A whole lotto trouble in winning jackpot

IN all my years of being Barefoot, I’ve received plenty of weird and wonderful calls, but never from someone who’d just scooped the first-division jackpot.

06/02/2009 BUSINESS: Scott Pape. The Barefoot Investor. HWT staff.

SCOTT, I am absolutely stressed out of my brain. I am so, so scared right now. I am not capable of dealing with my current financial situation.

I was talking to Ron — whose name I’ve changed for reasons that will become obvious in a moment — but it’s not what you’re thinking.

Ron wasn’t some broke bloke with credit cards up to his wazoo.

Earlier this week, Ron, a divorced father of three, rang my office and told my receptionist he’d just won first division in the lottery.

In all my years of being Barefoot, I’ve received plenty of weird and wonderful calls, but never from someone who’d just scooped the first-division jackpot.

Here’s why: statistically, you’ve got a better chance of mounting Vladimir Putin’s horse, clutching his bare chest, and riding bareback with him across the chilly Russian countryside (the Tatts website puts the odds of winning the jackpot at one in 45,379,620).

Ron had beaten the odds.

Yet he was smart enough to understand that, now he was a lotto winner, he was up against a new set of odds.

Most people who win the jackpot end up losing the lot. Case in point: Lee Ryan won £6.5 million in a UK lottery in 1995.

He bought a helicopter, a Ferrari and a mansion. Then a couple of dud business ventures in Kyrgyzstan took the last of his money.

“It’s a total curse,” he told the papers.

Then there’s Jack Whittaker, who won $314.9 million in a US Powerball jackpot in 2002.

Soon after his win he was robbed of $545,000 at a strip club (he must have been a big tipper).

Then things turned tragic — his daughter and granddaughter died of drug overdoses, and thieves emptied his bank accounts. Then his wife divorced him.

“I wished I’d torn the damn ticket up,” he sobbed to reporters.

OK, I know what you’re thinking. These people are freaks — you and I wouldn’t be able to wipe the smiles off our dials if we came into that kind of dough. Or would we?

 

WINNING THE LOTTO OR LOSING A LIMB?

HARVARD Professor Dan Gilbert did a famous study where he tracked the happiness of two very different groups: people who had won the lottery and people who’d had limbs amputated.

Three years after the event for each of the participants, he checked to see how they were faring.

The results were startling.

Participants in both groups had reverted to their pre-existing natural mental state, as if the event had never taken place.

Shrinks call it “hedonic adoption”. Our brains are hardwired to quickly adapt to both positive and negative situations.

And this is especially evident when it comes to money.

 

IS FEAR, IS GOOD

LET’S get back to Ron.

He told me the story of his million-dollar payday: it began when he was sitting in a pharmacy waiting for a prescription to be filled.

To kill some time he took a walk and ended up buying a QuickPick (something he rarely does).

That afternoon he arrived home, emptied his pockets onto his coffee table, and left to spend a few days with his partner.

When he eventually got around to checking his ticket, the blood drained from his face: he’d won $1.5 million.

After a sleepless night, he got up with the sparrows and headed into the city to the Tatts headquarters.

They were waiting for him — with a winner’s pack that includes, among other things, the option of a novelty cheque.

Nothing good can come from a giant novelty million-dollar cheque.

What are you going to do with it ... take a selfie, upload it to Facebook and see how many likes you get from charities, your deadbeat cousins and your long-long-lost friends?

Yet unlike most lotto winners, Ron wasn’t giddy with excitement. “This is my one shot. I can’t stuff it up,” he said.

That’s when he called me.

 

INVESTING LIKE A MILLIONAIRE

I TOLD Ron the fear he was feeling was not only healthy, but helpful.

Over the years I’ve seen first hand the damage that instant (and often unearned) wealth brings, whether it be from an inheritance, a gambling win or an AFL footy contract.

That’s why my default advice is to spend a bit of money on something that will make you smile then lock the bulk of it up in a 12-month term deposit so you have time to let it sink in.

In Ron’s case I suggested a three-part plan.

First, move as much of the winnings into super as possible.

The way to do that is by making post-tax contributions this year (currently set at $180,000), and by taking advantage of bringing forward two years of contributions next year.

If he gets his timing right, almost half his winnings could be in superannuation next year where he can draw a tax-free pension.

Second, because Ron is very risk averse I suggested that he keep five years of living expenses in cash and fixed interest so he could ride out any market downturn.

The rest of his money should be invested in good quality dividend-paying shares.

Finally, I suggested that he keep his win on the down low. The fewer people that know the better.

The easiest way to do that would be for him to keep his job at least for the next few years.

However, Ron is planning on one little extravagance.

“I’m buying a new car”, he told me at the end of our phone conversation.

“Is it a Maserati?”

“No, it’s a Toyota”.

Tread your own path.

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Originally published as A whole lotto trouble in winning jackpot