It is rare to see such a return on investment like spending a dollar on a lottery ticket and receiving $640 million, before taxes. But it looks like three winners are about to see an investment turn around very rarely seen. If you have turned on the TV the past two weeks you most likely have been bombarded with the news of the massive jackpot about to be bestowed upon some lucky individual, and also statistics that you are more likely to get hit by lightning multiple times then to win the jackpot. Yet, across the US many who are looking for a massive increase in income set out to purchase lottery tickets regularly. So, with all the statistics showing the likelihood of winning so horribly low what could the point possibly be?
Getting hit by airplane parts
Statistics show that you are more likely to get hit by falling airplane parts then you are to win almost any significant lottery amount. Yet the past two weeks thousands upon thousands of people lined up to spend, in many cases, a large majority of their hard earned income for a chance to improve their prosperity in one night. A statistic released by PBS in 2008 shows that on average those who earn an income of around $13,000 a year spend nearly 9% of their income on lottery tickets. Statistically then these earners- and many more in slightly higher income levels—are spending their money on something that has very little chance of a return.
A better investments
So if a low income earner is spending nearly $1,200 on lottery tickets in a year. Looking at the statistics of the lottery- or gambling in general—we can expect at least a 2% income for the house for every dollar. This is called the Vig. So for every $1.00 you spend you can at best expect $0.98 back. The math gets pretty complicated when the odds of winning get lower. So keeping this really simple, realistically spending $1,200 a year in the lottery you can expect around $24 back. That is of course unless you are the 1 in 175 million who won last night. So where can one invest that $1,200 and get a better payout then $24?
Using an initial deposit of $1,200 and no additional cash…
- Savings account at a median of 2.5% interest earns: $30.70 in one year
- 1 year CD with 1.005% compound interest earns: $212.06 in one year
- Average Mutual fund with 8% return rate: $82
Calculations were done at bankrate.com
Clearly there are much better ways to earn income each year with your hard earned cash. Of course most don’t have the possibility of a $1 investment returning $640 million. But, when you on average will only receive 98 cents on the dollar you invest with a 1 in 175 million chance of a massive return that $30.70 interest on a savings account might look a whole lot better, though the excitement agreeably is far less.