BALTIMORE, Md. — A Towson University student who hit it big on a Maryland Lottery scratch-off ticket said he's found out that a seven-figure prize is not necessarily a ticket to early retirement.
In many ways, Louis Jay's apartment is your typical college bachelor pad, but upon closer inspection, 11 News reporter Kerry Cavanaugh said the 21-year-old student has a state-of-the-art home theater system and stocks only top-shelf alcohol. She said he spends hours online tracking the stock market.
Cavanaugh said Jay has quite a portfolio to maintain since he bought a scratch-off lottery ticket on his 19th birthday that yielded him $1 million.
Jay took the seven-figure prize in a lump-sum payment. By the time he set aside 10 percent for charity and gave $10,000 each to his parents and several other relatives, he said he still had a healthy nest egg left over.
"After that, it was about $500,000 to $530,000. Of that, a good chunk was stocks and bond and the rest was low-risk, short-term investments so I could have cash on hand," Jay said.
The college student used that cash to splurge on a new car, a modest Chevy Malibu.
Jay said he was aware of the studies that showed that 70 percent of lottery winners go bankrupt within five years and said he didn't want to become a statistic. He was careful to limit his spending and thought he was safe investing the bulk of his winnings in the stock market.
"The one sour note to this is I invested four months before the big downturn, so I made a little bit of money, then lost a bunch of money," he said.
The $500,000 he originally invested is rapidly disappearing.
"I have $330,000, or something like that," Jay told Cavanaugh.
"What he really needs now is a recovery strategy. Statistically, it's been proven that big lottery winners wind up poor in a relatively short time unless they took the annuity payment," said financial analyst Brian Kronenberger, who has worked with a number of lottery winners.
Kronenberger said Jay was smart to take the lump sum and invest it because he's young and he can afford to wait years for the market to rebound.
Jay hired a financial team to handle his money so he can focus on finishing school. His adviser, Dr. Doug Sanford, guided Jay as he changed his major from computer science to business — a decision spurred in part by his lotto winnings.
"I give Louis a lot of credit for keeping grounded," Sanford said.
He said he hasn't seen any changes in the 21-year-old's demeanor, goals or attitude as the money has fluctuated.
"I haven't seen any change in him. I don't think he's a person who views himself as being founded in money. He's founded in his efforts and ability, and those do not go away if the market tanks," Sanford said.
Jay said he's currently enjoying his final days on campus and is gearing up to spend the spring semester in Europe — studies that he financed by his winnings.
He said he's thankful for opportunities like that, even if he can't afford to permanently upgrade his lifestyle.
"I can't really be too mad because I got it as a blessing, almost. Seeing it taken away, I didn't have much control in that, either," Jay said.
While he waits for his winnings to rebound, Cavanaugh said he's still buying those scratch-off tickets.
70% of lottery winners go bankrupt within 5 years?
Whoa, I never heard that one before.
I'm sorry he's lost so much of his winning and I hope he gets it all back.
He seems like a smart kid. He'll be alright.
Although age is on his side, even then, he should have left the stock market alone -- leaving the money in the bank until he could get his bearings. What was wrong with investing conservatively?
I am surprised he did not go for the annunity: at least he would have a yearly income and not every winner can handle a fistful of dollars.
Finally, he has some money left and he is not flat out broke! I hope he learned from his risky investments.
This is a great lesson for the "kid". He'll be rich(er) in life.
Oh, poor, poor boy. He only has $330,000 left? What is he going to do, somebody help him? You know what, I'll take the $330,000 if he's not sure what to do with it. Maybe he's just too young to appreciate the value of money, but $330,000 dollars is still a lot of money these days, more than most people have considering the economy.
I think the point of the article is that even a lottery winner with a good head screwed on his shoulders, who invests the money fairly wisely instead of just blowing it, can still lose a substantial chunk.
Think of it as a moral to the story: if you win, even if you keep your head, be prepared to lose. But if you lose your head, you are certain to lose it all.
Accurately stated Todd.
Except for the invest part. One cant lose that which they do not place up for risk. Some material gains are just not worth it...better to be safe then sorry.
He started his investments when the stock market was doing good then when it went belly up he should have pulled his money out, a good investor would have taken care of the cash since he invested so much of it.
I know people who have lost more than half of their stock portfolio's.
It sounds like this young man has a good head on his shoulders and just lost his money like so many others who invested in the stock market did. At least he has some of the money from his win left. It could have been worse, he could have none! Hopefully, he puts his money in something safer, so he has that money for the future.
Looks like the lottery was a better "investment" than the stock market! Anyone who tells you the market isnt gambling, is simply lying to you. The only difference btw the market and a casino is that a casino has rules. But in fairness to him, this could have happened to anyone. But since it was a lottery winner, and not for ex. a person who inherited a large amount of $$ and then lost it in the market, it became news on how 70% of lotto winners end up broke..
Can anyone tell me why they would put their money in the stock market, EVER? Considering these people in these banks can't do right with Federal money, do you really think they'll do right with your money? Take your losses and get out now before you have nothing left.
It's been drummed into our heads for generations that the stock market is the most 'respectable' place to 'invest'.
Few bother to ask why this is so or what else is out there.
We know a profit is made when you sell higher than you bought, but no one ever explains what the final buyer of that stock gets for their trouble any more than they explain why most people bother with a grass lawn.
The Stock Market is still your best bet for retirement especailly if you're still young enough to recover from downturn. Imagine if he had invested his money 4 months after the downturn instead of before. He would have double his money on the rebound. He's a smart kid. He'll be fine
The stock market is not gambling. You are buying part of a company. Take Coca-Cola for example. I own a very small part of that company. It may not always do well, but the company is still there. Gambling takes place in a casino. You go into a casino pretty much expecting to lose money. You are paying for the experience, not so in the stock market.
Over half of all start up businesses fail and I bet the ratio of bad investments in the stock
market is higher. I'd rather give my money to investment companies like Fidelity than going
it alone. Though Fidelity - and I dont work for Fidelity!- will charge a hefty fee, I think it's
worth it because they have a wide network of connections and lots of investing experience.
If that's the case, then why don't people just save their money instead of depending on the stock market for their retirement. Those that can't rebound from losing all their money at the downturn, I'm sure, wish they hadn't of put their money in the market. I know investing is great for some people, but I'll play with my own money, save it in a bank, or buy a safe and keep it at home before I EVER put it in the stock market. My nerves would be shot, watching my money fly out the window in the stock market, especially since the stock market lost over 500 points in the last 3 days. I believe we haven't seen a true crash in our lifetime yet, and it's bound to happen, the news makes it look like things are looking up, but I think they are trying to buy time, I guess time will tell.:)
props to him for buying a Malibu!
Buying American... nice!!
He sounds like he will do fine. We should be hearing about him for a LONG time as he grows his new found wealth.
unlike most kids his age he seems to have a good sense.....
I just hope he remains level headed and learns to appreciate things even more
This guy seems to be okay - but he needs another vehicle (and I don't mean another Malibu) to earn interest.
My question is -- how much interest or profit does he (or anyone) need to make? I'll tell you what, I'm available as a financial adviser right now.
It is STUPID to invest in ANYTHING, market or otherwise that can turn down on a whim. I'm a hands-on type of guy. There's NO doubt that I can make ANYBODY $$$$. But the market and all the rest of the norm is crap.
~Ace
At least when he graduates he won't have student loans hounding at his back. Unlike many, he gets to finish college without all of the debt. Good 4 him!!! He will be blessed again...he's a good kid with a good head on his shoulders.
Again...70% of lottery winners go bankrupt within 5 years of winnng the money?
Another shocker is that the "financial advisor" quoted in the article said you'd do better to take the annuity then to take the lump sum - I've never heard that before.
Please enlighten me.
The annuity is better (for some people) because you are not putting all your money at risk in any single thing.
With the annuity option, if you make an "investing" blunder this year, you still have another check coming next year.
My money will be staying at home, too.
My step-dad plays around some with the stock market game. That wasn't all that bad, until the economy really went South and he lost a lot...... and then I find out he is still playing with it!!! That is crazy!! Some people are a glutton for punishment.
My dad had stock in the bank he worked for all his life, and he nearly lost everything he had last year.
I will invest in lottery tickets. LOL
"I believe we haven't seen a true crash in our lifetime yet, and it's bound to happen, the news makes it look like things are looking up, but I think they are trying to buy time, I guess time will tell."
You're not kidding, Velocity. They can make anything look the way they want on paper, and with the media. "It's getting better" ...yea right. It's not getting better around here, and it's not going to. If they can convince everyone that they can make a difference with the economy (which they are trying to do), if they go out and invest what they have left, they will do it. Then they can bring in the wrecking ball, and finish us off. The crash is still coming, I'm sure of it.
Ah, but quite the contrary.. You have investments (same as bets) that Coca Cola is a good company and will continue to earn profits. (Retuturns on your investments, or winning a bet) On the contrary, if Coca Cola's sales are down, and their stock tanks, you end up losig $$$. No difference in betting on the Colts or Jets this week. In fact at least with betting, I am always aware of my risk/return, not so with the market...
I will take the Jets ST8 up **no points!!
Did you know that 70% of statistics are made up on the spot??
Notice how no source was quoted on that statistic???
I totally agree. The financial experts all say that "You should take the lump sum." Wrong. Financial experts should take the lump sum. Average Joe needs a learning curve. This kids poor investment decisions cost him 34% loss his first year. Now the money its costing him in accounting fees, poor tax decisions and more poor investment decisions, he will probably not turn a profit for another 4 years. By year 5, he will have probably lost TOTAL another 34% of the $330,000 capital he has left, leaving him around $217,800. Now, at year 6, he has learned from his mistakes and can now make profitable decisions.
So, if got the annuity, then its $1,000,000.00 over 25 years, that's $40,000 a year, less 15% state tax, less 20% fed income tax. Now we're at $27,200.00.. I lose 34% the first year due to bad investments thats $17,952.00.
The next 4 years I make bad decisions due to accounting fees, poor tax decisions and poor investment decisions. So, of the $153,952.00, I'm down to $101,608.32. Now starting year 6, I have half as much money as Average Joe who got the lump sum. However, I still have 20 annual payments left.
Once you annuitize the 20 years of interest plus additional annual payout, I think you would be better off taking the annuity. But my BA-25 calculator is in the trunk of my car, its late, and I'm not going to get it now.
I'd like to hear what others think!
-Lou
P.s. I am chalking up the fact that he gave out huge sums of cash to family as poor investment decisions as well.
Alternatively the moral is: if you win, win big so that you can just stuff all the money in a whole lot of insured money markets. I still believe that 500,000,000 to 600,000,000 dollar jackpots for a young person negate much of the need for investment planning. You would still need to plan on how to allocate disbursements over 65 to 70 years though.
(I personally don't need jackpots that big.)