Lotto Powerball jackpot: Ways to invest that $42m

How would you invest $42m?
How would you invest $42m? Photo credit: Getty.

A staggering $42 million is up for grabs in Lotto's jackpot draw on Wednesday, giving Kiwis another chance to put their lucky numbers in for a spin.  

If the winner were to put their millions in a term deposit at 3 percent interest, with tax taken off, they'd still have $844,000 per year ($16,230 per week) at their disposal.  

But how much could the winner potentially earn if they chose to put their millions into something more risky, like property or shares?

$42m into property

Based on the REINZ national median house price of $615,000 in January, the winner could buy 68 houses and become a full-time landlord, with $180,000 to spare. 

Based on a target return (net yield) of 5 percent* those properties could haul in $2,091,000 per year. Assuming 33 percent tax on those earnings, that's $26,941 per week in the hand, with the opportunity for capital gain on top.

While it's unlikely the winner would put all their money into a single investment, if the winner were a keen property investor, Steve Goodey, an experienced Kiwi property trader, suggests they could use leverage to drive profits even higher.

"You wouldn't buy the properties outright: you'd have a mortgage against them.

"Using a 50 percent loan-to-value ratio, [the winner] could buy $84 million worth of properties: 136 houses at $615,000, leaving $360,000 to spare.  

"This would provide about $4.18 million income a year or $80,000 per week in cashflow [before tax].

Capital gains would be on top of that. 

"[For example], using an estimated capital gain of 4 percent for Auckland over the next 12 months, that $83.6m of property would get an extra $3.3 million in capital gain" Goodey said.

If being a landlord - or paying someone to do it - doesn't take their fancy, could the prospect of owning New Zealand's most expensive house have appeal?

A $39 million home in Huriaro Place, Orakei that sold on REINZ is the most expensive to-date. Sitting on a plot of 4322 square metres, the property's annual rates are $92,384.61.  Depending how long the winner were to own it, they may need more than the spare $3 million to cover them.  

$42m into shares

If hedging their bets on the property market doesn't float their boat, if they're prepared to diversify and ride out the troughs, putting the winnings into shares could give them a healthy return.

Based on the average 10-year NZX 50 return of 13.9 percent*, the winner could increase their net worth by up to $5,838,000 per year, equating to a net weekly amount of $75,220.

A spokesperson for Craigs Investment Partners said that the company advocates a balanced share portfolio, where capital is diversified or spread across the main asset classes and markets.

"This provides the smoothest ride for investors over the long-term and is the best way of managing uncertainty," the spokesperson said.

A banker's advice

Craig Offwood, a regional manager at ANZ Private Bank has worked with a few Lotto millionaires, including a $33m jackpot winner and a person who won $17m.  He has a few words of advice:

"Winning lotto is a life-changing event and what winners do with their prize has a huge impact on the rest of their lives.

"My top three tips are: keep your circle of trust tight, get professional advice and invest in assets that will provide a steady income," Offwood said.

"The one free ticket in investments is diversification and volatility is part of the long-term investment game.  

"[For example], bonds have gone up overnight as a result of the current volatility in sharemarkets," he said.   

The winner will want to create a legacy for their family, now and in the future. 

"Buy high-quality investments that can be easily sold at a better price in the future.

"You want to celebrate this, but don't make big, rash decisions," Offwood added.

Ticket sales for the $42m Lotto Powerball draw are open until 7.30pm on Wednesday. 

*A 5 percent yield is used as a ballpark, calculated as annual rental income less expenses/purchase price.

*NZX 50 average 10-year return (13.9 percent): Craigs Investment Partners.