This week Richard and Debbie Nuttall, both aged 54, from Lancashire, revealed that they have won £61,708,231 in the EuroMillions Jackpot.
You may be wondering why they’ve risked their privacy to go public in the national press. Lottery winners can remain anonymous but some take the view that accepting the short-lived publicity is better than the strain of trying to avoid the media attention.
But I suspect you’re also thinking what you might do with such a huge windfall. How to deal with a life-changing sum of money is definitely the more important dilemma. After the publicity has stopped, many winners have squandered the money, and ended up with broken relationships in the process.
What if you won a big jackpot?
If something like a lottery win ever happens to you, take a breath and resist the urge to make any hasty decisions about the money. It might take many months for the excitement, emotion and adrenalin rush to disappear, and it’s best to leave big money decisions until you’re in a calm, rational state to make them.
In the early months, there’s no harm in having some fun with a windfall, but set an upper limit on ‘fun spending’, say 5-10% of the total sum. For Richard and Debbie, that would be £3-£6 million. So far, they have been conservative only buying new golf clubs, a hairdryer and a luxury 1,200 thread-count bedding, as well as planning a holiday in Barbados. The couple also said they would share the money with friends and family, and support a charity close to their hearts, BK’s Heroes.
For the bulk of the money, the one thing Richard and Debbie need to do straight away is to make sure the money in some high interest savings accounts so not losing out to inflation. Inflation of 4% in January was still significantly above the Bank of England’s target. If their money isn’t earning at least this in savings interest then it’s losing its value.
When choosing savings accounts, wealthy people are advised to spread the money around different institutions within the limits of deposit protection proscribed by the Financial Services Compensation Scheme (FSCS). To explain, when you bank with a regulated bank or building society in the UK then some of your cash is protected by the FSCS. This means that if your bank goes bust then you’ll automatically get your money back. But the depositor protection comes with a maximum limit per banking institution of £85,000 per person or £170,000 for joint accounts.
For most people this level of protection is more than enough but if you have a larger sum to put away you may want to consider spreading it around. Banks do go bust, as many UK savers in Northern Rock and other firms found out in in the banking crisis of 2008.
For many years, the ultimate safe haven for savers’ money has been NS&I (National Savings and Investments), which offers Premium Bonds and a range of other savings and investments. NS&I is different from your normal bank or building society because it’s the government’s savings bank and, backed by HM Treasury, comes with a 100% safety guarantee for your money. So not just £85,000 is covered – every penny. It would be a safe home for £61 million.
Unfortunately, NS&I’s rates aren’t so competitive. Its Direct Saver pays 3.65% interest, while its monthly Income Bonds pay 3.59 per cent. Several providers, including Paragon and Leeds Building Society pay more than 5 per cent interest on easy access accounts, according to savings comparison website Moneyfactscompare.
One way to ease the administration of spreading your money around different institutions is to use a savings platform such as Hargreaves Lansdown Active Savings or Raisin UK, that offers access to multiple accounts from different firms. This helps you spread your money with one login, rather than multiple accounts.
Don’t use social media for financial advice
Once you have your money safely earning decent levels of savings interest, you can sit back and make a long-term plan for the future. If you’re a fan of using social media to source information, be very careful which accounts you trust. Platforms like TikTok and Youtube are the Wild West of financial advice, where charlatans often appear very convincing.
Instead, look for reputable sources of information from firms and advisers that are regulated by the Financial Conduct Authority. You can check on the FCA’s Financial Services Register to make sure that a firm or individual is authorised to sell you financial products or give you financial advice.
This is perhaps time to look for an independent financial adviser. You can search for one using the Unbiased website. Your first meeting with a financial adviser should be free. Perhaps meet two or three to find the one you feel most comfortable with or trust the most. This is the person to whom you’re going to reveal personal goals and family details to, not just the ‘money stuff’. They will also be the person who helps you plan a legacy for children or other beneficiaries.
But also make sure you keep the costs of advice down. With such a large sum, it might not be a good idea to pay fees that are a percentage of the money invested. The Financial Conduct Authority (FCA) says advisers charge an average of 2.4% of the amount invested for initial advice and 0.8% a year for ongoing advice. On £61 million, that would be £148,000 upfront and then upwards of £48,000 a year for ongoing advice, which is enormous! Instead look for an adviser that charges a fixed fee for the advice given. And don’t be afraid to negotiate.
DIY investing
Of course, you could invest the money by yourself. Certainly, the responsibility of such a large sum means now is the time to educate yourself about investing and think about financial goals, even if you decide to use the services of a professional financial adviser.
Asset allocation is the key
The problem is that this is such a massive sum. But it should still be divided by the principles of asset allocation, dividing it at least between the two major asset classes of equities and bonds. You may also want property and gold in there too. Be careful to diversify within asset classes too, for example, global diversification for equities, not just UK-listed shares.
If property investment turns out to be your thing, diversify between a few properties and use the help of a professional to make it as tax-efficient as possible.
Investing doesn’t need to be too complicated though. Even a large sum can be invested relatively simply, by using low-cost multi-asset funds such as Vanguard’s LifeStrategy range. Though with a vast sum, you might want to choose a few different providers.
To use the sum to generate a sustainable income for life from the winnings, you can use the 4% rule. In the first year you withdraw up to 4% of your portfolio’s value. In subsequent years you adjust this amount by the rate of inflation. If you’re feeling more cautious, perhaps worried about your investments not performing, start with a 3% withdrawal.
ISAs
You should try to get as much money as possible into a tax-efficient environment, where you don’t pay tax on the growth and income from your investments. However, the problem with investing such a vast sum is that you can’t easily channel it into tax-efficient wrappers such as Individual Savings Accounts and pensions.
The annual ISA limit is £20,000, while the annual pension limit is either 100 per cent of earnings or £60,000. But if you’re part of a couple, you have both allowances to work with. If you have children then you can use the Junior ISA limit of £9,000 per child per year.
Tax-efficient wrappers
Other tax efficient investment wrappers, include Venture Capital Trusts, Enterprise Investment Schemes and offshore bonds. But to use these, you might want the help of a professional adviser as they involve higher complexity and risk.
Also, when investing the money by yourself, consider not holding it all on one platform. FSCS limits are £85,000 for platforms too. In theory you shouldn’t need the FSCS because if your broker goes bust you still own all your shares, funds and other investments on the platform. This is because customers’ assets are ringfenced and held separately in a nominee account — they are legally separate from the platform’s assets and liabilities.
Investor organisation ShareSoc recommends you use at least two, focusing on financially stable, large UK-domiciled firms. You might also prefer a listed platform such as Hargreaves Lansdown or AJ Bell, or a platform that is part of a listed organisation, such as Interactive Investor (part of Abrdn), that provides public announcements about its business activities and status.
Invest in yourself
Finally, some sensible advice is to invest in yourself. Use some of the money to work towards your personal growth and well-being, by learning a new skill, or nurturing your physical health. Sudden wealth comes with great responsibility and can be stressful. So don’t be afraid to seek help regarding the mental pressures too.
Photo by Searsie on Canva
