How I would invest the Powerball jackpot

We all fantasized about how we would spend the $1.6 billion Powerball jackpot. We talked about quitting our jobs, buying an expensive car. Beyond passion purchases like this, here's my financial advice for how I'd invest the winnings.

First, the reality check: You wouldn't get the full $1.6 billion. After taxes, it would probably be closer to $500 million or $600 million. And, since there were three winning tickets, that drops the prize to $200 million or less each.

Jon Najarian, Najarian Family Office
Adam Jeffery | CNBC
Jon Najarian, Najarian Family Office

Here's how we would allocate the money:

We would place 75 percent in fixed-income investments. We favor a 60/40 split between municipals and corporate debt. We would target federal tax-free municipals such as Cleveland Clinics and various state government issues. Municipal bonds have been strong performers, leading all categories with total returns of around 4 percent. We would allocate the other 40 percent to corporate debt such as Wells Fargo and US Bancorp.

Our calculations are that this mix of munis and corporates would provide a solid 4-percent yield. Assuming you put $150 million of your winnings (75 percent) in this asset class, you would make a cool $6 million.

The remaining $50 million would be divided between alternative investments, such as hedge funds, real-estate funds, and a mix of equity funds, preferred stock funds and cash with equal allocations to each.

As easy as it is to calculate the fixed-income yield, it is equally difficult to estimate the return on the more risky assets. For our example we used an Ibbotson-inspired model and estimated a blended 9-percent yield on that part of our Powerball portfolio. However, we did so with the caveat that the nature of these investments is that they have a standard deviation of 2 to 3 times that of the bond portfolio. Furthermore, those investments are not tax free, so one must apply at least 43-percent tax to cover federal as well as Affordable Care Act.

So, assuming we made a profit of $4.5 million (9 percent), when you deduct that 43-percent tax, you get a net profit of $2.57 million.

Thus, with a serious degree of diversification and attention to tax consequences, we would've made an additional profit of $8.57 million on those winnings.

That's a lot better investment than a boat, a house or a fancy car.

My wife said to me: "If you won the lottery, would you still love me?" I said: "Of course, I would. I'd miss you, but I'd still love you!"

Footnote: In October 2015, Powerball officials changed the jackpot odds from 1 in 175 million to 1 in 292 million, to assure that they'd get bigger and bigger jackpots. Under the new rules, you select five of 69 numbers, up from five out of 59 numbers. So if you aren't very good at math and statistics, the government is making sure they further empty the pockets of their most devoted customers. Is it any wonder lotteries are constantly referred to as a tax on people who can't do math?

Commentary by "Fast Money" trader Jon Najarian, a professional investor, money manager, media analyst and co-founder of optionMONSTER and tradeMONSTER. He is also the co-founder of the Najarian Family Office. He worked as a floor trader for 25 years and before that, he was a linebacker for the Chicago Bears. Follow him on Twitter @optionmonster.

For more insight from CNBC contributors, follow @CNBCopinion onTwitter.