Do You Play the What If Game ?

The What If Game should be mandatory in all personal finance courses. It’s very simple: What if you won $2.5 million dollars (net) from the lottery-what would you do? It’s a great question to ask your significant other or someone whose brain you would like to pick!

In my instance, my sister asked me what I would do-for me this is easy. I would take the entire amount and invest it in dividend paying stocks, with an average return of 6%.This would generate cash flow of $150,000 a year. I told her that I would not pay off my house first or any other bills-the entire amount would be invested and the dividends would be used to pay off mortgages etc.

Her strategy was entirely different. She and her husband would pay off their house and any incidental debts. The rest would be put in a money market account with no stock market risk! They would live off their interest with little emphasis on inflation and taxes. I noted that my dividends would receive preferential tax treatment whereas her interest would not.

As you can see-these are very different answers with very different philosophies. Be sure you ask this question to someone who might become part of your life because if you are not on the same page the tension will increase over time.

I had a great trip to San Diego and hope you all had a great weekend. Happy Monday!

PS I will show you my model portfolio for this dividend paying portfolio later in the week!

Steve Mertz
Play The What If Game!

Tags: , , , .

3 Responses to “Do You Play the What If Game ?”

  1. LAMoneyGuy says:

    I am definitely more in your camp on this. However, I would probably compose a more balance and diversified portfolio, with some growth stocks and bonds, keeping some of it liquid for any real estate investment deals.

  2. Pogona says:

    When you win the lottery, you receive an annuity, not a lump sum. You can sell the cash flow to a finance company for a lump sum – but I doubt you’ll get a good deal.

    The best decision would be to seek professional advice: a planner, lawyer, and accountant. Of course.

    BTW, nice blog.

  3. Steve Mertz says:

    Pogona-thanks for stopping in. In a lot of lotteries you are given the option of cash or annuity. I do agree about getting professional advice. Thanks, Steve

Leave a Reply