The early inclination by the unnamed winner from Maryland of the historic $730 million ticket may be to take the ungodly sum of money and buy houses, cars and whatever else offers instant gratification.
But most veteran money managers would be quick to argue against doing that (at least out of the gate).
The reality is whoever the winner is now has a new full-time job of being an asset manager. With such responsibilities should come a desire to not only protect the nest egg won from the lottery, but position the cash to grow as to support future generations of one’s family and any charitable givings. The most logical way to make that happen, pros would say, is to put the money into the stock market, especially the current one that is enjoying renewed bullish momentum.
“People try to insist on answering the question do you fully invest or ride it out, or do you wait for more reasonable valuations? We would create another path. We have what we call a behavioral portfolio that recognizes that markets are generally efficient. You want to be fully invested in a relatively conventional way,” explained Toews Asset Management CEO Phil Toews on Yahoo Finance Live, commenting on what investors with large sums of money like a Powerball winner should do right now.
Added Toews, “If you could take 50% of your equities and put it into something that can dislocate or un-correlate from negative market activity, you have this built in mechanism. It could be exceedingly difficult not to invest right now. If you leave the market, you could be punished for six to 12 months. You have all the money on the sidelines that could be pouring into the stock market for the next six months.”
The Maryland Powerball winner isn’t alone with having to wrestle with the high class problem of sitting on a ton of cash that needs to find returns.
Given the stock market’s strong performance during the COVID-19 pandemic, gazillions of investors’ portfolios are sitting on strong gains. That is leading to a rush of new money into the market (and pushing up the prices of those already invested in stocks) as individuals seek to expand their wealth quicker than the person around the block.
Consider this stat to underscore the point.
Bank of America said client balances in its wealth management business surged 10% in the fourth quarter to a record $3.3 trillion. Average deposits spiked 20% year-over-year. Bank America was joined by most of its peers in the fourth quarter in reporting very strong wealth management statistics amid the market’s ascent. If one isn’t in the stock market mix here, they risk seeing their cash earn next to nothing — which is effectively wealth destroying.
To be sure, the data supports Toews’ view of needing to be invested in the market.
The average 10-year return on the S&P 500 is nearly 12%, points out NerdWallet. That’s a little bit more than the 10% or so return on the S&P 500 dating back to 1926.
Hopefully the latest Powerball winner considers these factors. After all, they will have $546 million reasons to do so, which is the cash only lump sum payment on the winning ticket.
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