Unexpected Turn of Fate After Powerball Win
In the spring of 2008, Paul and Sue Rosenau from Minnesota won the Powerball lottery, receiving $59.6 million after taxes. They decided to use the money to establish the Rosenau Family Research Foundation in memory of their granddaughter Makayla, who had passed away from Krabbe disease, dedicating themselves to finding a cure for children suffering from the same condition. They believed their win was an act of divine intervention, hoping to do something meaningful with the money.
However, they soon learned that money doesn’t solve all problems. Human intervention can sometimes be destructive. This painful truth was revealed through the heartbreaking experience of the Rosenaus.
The Role of Financial Advisors and Its Risks
Due to their lack of financial experience, the Rosenaus hired a local financial advisor, John Friebe, to manage their funds. Friebe, an employee of Principal Financial Group, claimed to prioritize the interests of his clients. However, this was not the case.
Friebe guided the Rosenau Foundation’s funds into variable annuities, which had excessive fees. This led to a significant decline in the foundation’s assets. Ultimately, Friebe’s decisions caused the Rosenaus to suffer substantial losses.
Losses from Poor Investments and Their Impact
Friebe allocated 93% of the Rosenau Foundation’s assets to variable annuities, collecting about $1.2 million in fees. This reduced the liquidity of the foundation’s assets and lowered their actual returns. By the end of 2011, Friebe had invested $28.3 million of the foundation’s assets into variable annuities, which had decreased to $26.3 million six years later. This happened despite the stock market more than doubling during the same period.
Investment Strategy for Nonprofits: What’s the Right Approach?
Nonprofits should maintain their assets in a stable manner and ensure liquidity to sustain their activities. High-cost, low-return products like variable annuities are not suitable for this purpose. The foundation’s assets should have been invested in low-cost mutual funds or exchange-traded funds. A simple investment strategy could have yielded better results.
The Outcome of Litigation and Arbitration
The Rosenau Foundation suffered significant losses due to Friebe’s inappropriate investment advice and eventually filed a lawsuit against Principal Securities. Through arbitration, Principal Securities was ordered to pay $7.3 million in compensation to the Rosenau Foundation, helping the foundation partially recover from its losses.
Lessons Learned: How to Approach Investing
The story of the Rosenaus offers important lessons for investors. Investing should not rely solely on the advice of experts. Careful consideration of one’s financial situation and goals is essential. Additionally, understanding transparent information and cost structures is crucial.
Hopefully, this story provides meaningful lessons for you. Always take care to protect your valuable assets and make the right investment decisions.
Source: Jason Zweig, “A Couple Won the Powerball. Investing It Turned Into Tragedy”