The lottery: An 'investment' for fools
Almost anything is a better investment than flushing your money down the lottery toilet.
Updated March 30, 2012, 2:04 p.m. ET
This post comes from J.D. Roth at partner site Get Rich Slowly.
Over the years, I've done some foolish things with my finances. I've squandered money on comic books. I've speculated on risky stocks, hoping to make a quick fortune. I've paid a gazillion dollars -- or something close to it -- in credit card interest and bank fees. I spent large windfalls on the latest technological gadgets.
No, I'm by no means perfect with money.
One trap I've managed to avoid, though, is the lottery. Playing the lottery has never tempted me. Maybe it's because I know the odds are always overwhelmingly stacked against the player -- I know I can't win the lottery, so why bother?
Caveat: That's not to say I've never played the lottery. I used to play Sports Action, Oregon's NFL-based betting game, once in a while. And I've bought an occasional scratch-off ticket. But when I do these things, I consider them one-time entertainment expenses, not paths to riches.
A fool and his money . . .
Not everyone is so lucky. For some, gambling is an addiction. It may start as innocent fun, but it grows beyond that, becomes a financial funnel, draining dollars from their daily lives. And some in dire financial straits may actually view the lottery as an investment strategy!
According to Wired magazine:
While approximately half of Americans buy at least one lottery ticket at some point, the vast majority of tickets are purchased by about 20 percent of the population. These high-frequency players tend to be poor and uneducated, which is why critics refer to lotteries as a regressive tax. (In a 2006 survey, 30 percent of people without a high school degree said that playing the lottery was a wealth-building strategy.) On average, households that make less than $12,400 a year spend 5 percent of their income on lotteries -- a source of hope for just a few bucks a throw.
Just how foolish is it to play the lottery? It depends on the game you play, of course. I once calculated that for every buck my brother spent on a scratch-off game, he could expect to get roughly 50 cents in return. (That's if he bought a bunch of tickets, of course. If you buy only a few, anything can happen.)
It's even more depressing to take a look at the odds for lottery drawings. Here, for instance, are the odds of winning the Mega Millions lottery. They're not good. You have about a 1 in 40 chance of winning something. Your odds of winning the big jackpot (by matching the five main numbers and the bonus number) are roughly 1 in 175 million.
But that's pretty tough to visualize, right? I mean, 175 million is a big number. No worries! Rob Cockerham at Cockeyed.com whipped up a little widget that lets you simulate the Mega Millions lottery. This is a great way to see just how fruitless the lottery is. (Post continues below.)
Almost anything is a better "investment" than flushing your money down the lottery toilet. In his book "Stocks for the Long Run," Jeremy Siegel crunched the numbers to find the historical performance of several common investments. The results? Since 1926:
- Gold has a real return (meaning "after-inflation return") of about 1%.
- By my calculations (not Siegel's), real estate also has a real return of about 1%.
- Bonds have returned about 5%, or about 2.4% after inflation.
- Stocks have returned an average of about 10% per year and a real return (or inflation-adjusted return) of about 6.8%.
These options are volatile, of course, meaning the returns one year can be negative (though not nearly as bad as playing the lottery), and the returns the next can be positive. If you're looking for a "sure thing," you're left with so-called safe investments, such as savings accounts and certificates of deposit.
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Savings accounts and CDs have paltry returns right now, but they're sure to rise as the economy improves. And even a 1% interest rate crushes a continuing 88.9% loss on your money. (Not to mention that the lottery numbers I calculated above don't factor in inflation.)
Note: I can't find any data on the relationship between savings-account interest and inflation. If I had to make an educated guess, I'd say that savings accounts return about 1% more than inflation every year, meaning that they're on a par with gold or real estate in the long term. But this is just a guess!
Let's assume you inherit $100,000 and want to invest it. Let's also assume that you're going to put it in one investment vehicle and leave it there for 30 years. (And that your returns on this investment will compound monthly.)
- If you invested in gold or real estate (or a savings account), you might expect to have about $135,000 after inflation.
- If you invested in bonds, you'd probably have about $200,000 after inflation.
- If you invested in stocks, you could have more than $750,000.
- But if you "invested" in the lottery, you'd have nothing. After 10 years, you'd have just 10 bucks left. After 17 years, you'd have a penny -- which you'd promptly lose. And again, the numbers for the lottery don't factor in inflation.
So, if you really want to strike it rich, don't play the lottery. Do something boring with your money. Take advantage of the extraordinary power of compound interest to get rich slowly. If you don't have a Roth IRA, start one. Use it to buy indexed mutual funds. If that sounds too complicated for you, then open a savings account.
There's no question: Playing the lottery as a strategy to gain money is a fool's game. Play the lottery for fun if you want, but don't do it because you think it's going to help your financial situation.
Many folks win big jackpots, only to lose the money -- or their happiness. People are fools to play the lottery, and they often remain fools after winning. Some examples:
- Money UK: "How the lives of 10 lottery millionaires went disastrously wrong."
- USA Today: "Lottery winners' good luck can go bad fast."
- The Lotto Report: "Sad but true" Lotto winners' stories.
A 2001 article in The American Economic Review found that after receiving half their jackpots, typical lottery winners had put only about 16% of that money into savings. It's estimated that more than a quarter of lottery winners go bankrupt. Take Bud Post: He won $16.2 million in 1988. When he died in 2006, Post was living on a $450 monthly disability check. "I was much happier when I was broke," he's reported to have said.
Even when they win, lottery winners often lose.
More from Get Rich Slowly and MSN Money:
I just LOVE these stories about how "fools play the lottery" and "lotteries are for those that suck at math" or whatever....you fill in the blanks.
My Bottom Line: I have fun with it! I'm retired and I spend about fifty bucks a month on lotteries. And I enjoy doing so! Many people spend money on something (golf, movies, travel) that they will see no further benefit from....and I rarely hear about how they have "squandered" their money. If I wanna light cigars (although I don't smoke) with dollar bills, then so be it! It's my money to do with as I wish! I've worked and saved and now I will spend fifty (or more...my call) bucks on lotteries if I wanna!
Yeah, yeah. In the big picture the lottery isn't any kind of investment, stupid or otherwise. But the $204.00 I spend a year on the bi-weekly Mega and Super in California is just the price of a six pack of Pabst a week. The Pabst won't even give me a buzz. There is, however, a little bit of excitement participating in the improbability of such a magnitude as is presented by lottery participation. The universe is so large that anything of such outsized proportions is, possibly, quite improbable. The lotto gives me the only chance to actually participate in such improbability. And, for only $4.00 per week. The rest of the universe is inconceivably large and its workings are beyond any influence from me, do I have a gravitational field? No, I don't. .
water in the balls- scandal - how could she come back- where is my money- can you investigate - must ask h carl mccall for the files on rebels aid station-mosley-quit claim deed-s392b-kunstler files- you can help gas prices go down and stability-"
GEESH!! Do you have these disconnected thoughts on a regular basis? That's about the best (worst??) example of slaughtering the English language that I've EVER seen ..... and I've seen ALOT of those type posts too. If you actually want people to understand what you're trying to talk about, whatever it is, then lay off the alcohol for a couple days before attempting to re-word that mess you made.
If your problem is something else, like poorly educated, English not being your primary language, or having some sort of medical syndrome which screws your thought process up ....... then PLEASE ask a friend to do the writing for you. (You do have a friend who is literate .... right?) Your horrendous example of how NOT to use the 26 letters SHOULD give you a BIG hint that it's most likely best to simply give up attempting to participate in internet discussion-boards completely. Study proper English, basic sentence structure, rules of grammar, correct punctuation, etc. for a few months or so & THEN try some very simple posts & replies to see if you've progressed enough to participate in a conversation/discussion. If your words still seem like they are coming from an old 33RPM-LP record which has a couple dozen very nasty scratches on it, study & practice some more.
English is often said to be one of the more difficult languages. That fact, + the fact that your other post which I referenced above is pretty much about 90% pure 1st & 2nd-grade gibberish, saddly means that you have a LONG way to go before you will be at the same level as the great majority of all others who use English as a writing language.
No insults intended, only the cold, hard, truth of the matter, which you've shown by your own comments in this very thread.
The sad part is so many people, and I'm talking a SHOCKING number... are basically planning their life, from a early age, on things like 'when I win the lottery'!!
After my father retired from the military, my mother went back to teaching in a basically depressed rural part of the midwest, when they retired back to their hometown. She told me when she gave her HS students an assignment in 1983 about what they wanted to do with their life, they wrote about going to college, becoming a mechanic, farming the family farm, etc. Before she retired 17 years later, the same assignment had kids writing about how they'd find something 'till they won the lottery...' or how they were going to be rock stars, despite playing no instrument now hanging out with anyone who did. Somehow, by the late 90's, kids were planning on wealth and riches based on some unrealistic 15minutes of fame type dream. The disillusionment is often learned from parents who are grasping for straws just as unlikey.
I don't believe many people regard buying lottery tickets as an investment. I'm more prone to believe that the mass majority of people regard their lottery purchases as part of their entertainment budget so what's the big deal? Personally I don't drink or smoke and I play 20 bucks a week on mega and powerball and heck ...who knows I just might get lucky although I know the odds are against it. Besides a small portion in my state goes to education so my contribution isn't a total loss!! An investment?....no way. Fun and entertainment....yes!!
What people tend to forget is that the larger the lottery, the more people bet on it, which dramatically increases the odds that you will be splitting the jackpot with others who have the same ticket numbers.
So in essence, the lottery is really smaller than advertised, statistically speaking that is.
scams - you know your stuff- i like an investigation complete - the state has allowed the lottery to be privatized like dmv-
s n h green stamps- as one of the original founders and designrs oif the new york state lotrery under first lady michelle patterson and comptroller h carl mccall-ivan cross man from the i r s -audit division nyc-in charge of taxes and checks for me - paid for the first pay outs with my cash-the printer was from ossining n y the first million dollar contract ever - vance mccray -printer -setup and layout man- i never got a dime- collected the first installment- reinvested in state ed fund-stock -missing- i hired yolanda vega and stephanie moore-
water in the balls- scandal - how could she come back- where is my money- can you investigate - must ask h carl mccall for the files on rebels aid station-mosley-quit claim deed-s392b-kunstler files- you can help gas prices go down and stability-
do not invest in facebook either - it is oa dummy corp for a page used by everyone- should have done it then if it is yours mr.zuckerman-just like the lottery
judge napolitano was the last attorney- ask them why-
walk into the lottery office and tell them you want tickets covering all combinations.... Who has to fill out any tickets? Not only do you win the jackpot, you'd also win the other lesser numbered combinations. You also get to write off the losses from all the losing tickets against any gains.
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