Quora Answer: Where Do I Invest my £1 Million Lottery Winnings so I Never Have to Work Again?

The following is my answer to a Quora question: “I am 40 years old.  I have just won £1 million.  I never want to work again.  Where do I invest my £1 million?”

I hate to break it to you, but a million pounds is not much.  And since you won it, there is a tax.  Whilst the tax is not on the winnings itself, it is on the deposits you make, and you certainly need to put that money somewhere, and there is a tax on bequeathments, or gifts.  All that would leave you with between half to three-quarters of a million pounds.

That amount is certainly not enough for absolute financial freedom.  You are looking at least £15 to £20 million for that.  What this money can do, is become the foundation of wealth, but it is not enough that you can stop working, unless you intend to live an extremely frugal life of diminishing returns.

One of the first things you want to do is either set up a trust with yourself as the beneficiary or a company.  The reason for this is to reduce your tax liability.  An individual pays taxes before deducting expenses.  A trust or company can expense out a lot of things an individual cannot.

The next step is to have a realistic investment horizon.  At the age of 40, a 20-year horizon is reasonable, since you are then planning for early retirement.

The third step is to decide on your portfolio, and vehicle.  In such a case, it would be wise to invest in index or mutual funds.  They are a relatively cheap way to diversify your investments and spread your risk over a wide industry and geographic profile.  If you intend to stay in the same country, keep a large part of your investments in local currency to mitigate currency risk.

Also, it would be better to start with a balanced portfolio, with a, perhaps 40% weightage towards debt instruments and 60% towards equity.  This allows you to earn a reasonable return that is above the inflation rate, but has a stable foundation should there be a downturn to mitigate losses.

And finally, make sure you buy good insurance.  Medical costs inflation tends to be at 20% in much of the developed world.  This prevents medical bankruptcies, since what you have is certainly not enough for treatment and hospital stay in the event of catastrophic illness.

As your portfolio grows, use some of your gains to diversify further, keeping some fixed deposits or gold certificates, and explore REITs, property and even derivatives.  To do that without losing your shirt, have a good investment banker or financial services consultant manage your portfolio and give you advise.  Hire a tax consultant to do your books.  And once that portfolio hits six or seven figures, get indemnity insurance.  Indemnity insurance is expensive, but it is worth it.  It pays out should you get sued such as in a tax prosecution, or should your finance manager somehow manage to lose your small fortune.