How to Win the Lottery -- a Different Way of Looking At It

By Markets Fool.com


Photo: Flickr user Daniel Oines.

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"Adventure upon all the tickets in the lottery, and you lose for certain; and the greater the number of your tickets the nearer you approach to this certainty."-- Adam Smith

Just about any person would love to win a lottery jackpot. After all, don't we all have great things we could do with millions of dollars? Yes, of course we might share our fortune with friends and charities. We might also pay off all our debts and fill college savings accounts to the brim and ensure that our retirement will be comfortable. A nagging question remains, though: How to win the lottery?

While most of us would love it, most of us also know that it's very unlikely that we will ever win the lottery jackpot. The odds are simply against us. Way, way, way against us.

Two of the biggest jackpots are from the Mega Millions and Powerball lotteries, which, respectively, offer jackpot odds of 1 in 259 million and 1 in 175 million. You don't need to be too much of a math savant to understand that no matter how many tickets you buy, you're extremely unlikely to ever win. (If it helps you to visualize, imagine a big fat phone book from a very populous city with your name included among millions of others. Then imagine flipping, with your eyes closed, to a random page and placing your finger on a random name. It's far more unlikely that you'll win a big lottery jackpot than that your finger will fall on your own name.)

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You're more likely to be hit by lightning than win the lottery jackpot. Photo: Oregon Department of Transportation

Keeping the odds above in mind, here are some other odds to consider -- of events much more likely to happen than your winning a lottery jackpot:

  • 1 in 112 million: Your odds of being crushed to death by a vending machine.
  • 1 in 15 million: Your odds, if you're a woman, of giving birth to a set of identical quadruplets.
  • 1 in 13 million: Your odds of picking a perfect NCAA tournament bracket.
  • 1 in 1 million: Your odds of dying from flesh-eating bacteria or in a plane crash (though most people actually survive plane crashes, believe it or not).
  • 1 in 1 million: Your odds of being struck by lightning.
  • 1 in 88,000: Your odds of dating a supermodel.
  • 1 in 12,500: Your odds of hitting a hole in one in golf.

On the bright side...
Fortunately, if you're wishing you could have a flush retirement account and a secure financial future, you don't have to rely on the lottery. If you're willing to put in a little more effort than buying a lottery ticket, you can take advantage of excellent odds -- by investing regularly in the stock market and being patient.

Check out this data from Wharton Business School professor Jeremy Siegel, who has calculated the average returns for stocks, bonds, bills, gold, and the dollar, between 1802 and 2012:

Asset Class

Annualized Nominal Return, 1802-2012

Stocks

8.1%

Bonds

5.1%

Bills

4.2%

Gold

2.1%

U.S. Dollar

1.4%

Source: Stocks for the Long Run.

Stocks overpower bonds over both the long run and -- usually -- the short run. The following Siegel data reflect how often stocks outperformed bonds over various rolling periods between 1871 and 2012:

Holding Period

Stocks Beat Bonds This Percent of the Time

1 year

61.3%

5 years

69.0%

10 years

78.2%

20 years

95.8%

30 years

99.3%

Source: Stocks for the Long Run.

Got that? Instead of hoping for a 1-in-175 million reward, you can hope for a 99-in-100 reward, betting on stocks over bonds or other alternatives with your long-term money. Even if over your particular investing period you only average, say, 7%, that can be powerful. It's not even a matter of probabilities, either. If you average 7% annual gains over 25 years and you sock away, say, $10,000 per year, you will end up with $676,765. If you invest well or simply are lucky and average 10%, you can top $1 million. That's the best kind of lottery -- one where you take a chance, but an informed one that's likely to pay off handsomely.

Source: Flickr/brett jordan

It's fun to buy a lottery ticket now and then and dream of what you'll do with jackpot winnings. There's nothing wrong with that. But view it as inexpensive entertainment, not as a retirement plan, as some uninformed or desperate people do.

The article How to Win the Lottery -- a Different Way of Looking At It originally appeared on Fool.com.

Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter,has no position in any stocks mentioned. Nor does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.