Will You Be A Lottery Winner or an Investor?

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If you ever want to know what people dream of, ask them what they would do if they won the lottery. They’ll come up with everything under the sun: a new car, a yacht, an estate, a trip around the world, quads, a brand new RV, and the list continues. The many stories of lottery winners allow people to dream beyond what their current lifestyle can support.

TLC has recently been airing the show, “How the Lottery Changed My Life.” The producers have tracked down different families that have recently won the lottery and asked to see how they are living now compared to when they struck it rich. Many of them ride around in their flashy new Lamborghini or Cadillac. Others live in mansions that quadruple the square footage of their previous residence. Those that are envious of these winners do not realize though, that the lottery is not all it’s cracked up to be.

For anyone that wins the lottery, there is an instantaneous setback: taxes. I was amazed at the amount Uncle Sam was able to claim. For example, one woman struck it rich with her $56 million Power Ball win, but was only left with $17 million. Another woman was selected as the Publishers Clearing House winner and was awarded a check for $1,000,000, but Uncle Sam decided to take $750,000, leaving her with only $250,000. I understand that each of these individuals still walked away with a lot of money, but to only receive a quarter of what you had initially thought? That’s too bad. In addition to that, many of these winners lost their friends and even received threats from jealous neighbors who believed that they should have won instead.

There are clearly setbacks to playing the lottery, but what about the setback of never winning at all? I live in South Florida, and the grand prize Powerball is currently valued at $25,000,000 (a $14.2 million value after taxes). The odds of winning? 1 in 195,249,054. Now, some could win after a million plays, while others may take 400 billions plays, the odds are merely the chances based on the many different combinations of numbers that are possible. Let’s assume that we win according to the odds presented. It will take 195,249,054 plays in order for us to win the jackpot. Since the tickets are $1 a piece, that means we are paying $195 million in order to win $14 million. That doesn’t make very much sense does it?

You want to know a sure fire way to “win” $14 million dollars by investing? Invest $1,000 a month at 15% interest and in 35 years, your investment is worth $14.86 million dollars. You may be saying, $1,000 a month?!? I don’t have that much to invest. Alright alright, let’s say you were able to scrounge up $446 a month. If you invest it consistently for 40 years, you’ll have your $14 million.

So you can either keep spending money on the lottery and most likely not win, or you can be wise and invest a consistent amount per month and have a certain “win”. You decide.

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Investing Money

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

6 Comments

  1. I never realized how much the government would take in terms of taxes for a lottery winner. But honestly, how would you earn 15%, especially after inflation?
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