Imagine – you won the lottery, but you need it to last for the rest of your life. To win the lottery the odds are against you (to say the least), one in three hundred million to be exact. However, it is fun to think about the opportunities you would have and how endless the possibilities would be. But the real question is, how do you stretch your winnings to last? You invest. There are various ways to invest: private investments/equity, hedge funds, real estate, public equities, and fixed incomes. What do these terms mean? Read on to find out!
Private investments are when a company invests money by companies, organizations, or investors versus investment from the government. Private investment funds come with a set of expectations to keep their status. The requirements limit both the number and type of investors that can own shares in the fund however the returns can be beneficial. According to Investopia, “often a company serves as the initial structure for this arrangement, and it is repurposed to create a capital investment arm from the profits of the business. In this case, the family doesn’t want or need outside capital, so there is no incentive to take the fund public.”
When you break it down, a hedge fund is basically a fancy name for an investment partnership. It brings together a professional fund manager who is also referred to as the general partner. The investors are often labeled “limited partner,” with their role and sole responsibility being to pool money together to supply the funds.
The primary purpose to allocate money to real estate is for the tax-efficient income and potentially attractive long-term return. It also gives the investor an inflation hedge, which is important since inflation can be a primary driver of wealth erosion. Real estate investments should include both commercial (office buildings, hotels, warehouses, etc.) and even some residential properties (multi-family complexes like apartment buildings). Real estate investments should be diversified across geographies and even across seas.
Public equities range and give you a variety of opportunities. You can invest in public equities as long as you stick to going long on the market. Don’t go into public equities investments with the idea of picking the next Google or Amazon. Boring, low-cost index funds or ETFs can give you experience to different markets. Starting out with public equities, the goal should be to try to get the market return rather than trying to conquer the market.
Don’t expect to become richer overnight with fixed incomes, this type of investment is a marathon versus a sprint. If you go this route, you should spread the money around the different fixed income sectors: corporate bonds, municipal bonds, US treasuries, agency mortgage bonds as well as some bonds from higher-yielding emerging market countries.
Regardless of the type of investment you pick to put your winnings into ,you should definitely consider one of these types of investments.