In Mega Millions: the risk of beating the odds, I discussed the significant risk multipliers that immediately enter your life should you be so unfortunate to “win big.”
Lotteries are games of odds. With Mega Millions, in particular, it’s almost exclusively about odds. Very hard to build an edge when the odds of picking a winning combination are 1 in 258,890,850.
If you have bought or are in the habit buying lotto tickets, which is a practice I disclaimed in Part I, then you would be well-served by spending a bit of time figuring out what actions you might take if, god forbid, you win.
Winning a billion or more dollars can be a major opportunity to build an edge for you and your family. As we discussed in Part I, though, the odds have been stacked against you since you started purchasing tickets.
When I talk about edge and odds, I am calling to very clear definitions put forth by W Ben Hunt:
Edge is private information, an insight into the true nature of reality that other game players don’t have. Odds are the probabilistic relationship between risk and reward at any given moment in time. If you have either one of these on your side, then you’ll do well in whatever game you’re playing, if you’re dealt enough hands.
If you’re reading this, you’re already fucking with the odds, so we will not waste time on that math.
Imagine, for the rest of this post, that we begin at 23:05 (11:05pm) on Tuesday, 23 October 2018 US Eastern time. They just called out all five of your white numbers AND your yellow “Megaplier.” You just won $1,600,000,000 US dollars.
Bring that close for second. Take a seat and then take 3 deep breaths.
YOU, my friend, just became a goddamned billionaire because you spent $2 on a Mega Millions ticket.
Take 3 more deep breaths.
This all the preliminary work. Are you ready for the hard part? The actual steps? The prescription?
Good. Away we go.
Step 1: DO NOTHING
Get a glass of water or milk and go to bed. Do not consume alcohol or other intoxicating substances. You will need to be on your A-game 100% of the time starting now until the day you die. See Part I if you still haven’t fully grasped how much risk you just took on.
Now and forevermore you must be sharp, calm, and measured.
Take no action. Do not pick up the phone. Contact nobody. Go to bed.
You have the ticket. The money is yours. It’s not going anywhere.
Go the fuck to sleep, please.
Step 2: STILL DO NOTHING
If you have a day job, go to work. Everything is normal for now as long as you don’t open your mouth.
It’s Wednesday morning, so plan on working today and tomorrow. Try to take PTO, a vacation day, or whatever on Friday. You will need a full day during business hours to execute on Step 3.
Step 3: RETAIN AN ATTORNEY
Get a senior partner from a large, national firm.
Do not for a moment let anybody at the firm try to pawn your case off on a junior partner or an associate. You need a senior partner with more than 5 years at the firm in the “Trust and Estates” practice. This person must be your principal contact moving forward.
Do not, under any circumstances, contact your local or usual attorney. You need someone at a national firm in the next major city over from you. That’s why we took Friday off work—for travel. Anybody who knows you personally, knows your family, and even a few more degrees out, including the single attorney at Nice Guy Down the Road, LLP, has now become a potential threat until we contain this shitstorm.
I cannot stress enough how crucial this step is. Trust me, this is the critical failure point.
You want someone who has never heard of you, your friends, or any member of your family.
Go the closest big city and physically walk into one of the national firms. Ask for one of the “Trust and Estates” partners you looked up on https://www.martindale.com on Wednesday or Thursday night. Filter your search to the Top 50 big firms in the US.
Step 4: TAKE THE LUMP SUM
Most lotteries offer an annuity option, which pays you a fixed amount for life or maybe 30 years. The rates on these financial instruments are pathetic and you can beat the low single-digit returns with a little bit of extra work.
If you have an addictive personality, it may truly be best for you to just let the state pay you a monthly allowance.
If it’s Friday and you’ve made it this far, having DONE NOTHING and then STILL DONE MORE NOTHING, I suspect that your impulse control is developed enough that you will benefit from the remaining steps.
Remember Mr Whittaker from Part I? He took the lump sum and got about half of the “sticker price” jackpot advertised by the lottery. Today, Friday, this means that you will be picking up a check for about $900,000,000. This is fine.
Step 5: DECIDE HOW MUCH YOU WILL GIVE TO LOVED ONES
No more than 20%, which is $180 million. This is fine. Tell your new trust and estate lawyer at the national firm. No more. Do not change it.
You are now up $720 million post-tax and the next 3 generations of your family will never need to work again. This is fine.
Not once, not ever should you consult your family when making the decision about how much to set aside for them. Their advice will be contaminated by an insurmountable conflict of interest. If Uncle Chuck finds out that you checked with Aunt Lois and not him, neither you nor Aunt Lois will ever hear the end of it.
Later, Uncle Chuck can use this to form the basis for a legal complaint that Aunt Lois had undue influence over your decisions. A lawsuit might suddenly materialize. Cases like this can and have been won by Uncle Chuck.
You will never give anyone cash again. Ever. Full stop. You will not be buying hosues or cars for people, either.
- Tell your attorney that you want to provide for your family by creating a series of trust funds equal to 20% of your post-tax winnings.
- Tell your attorney that you want to allow the trusts to pay for higher education, help with home purchases, maybe pay for weddings, and things like that.
- Do not start passing cash around. If you start doing this and then ever stop, you will be accused of being a Scrooge McDuck. This does not end well for anybody.
Don’t lose perspective. Despite how much they love you, friends and family now have a new mission in life, and they will take this job very seriously. They tryna get dat cheddar.
Setting up a $180 million trust for friends and family is hugely generous. At no point in time, ever, should you hand an envelope containing twenty grand in unmarked bills to Uncle Chuck to help him launch his chain of deep-fried pickle shops occupying a mixed-use commericial property with an auto shop operating out of the back.
Your top-tier attorney will provide great advice about how to manage these trusts without turning your loved ones in the Lindsay Lohan of the 2020s.
Step 4: DO NOT HIRE INVESTMENT OR ASSET MANAGERS
This will be suggested many many times. Pressure will be intense. Do not do it.
Asset managers charge fees, which are usually a percentage cut of the dollar value of what they manage for you. Sometimes they also take a cut of any profits they generate.
If they charge 1% (which is very low and will be hard to find), then they have to beat the market by an extra 1% each year just to break even against a benchmark fund.
Many financial firms are now offering access to zero-fee ETFs, so it’s just not worth it to assume extra cost and risk to try eke out a few extra points.
This is going to be a hard rule to abide. Friends, family, and co-workers (it’s only Friday, you haven’t quit your job yet, right?) will all make recommendations. Don’t do it.
Asset managers are going to dress sharp, sound smart, and roll up in expensive cars that they are actually underwater on. They will throw around a lot of acronyms and have sexy slide decks and presentations. If you’ve got a meeting with a real baller, they may even pick up the check for your Michelob Ultra and Thai Curry boneless wings at BDubs. Probably only if it’s “20 cent Tuesday,” though.
Listen intently, smile, and then thank them for their time.
Not once, not ever during these conversations should your hand make contact with a pen. Do not sign anything. Tell them that you will think it over and contact them again next week.
Seriously, don’t touch a pen. No scribbles on bar napkins or any shit like that. Lottery lawsuits have absolutely been argued and won on the basis of a drunken note being included in the discovery.
And then? Never call back. Block the number. You don’t know it yet, but if you’re here in Step 4 next week or next month, you will, some time later, realize that this advice is meant to stave off the vultures and hyenas. They frequently share the carcass.
Remember Part I? This whole post is meant to keep you and your loved ones definitively in the
not-carcass mode of being.
Step 5: BUILD A SAFETY NET
Now it should be almost Thanksgiving 2018, right?
Remember, we’re moving at a calm and measured pace.
Now that we’ve provided for family, fought off the vultures and hyenas, and literally just survived this long, it’s time to start thinking about the future.
This is the part that’s going to blow your mind:
As of this writing, the yield on the 10 year T-bill is almost 3.2%. Take another 20% of your pot, that’s $144 million, and buy a basket of 5 and 10 year US government bonds.
At 3.2% per annum, this move alone will net you more than $4,600,000 per year. Congratulations, you are now in the top 1% of US households for the next decade or more. Funding secured.
Once again, bring this close. Four and half million per year. Take another breath, give yourself a little “fuck yeah,” go take the temp on the turkey, and enjoy your dinner. Don’t for a minute think about that Black Friday bullshit tomorrow.
You are a made man or woman—a freeholder—now and your time is worth much, much more than $120 in savings on a flatscreen TV. We’re getting you a goddamned theater room.
Step 6: REST AND HAVE FUN, BUT NEVER STOP BEING SAFE, CALM, AND MEASURED
If you made it through Thanksgiving, you are a step ahead.
You are going to be really tempted to start being a hot shot “investor” now.
You might convince yourself that you can double your money by letting it ride on limit bets in Vegas at the roulette table. Your friends are still going to be pitching you business ideas to package and sell chinchilla dung. You might feel tempted to corner, and then subsequently short, the global market for ice. You know, because climate change.
This all sounds great, if you can afford it. Even if you lose it all, you still have four and half sticks coming in each year. If you exceed the boundaries that this income provides, you’re properly fucked and should have chosen the annuity in the first place, because you are one of the 33% of people who win jackpots and run themselves into the ground.
Step 7: MAKE MONEY MOVES AND CHANGE THE WORLD
I think you should dump 200 sticks into a plain-jane index fund, but there are many options.
I’ve already saved your life and given away priceless advice. If you want to talk about next moves, check out the sidebar or smash that follow button on mobile to find out how to contact me to make real money moves.
In the meantime, buy a nice house and a brand-new Toyota Highlander—not a fucking Lambo.
Seed some companies, but not ones run by people you know.
You created a dynasty by stitching together the shoe sizes of your family on a piece of paper, you earned this.