Jim Cramer: Here's how I would invest Powerball lottery winnings

CNBC's Jim Cramer on Thursday offered suggestions for how the person who bought the winning Powerball lottery ticket could invest their jackpot. Subscribe to CNBC PRO for access to investor and analyst insights: https://cnb.cx/2Vtntx6

CNBC’s Jim Cramer on Thursday offered up an investment strategy for whomever purchased the winning lottery ticket for the the $731.1 million Powerball drawing.

While the winner’s identity is not public following Wednesday night’s drawing, the lucky ticket was sold at a small store in Maryland. The state is one of a few in the U.S. that lets winners stay anonymous.

The “Mad Money” host said his investment strategy for lottery winnings tends to be conservative because a jackpot this large — the sixth biggest in lottery history — already puts them in a strong financial position.

“Once you’ve made your fortune, don’t give people loans,” Cramer said, stressing the need to avoid potential scammers. “In fact, don’t invest in anything that has any risk for the vast majority of your newfound fortune. Who needs risk when you’re already rich?”

For starters, Cramer recommended taking the lottery payout in one lump sum instead of in annual payments through an annuity.

“You can stick it in Treasury bonds and the interest you’ll accrue will make you more than if you took the annuity,” Cramer said. “Plus, the top marginal tax rate is as low as it’s been in decades thanks to President Trump’s tax reform package. Better to pay the taxes now, because that rate’s only going to go up from here.”

Where to invest

Cramer said the real risk for someone who just secured a nine-figure fortune isn’t really the taxes: it’s inflation, specifically hyperinflation.

“If you’re managing a normal portfolio, I wouldn’t think that much about inflation right now,” Cramer cautioned. “We’ve had persistently low inflation since the early ’90s. It’s just not a serious concern.”

Cramer said assets that would be resilient in the face of hyperinflation are precious metals, real estate and art masterpieces. For metals, in particular, Cramer said he would put 5% of the lottery winnings into gold, specifically in physical form. “Don’t store the bullion at home. Put it in safety deposit boxes at different banks. Nothing wrong with putting some overseas,” he said.

Cramer also recommended putting 5% of the lottery winnings into bitcoin, which some investors have been heralding as a terrific inflation hedge that rivals gold. Some on Wall Street have even suggested the cryptocurrency could largely replace gold.

“Don’t buy it all at once,” Cramer said of bitcoin, which has a history of high volatility. “But it’s an important new store of value.”

From there, Cramer said he would invest the bulk of what’s left in the bond market, particularly focused on short-term Maryland municipal bonds. “Maryland has triple-A bond rating, and bond rates are so low that you have to stay away from anything that’s long term,” he said. “If rates spike, you’ve got to be ready.”

Stocks last

The last place to which Cramer would turn to invest winnings? Equity markets. And even then, Cramer said it would be mostly “for fun.”

“When you’re already rich, don’t put no more than 20% of your assets into the market and that should largely be in index funds,” he said.

Cramer said he also would look to invest lottery winnings into companies that have long histories of paying dividends. He suggested Abbott Laboratories, Walmart, PepsiCo, Clorox and a few other names, including Maryland-based McCormick.

“Again, you only need to get rich once, person. Once you win the Powerball jackpot, you never need to take another financial risk again, so please don’t,” Cramer said. “No need to hit the jackpot a second time.”

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