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Comment by WorldMaker | Hacker News Reader

The interesting part is that lotteries are investment schemes of a sort and designed for gradual payouts more akin to an annuity. The jackpot numbers always include a disclaimer that that would be the total winnings over the lifetime of the payout of that "investment product": immediate payouts are considerably smaller and not just because they involve more taxes. (Obviously it is in the lotto's favor to often spin it as entirely taxes and fees, rather than admitting that it's an "investment" product that they "sell" to "buyers" where the large dollar figures are based on a time-value-of-money calculation.)

The number of contestants that take the lump sum up front instead of treating it like an annuity to supplement their lifestyle over time is staggering, and also indeed another likely indicator of the selection effect that the people most likely to play the lottery are the least likely to have good investment advice in their lives.

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Reminds me of the time Warren Buffet's company insured a gambling company against a "billion dollar" payout [0]. Buffett noted that the insured value of the payout was far less than a billion dollars because the payout was spread over 40 years and joked that the gambling company rejected his advice to spread the payout over a billion years - paying $1 per year.

[0] https://www.insurancejournal.com/news/national/2000/10/03/11...

The first thing I would do is seek legal and financial advice before telling anyone or deciding anything. I might also temporarily relocate to an undisclosed location with being on vacation as my excuse.

It is very prudent to take the lump sum. Future tax rates are likely to be higher and there's potential for a future government debasing the currency and the winner seeing the payouts eroded by high inflation. There's also a remote chance the lottery or payment provider fails or is nationalized in some political act. You also can better plan your estate if you control the asset outright.

Yes, there are situations where getting the lump sum is more prudent, but it shouldn't be the default in the average case. It is sometimes possible that you can find a better annuity or investment product to invest the lump sum in yourself and make back the lossage of the asset's interest/share in future lotto profits included in the longer term investment product, but that requires analysis and comparison, with good financial advice to reach that conclusion. But the keyword is "sometimes", everyone has different investment needs, and overall strong, steady passive income is often preferable to lump sums, especially without good financial advice to rely on to manage it.

Regular Lotto payments, even fixed ones, are some of the least likely assets to default (historically tend to be quite stable/secure) you can have if your threat model includes future governments debasing currency or high inflation. It's sad how strongly inversely correlated bad economies are to higher lotto activity. (Now, if your threat model includes future governments strongly prohibiting gambling and gambling payouts, that's a different matter.)

The lottery is still a single asset (even if it is backed by a diversified portfolio). When we are talking about hundreds of millions of dollars, I would be willing to pay a premium to hold that money in a more diverse way. This is the same reason I prefer 401ks to pensions (and our government has not demonstrated an ability to start with a fixed fund and not raid it for unrelated purposes)

For your threat model question, I would be much more concerned about the state raiding the lotto fund to pay for, say, their pension obligationd than I am about them retroactivly banning lotto winnings on moral grounds. It is much harder for the state to steal from investments it doesnt control.

Taking the lump sum is not at all indicative of a lack of good investment advice. Going with the installment payments is equivalent to taking the lump sum and then investing it all in US treasury bonds. That's an extraordinarily conservative investment strategy and most investment advisors would recommend something more aggressive.

It's more that that the ratio is so out-of-tune with the ratio of investors whom should be getting conservative investment strategy advice at the decision point in question. The qualifier here may be "good investment advice". Most investment advisors would recommend something more aggressive, but they also get paid a lot more in that case, that doesn't necessarily correlate with "good advice".

Getting a surprise $100M is different from managing your portfolio. Aggressive means easy to lose it all due to ignorance or fraud. Getting a dozen mulligans via installments is good insurance against losing it all.

> Getting a surprise $100M is different from managing your portfolio.

It's really not that different. All of the advice out there concerning how to prudently manage a portfolio of $100K applies pretty well to $100M. Going up to the $100M opens up some additional options (private equity, hedge funds, venture capital, real estate) and involves some additional taxes (estate/gift taxes), but you could do a lot worse with your $100M than sticking 60% in low cost equity index funds and 40% in low cost bond index funds and ignoring alternatives and tax optimization.

> Aggressive means easy to lose it all due to ignorance or fraud.

More aggressive than ultra-conservative does not mean aggressive in an absolute sense.

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