Daydream Session: What would I do if I won $1,000,000

Hi friends,

Recently, as I was writing my FYP, a youtube video caught my attention. It was titled "Why winning the lottery is the worst thing that can happen to you". It was particularly interesting as the show gave cases where winners of the lottery ended up badly after striking the lottery. They either ended up bankrupt, dead, or spent all their money such that they went back to the life they lived before the windfall.

Furthermore, I realised that when this topic would come out, people would talk about buying their dream car, dream bag, dream house. I do not hear them talking about investing or buying assets that would allow them to maintain their wealth. Which led me to write this piece to give proper advice to my readers who may have a windfall in the future (I wish you all the best for it)

While there are a lot of factors that can be attributed to their situations (Yes, it is a tragedy, the things that happened to them. That's why there is this post that will outline the steps that I will do to protect myself from these incidents). I believe that majority can be attributed to the following factors:

1. Lack of financial literacy - Lottery winners who do not know how to manage their money when they had little would not know how to manage it when they have a lot. Hence, when they receive a lot of money, they would not spend the money responsibly. Essentially, when they run out of money to spend (from the winnings), they would be broke if they do not have assets.
2. Letting people find out - This resulted in a large number of people chasing after the winners for money, causing the winners to be emotionally and mentally drained from facing these people and their demands (Sometimes, the winners may even be blackmailed or threatened with physical abuse by others). Essentially, their relationships with the people around them are strained because of winning the lottery.

So yes, if I were to win $1,000,000. Here are the things that I would do:

1. Keep quiet about it - Yes, I would not tell anyone about it. I would be very happy though. What I hope to achieve by doing this is that I can be spared the hassle of facing people that are constantly looking for me to borrow money.
2. Invest in assets - As what I have said at the beginning of the post, when we discuss topics like this, we would often discuss about the liabilities that we would buy (which would not bring in money that allows us to maintain our wealth) like cars, houses, bags. But with regards to maintaining our wealth, we need to buy into financial assets that can act as an ATM for the rest of our lives.
3. Spend on my family - From the quarterly dividends or coupon payments from the financial assets, I will be spending a portion of that on my family (mainly on the younger generations hence, my nieces and nephews) for their educations. So I guess I will be the generous uncle who helps out with the college tuitions.
4. Continue working - This is to keep myself humble and grounded. Mostly is so that people will not suspect that I have money. heh

I am pretty sure you are now curious about how I will distribute $1,000,000 into a portfolio that can act as a perpetual money machine for the rest of my life. So here I go:

1. US Large-cap Index Funds/ ETF (VOO, SPY) (60%) - Long-term yield of 1.88% , expense ratio of 0.03% Resulting annual dividends = $11,276.62
2. STI ETF (25%) - Long-term yield of 4.6%, expense ratio of 0.3% Resulting annual dividends = $11,465.50
3. US Treasury Bond ETF (VGLT) (7.5%) - Long-term yield of 1.98%, expense ratio of 0.05% Resulting annual dividends = $1,484.26
4. US TIPS Bond ETF (SPIP) (7.5%) - Long-term yield of 1.7%, expense ratio of 0.12% Resulting annual dividends = $1,273.47

The total dividends would be $25,500, around 2.55% of the entire portfolio. If you still remember my review on the trinity study, I can confidently say that a 2.55% withdrawal rate from this portfolio with a 85% stock allocation has a high success probability of lasting through 50 years of withdrawal (This piece of information was taken from thepoorswiss.com).

Hence, what this would mean is that with this sum of money, I would have the opportunity of sponsoring 3 of my nieces or nephews or 3 people (at the current rates of university) for their university educations. Also, even though I have this sum of money, I would continue to work and continue adding to the pot of money so that it can continue to grow.


Anyway, it was definitely interesting daydreaming of this improbable situation. After the "initial elations", I had to remind myself to be objective and invest in financial assets that would continue the wealth. I was both intrigued by my behavior and worried about people who strike the lottery but do not have the financial literacy that I possess to make the best decisions for them.

I hope that you will make the best decisions for yourself if you win the lottery.

Till then,
Stay vested, stay frugal my friends.

Dionysius

Sources:

https://thepoorswiss.com/updated-trinity-study/