not much risk and are tax-free up to the capital gains tax limit then taxed at just 18%. Gold and silver are also quite a good safe bet and preserve of capital and gold sovereigns have the little known feature of being capital gains tax free because they are legal tender. They don't, however, really work if you want an income, unless you sell off the capital gains. Blue chip shares are also a good long-term bet as they pay and nice dividend to live off and grow approximately with inflation, unfortunately they have had a torrid time over recent months and are still a bit scary because no one really knows how far the current credit problems extend. On the other hand given that this money was from winnings on the lottery it's probably worth a punt with at least some of it.

So what will I spend all of this extra income on. Rent more properties in wonderful locations for myself, family and friend to use and do lots more world travel offsetting my emissions and guilt by giving money to the World Wildlife Fund.

Summary: Buy gold coins and hide them in a safe and count them regularly