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A lottery winner’s guide to investing – April 26th 2012

Upon hearing the lottery results tonight, one or two lucky lotto fans may find they have just become multi-millionaires.

Winning the lottery is fantastic, but once a person has accepted their giant cheque and spoken about their plans to buy a Ferrari to the press, they may feel at a loss when it comes to managing their enormous windfall.

Daily Finance is on-hand to help, however, recommending newly-minted lottery millionaires take the sensible long-term approach and look into their options for investment.

Rainy day fund

The first thing the money guide suggests is putting together a rainy day fund that is safe of risk, enabling the beneficiary to weather any fiscal storms that may come their way.

This piggy bank is there to come to a person’s rescue if a worst-case scenario rears its ugly head, such as a boiler needing replacing or if a breadwinner loses their job.

Daily Finance, therefore, advises lotto winner to choose a bank account that will not lose value and recommends filling it with enough money to cover living expenses for between three and six months.

It is important this piggy bank remains untouched unless absolutely necessary – and if people do dip into it, the cash must be replaced.

Sleep-at-night investments

The rainy day fund is a priority, but once that is sorted, lottery winners can then explore other investments, such as those that could increase their fortunes over time.

Stocks, bonds and certificates of deposits are all options here and the Daily Finance claims stocks offer the best returns, with indices such as Standard and Poor’s offering investors returns of ten per cent annually on average, where people have had the patience and reserve capital to allow for the natural rises and falls that affect all benchmarks.

Maximise potential investments

The third point Daily Finance makes to benefit lottery winners is that picking a single stock to buy is riskier than spreading the money around 500 separate stocks, but sinking funds into fewer options can give the investor more control and the chance to earn more than the typical ten per cent in a year.

So, to maximise the chances of earning a profit, investors should buy stocks they are familiar with and can understand, for instance, those within the industry they work in.