Last week I bought a lottery ticket. I didn’t buy the ticket because it was a roll over; $34m is no different to me than the standard $11m, or in fact the few hundred thousand more I need to achieve my current retirement goals.
I bought the ticket for a bit of fun/hope (despite my gut assuring me that I wouldn’t win) because I’d had a hard week and dreamed of a quick out to it all – one that didn’t involve my death.
I guess that this is the main reason people buy lottery tickets, because they don’t see any way that they can amount any sort of decent sum of money and want to improve their situation.
Unfortunately, despite how the Lotto ticket states on it that “you are helping New Zealanders” when you buy a ticket, you’re not actually helping the New Zealander that matters the most (yourself).
The Chances Of Winning NZ Lotto
Let’s look at the chances of winning a decent sum of money on the NZ lottery. The numbers below are taken from the NZ Lotto website:
- The odds of winning over $350k are less than 1 in 3.8m for the NZ Lotto.
- The odds of winning over $11m are less than 1 in 38m for the NZ Lotto Powerball.
- The odds of winning over $300k are less than 1 in 2m for the NZ Lotto Strike.
Given the above, it’s fair to say that in your lifetime you are very unlikely to win any sort of decent money in the lottery.
Winning A Million Without The Lottery
Let’s look at how that $20 per week would have faired, had you invested it in the stock market over the years, instead.
Given average annual inflation of 3% (reducing the value of money) and the average return on the NZX of 14% per year, we can calculate a compounding annual rate of return of 11% (14% – 3%). Excluding the cost of broker fees and only applying interest at the end of the year (instead of throughout the year, in order to more than compensate for the brokerage fees), over 20 years of investing in the NZX you would have saved the modern day equivallant of $66,771. Over 40 years you would have saved $605,099. This number compounds to $1,026,104 after 45 years.
In other words, a 65 year old investing from age 20 would have retired with an extra million dollars or with an additional income of $30,783 after tax (based on a million dollar investment with a 5% ROI before tax).
From this, we can clearly see that as an investment in your future the lottery is a really bad option, and even $20 per week squirreled away in a carefully selected Sharesies stock investment is a great get rich slowly scheme.
