Friday, April 1, 2011

Money: Odds of Winning the Lottery Are Worse Than Finding New Manolos at a Yard Sale

“If you really want to strike it rich, don’t play the lottery. Do something boring with your money.”
J.D. Roth, founder of He's no fool.
By the time we're 40licious, we've learned a lot about how the world works, how relationships are, and, hopefully, about money. But some of us are still prone to rescue fantasies, as Barbara Stanny so eloquently describes in "Prince Charming Isn't Coming." I know a lot of women who think that finding the right guy -- or any guy -- will make everything OK in their lives spiritually, physically and financially. My personal standby rescue fantasy is that somehow the right power players will hear about my blog and book ideas and unwritten scripts and offer me a fat deal so I can quit my day job, move to a home by the sea, and spend dreamy days watching the ocean as I write with my chihuahua curled up on my lap.

Today our April Fool's reality check comes from founder and editor J.D. Roth, who has published a post called “The Lottery: An ’Investment’ for Fools” with a bonus lottery simulator. (In my scenario, I played $1,040 worth of tickets over a two-year period and won only $89. That's a 91% loss.)

Roth explains why playing the lottery with an expectation of a positive payoff is foolish – and that nearly any common investment would do far better. The accompanying lottery simulator gives people a chance to try their luck at hitting a lottery jackpot to learn firsthand how the odds are stacked against them without the investment risk. He says that even at a time when interest rates are at historic lows, traditional investments are a far better bet than the lottery when it comes to building wealth or getting out of debt. Roth explains why individuals who spend time and money trying to win the lottery are better off spending that time looking for a way to slowly grow their bottom line in a high interest savings account.

The average loss is around 90 percent for regular lottery players. If a consumer invested a $100,000 lump sum in one of five common investments for a period of 30 years, a realistic inflation-adjusted return would be:
  • Gold, real estate or savings account: $135,000 
  • Bonds: $200,000
  • Stocks: $750,000
Though Roth notes that playing the lottery for entertainment can be just fine, he makes the case that counting on the Mega Millions as a moneymaking strategy is a fool’s errand.  “If you really want to strike it rich, don’t play the lottery. Do something boring with your money,” writes Roth. “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.”

“An online savings account that yields a mere 1 percent is a better bet than a sure losing streak with the lottery,” he says.


Euro millions ticket said...

But in my point of view lottery is an interesting thing for me. You just can't believe that i have won 2 lottery prizes! so it's a funny thing for me.

Jay said...

that's how to play the lottery works. Now, we still can't deny that there are people who won the lottery 5 times in a row.. wish I'm one of them...