What’s next after wining the lottery or cashing out of a business? What will happen after a “sudden wealth” event like winning the lottery? What will you do when you leave your job, your career, or your business? Too often a Big Pay Day like winning the lottery or receiving an inheritance or selling a business or stock options leads to problems. Unless you have strong values and a plan in place or a team of advisors to help, you can easily be adrift and may even end up in worse financial shape than before. It’s not an urban legend that many lottery winners end up bankrupt a few years after the “happy” day.
Deciding what to do with your money is as much about what you want out of life as it is about investing. Before you can choose investments, you really need to reflect on what you want to do with your life and the gifts that the universe have brought to you.
Money is a means to an end but not an end in itself. To come up with a good investing plan for you, you’ll need to know what it is that you want this or additional money to do for you. Do you want to start another business? Do you want to be involved in mentoring or funding other deals? Do you want to redirect your energy to charitable or teaching endeavors?
Perhaps you’re free from material wants and you want to now reinvent yourself by pursuing an avocation or turning a hobby into a project of passion.
You have the option to decide whether you want this money to be used for more material goods, charitable works, building a family legacy, or accumulating more experiences to cherish. No amount of money accumulated or invested will bring happiness unless you know your purpose and how this wealth will work to further your goals or find that purpose.
This is why I urge clients who have experienced a “sudden wealth” event or are considering their transition into the next phase of life to find their passion and special purpose that provides them with meaning. With this knowledge, you and your financial advisors can have more meaningful discussions on how to plan well for this money. Until then, it is hard to reconcile all the various options involved with taxes, estate planning, investing, and risk protection.
You needn’t make this journey entirely on your own. Just as experienced mountain climbers use the help of guides and Sherpas, you may benefit from the help of others for this journey.
I recommend to clients in transition that they should use tools and the guidance of consultants who may help you identify your opportunities and options in a systematic and holistic approach. I like the tools and services of the Successful Transition Planning Institute. Based in Boston, this group offers a range of online, self-directed, or group strategies to help make sense of this journey.
If you do this, the planning steps for your investments will make more sense as they will be tied to a purpose.
But if all of this sounds like too much right-brain touchy-feely stuff, then the tangible steps I recommend are these:
- Identify your Risk Tolerance perhaps by using an online tool from Vanguard or others.
- Determine what amount of cash you need to set aside for income taxes on this sale.
- Calculate what your lifestyle costs and set aside two-years of these expenses in cash.
- Concerned about market volatility and looking to secure your income in retirement? Consider an equal amount in Fixed Income Annuities.
- Looking for tax mitigation? Consider opening a Donor-Advised Fund through any number of platforms like Fidelity, Vanguard, or TD Ameritrade or even a local charitable foundation.
- Divide your investments into two buckets: Long-term core and long-term opportunity sandbox:
- In the core you can set up a globally diversified mix of equities and fixed income. Three or four index funds will probably be all you need for this.
- In the sandbox, you’ll set aside money that you can invest more opportunistically. This can include publicly-traded business development companies that fund other businesses, private equity, alternative assets like real estate (REITs or directly owned), gold (physical bars or ETFs that own the physical metal), and a range of perhaps twenty high-quality dividend-paying stocks (20+ year history of growing dividends).
- Looking for some additional tax help? Invest the fixed income portion of your remaining investments in municipal bonds.
- If you have kids, you may also want to set aside a portion for a lump sum investment in a tax-favored college savings plan (529).
- For a host of reasons, you should also consider life insurance. Even with the new higher estate exemption limits, you’ll likely exceed these over the next 30 to 40 years of your life expectancy. Life insurance is a good vehicle to pay estate taxes. And it can be a more flexible source for funding things like retirement or future college needs.
These are just some ideas. Without knowing what your personal family situation is like, your life expectancy based on your lifestyle and family history, risk tolerance, and goals, a specific investment plan is not possible.
So, if you don’t already have a team to help you, focus your time and energy on assembling a team of experts to help you. A good place to start is the National Association of Personal Financial Advisors, a group of fiduciary advisers focused on holistic planning.
