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Why you need a second opinion before you invest your lottery winnings

Mon 16 May 2016, By Henry 'Mystic' Maven
Why you need a second opinion

We’ve all heard those heart-breaking stories of lottery winners who go on to squander their newfound fortune in a matter of months or years. And we imagine that we’re too sensible to behave so recklessly with such a large fortune. But the truth is that even the most conservative among us can fall prey to unscrupulous people and institutions.

A case in point is that of Francisco Guerrero, the 2006 winner of the Bonoloto. Francisco won a total of €6.5 mllion. But seven and half years later he has almost nothing left. And that’s not because he spent the money. It’s because he invested it.

Fransisco Guerrero—the man who lost it all

So what went wrong? How could a man who was clearly being responsible with his money end up with nothing? It comes down to investing in ‘toxic’ products that did nothing to grow his money. Like many of us, Francisco is not a man schooled in the complicated world of investments. So he relied on others to give him good advice. And one of those he relied upon was the Banco Santander.

We all think that seeking out financial advice from your bank is best way to go when you have some money to invest. After all, as their client they should be giving you the best advice and helping you to secure and grow your money. But what Banco Santander did was introduce Francisco to structured trident financial products. On the surface they seem to be excellent investments offering secure, high returns. But it all depends on a strict set of conditions being met.

Unfortunately for Francisco, the US mortgage crash of 2008 badly affected these investments and as a result he lost the €900 000 he invested with Banco Santander. In their defense, Banco Santander claimed that they informed their client of the risks associated with this kind of investment. But Francisco is adamant that the bank did not give him the right advice and he has been ruined by this substantial loss.

The outcome of the case against Banco Santander

Luckily for Francisco, the judge presiding over the case has sided with him. And instructed the bank to pay him €1 062, 162. That’s the €900 000 he initially invested with interest. It’s a small victory for Francisco, but the battle has been difficult. He only discovered the loss when he went to withdraw money to pay for a knee surgery. And the fact that he had invested some of the money for his children strained family relationships.

What you can learn from Francisco’s story

But what Francisco has been through holds an important lesson for anyone who plays the lottery in the hopes of winning big.

  • Seek independent financial advice

No matter how sensible you are with your winnings, it’s important to seek independent financial advice. From Francisco’s example, it would seem that even the banks cannot be trusted to help you make a good decision when it comes to identifying a safe and secure way to grow your money.

  • Understand what you’re investing in

It’s also essential that you research and learn as much as you can about the different financial products available before you sign a cheque. While you may want to invest your money as quickly as possible to safeguard it, it’s better to take your time. That way, when you’re ready to hand your money over, you know exactly what the risks are.

  • Get a second opinion

You’d do the same if your health was at risk. So don’t be afraid to shop around when it comes to investing your money. If possible, try to work with people who do not stand to benefit from your loss. These days, everyone is looking out for themselves. Don’t part with your money until you’re certain that it’s in the right hands.

  • Be realistic

There’s an old saying about investments that goes, ‘it’s not timing the market— it’s time in the market’. Getting a windfall like winning the lottery can make you greedy and you might not be thinking clearly when it comes to investing your money sensibly. While it’s tempting to latch onto the first get-rich-quick scheme that comes along, it’s better to view your investment as a long-term commitment.

The simple truth is that the longer you leave your money in an investment, the more wealth you will eventually accumulate. But it takes time so don’t be impatient.

  • Enjoy your money

You don’t have to invest every penny of your winnings either. Winning a lottery allows people to live out their big dreams. Maybe you’d love to buy a bigger house, a better car or take the vacation you’ve always dreamed of. While it makes sense to invest as much as you can, and spend some sensibly, that’s not the reason why people buy lottery tickets.

Besides, psychologists have determined that it is experiences that make us happy. Using your winnings on the things you’ve always wanted to do will make your life richer in ways that money simply can’t.

If reading Francisco’s story has made you reluctant to buy another lottery ticket, don’t be discouraged. There are still plenty of reasons to dream big and take a chance on winning a life-changing cash prize. But let it serve as a warning to you should you ever be lucky enough to win a big jackpot.

If you take your time, do your research and listen to people who really have your best interests at heart, it’s unlikely you’ll be swindled out of your money. And it’s good to see that the judge was aware that the bank had manipulated Francisco into signing up for their financial product. If you feel that you’ve been taken advantage of, you do have the ability to take some kind of action and get the justice you deserve.