Financial experts have weighed in on the spending habits of a Powerball jackpot winner worth $2 billion.
Winning the lottery, especially an enormous prize like the $2.04 billion Powerball in 2022, comes with its own set of do's and don'ts.
Edwin Castro, a 31-year-old Californian, skyrocketed to billionaire status overnight with his lottery triumph. However, experts suggest that he may not have made the wisest financial decisions.
Witness the exhilarating moment when Castro's identity was unveiled:
Although Castro secured his lottery win in November, he chose to remain out of the limelight until February. Despite declining the opportunity to reveal his identity publicly, he hasn't been shy about displaying his newfound wealth.
Opting for a lump sum payment of $997.6 million instead of annual installments, Castro has embarked on a real estate buying spree, amassing an impressive portfolio. This includes a $25.5 million Hollywood Hills residence, a $4 million mansion in California, and most recently, a $47 million mansion in Los Angeles.
At first glance, many might consider Castro's focus on real estate as a wise investment. However, according to financial experts, his spending choices don't align with conventional wisdom.
To begin with, conventional wisdom suggests that lottery winners should choose the annual payment option over an immediate lump sum.
Furthermore, if they do opt for the lump sum, it's advisable to seek guidance from a tax attorney or financial advisor to navigate the complexities of handling such a substantial windfall.
A managing director of advice and planning within Wells Fargo's investing and wealth management division shared her insights and recommendations for lottery winners with Fortune: "Don't make any visible life changes. Don't quit your job, don't go out and buy a Ferrari, don't buy a mansion."
"Maybe you have student loans you want to pay off, that makes sense. But try to avoid that mega-purchase."
Wealth advisor Jacob Turner expressed his perspective on social media platform X (formerly known as Twitter), asserting that Castro has essentially done "everything you read not to do."
He explained: "He purchased a $25.5 million home a month after winning. He purchased a $4 million property near where he bought the ticket."
"He most recently purchased a $47 million home overlooking Los Angeles. That is $76 million of homes for those keeping track. In addition, he is reportedly rolling around in high-priced antique sports cars."
Nevertheless, Turner points out that despite Castro's extravagant spending, he may very well be able to sustain his current lifestyle.
Turner calculates that if Castro were to "invest the rest of the money in a diversified portfolio" he could comfortably spend $16,575,000 (£13,652,661) annually without depleting the principal. This calculation also takes into consideration a three percent withdrawal rate.
Factoring in annual expenses of "between two to three million" for the maintenance, insurance, and property taxes on his three mansions, Turner concludes that Castro would still have a monthly budget of $1 million (£820,000) for his lifestyle.
In essence, despite not following the conventional advice, it appears that the lottery winner is financially secure, to say the least.
