NOTE: This post is part of an ongoing education series. This information is for educational purposes only. This information does not constitute investment advice. No rational person would make investment decisions based on a blog post. Please consult with your financial advisor before taking any action.
We are going to look at the Mega Milllions lottery. Today on their official site there is an image called “Save for retirement”. Let’s be clear – the lottery should never ever be thought of as a way to save for retirement. The lottery is a regressive tax or a tax on the stupid and is put in place by lazy politician that don’t want to make the needed effort to solve fiscal problems. A regressive tax places a higher burden on those that can least afford it. I do not like lotteries for many reasons but I will not go over all of that now. Today we will focus on the odds of winning and what would happen if you invested the money instead.
To keep our example simple we will only work with the big prize or the jackpot. Today the winning prize is $40 Million. The odds of winning with one ticket is about 176 million to 1. Your odds of being hit by lightning in one year is around 500,000 to 1. So you are 352 times more likely to get hit by lightning in a given year then winning the Mega Millions with one ticket.
What happens if you buy more tickets? You could “invest” $100 per day from the age of 18 to the age of 67 in Mega Millions tickets. That would be around 1.788 million tickets. Your odds of winning would be about 1%. There is a 99% chance you get nothing (remember we are only talking about the jackpot).
If you invested that money each and every year and made 10% a year you would have $42,446,161.30. So you could have over $40 million or you could have a 1% chance to win $40 million. So which plan do you think is better?