May the odds be ever in your favor: Lottery vs. Investing

(InvestigateTV) — It can be fun to daydream about winning the lottery and living a carefree, lavish life, even when we know the odds of winning are incredibly low.

For Powerball, those odds are around one in 292 million.

David Meier, a senior analyst at The Motley Fool, said to him, playing the lottery is essentially lighting money on fire.

Motley Fool reported that 50 percent of Americans play the lottery each year and spend about $103 billion in total.

By comparison, another The Motley Fool study found only 21 percent of families directly hold stocks.

“I’m not anti-lottery in that perspective, but I did not realize that the magnitude was that high,” Meier shared. “If you just put that five dollars in a savings account or money market account today that, generated 5% return, that’s a huge amount of money.”

Meier said if people swapped out a Powerball ticket and a scratch off ticket each month — which costs about $25 — and put that in a low-cost fund instead with an average market return of 10 percent, after 10 years they would have $5,121. After 30 years that small monthly habit would grow to more than $56,000.

“Having it taken out of your paycheck and putting it into a simple vehicle, again, it could just be a money market fund,” he suggested. “It could be a bond fund, could be the S&P 500 index. Whatever that thing is, if it’s done for you. It makes the process easier.”

Meier said if people have access to a 401(k) plan, start there.

He recognized that it’s fun to play the lottery but said investing that money instead could lead to big returns.

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