The Jackpot Could Be Yours… And that’s not just the Luck of the Irish
It’s March, and while that might bring to mind thoughts of snow and cold weather, it also brings a lot of celebrations around luck. Around here, you could attend a St. Patrick’s Day parade every weekend day for four weeks; celebrating with thousands of people wearing green and chattering about the Luck of the Irish. Add to that the excitement of March Madness, and picking brackets, cheering on the underdog in college basketball, and suddenly, dreams of good luck and chance winnings may not seem so nebulous.
But let’s not run out and buy our lottery tickets just yet.
The truth is that if you talk to the coaches or the players that were considered the unsung heroes, the underdogs of the tournament who pulled off the win, none of them are going to say it was just sheer good luck. They are far more likely to tout discipline, the long game, planning and training. Are they correct?
Let’s explore the difference between a chance game (a gamble) and making a sound investment.
What are the chances of winning a big lottery?
The chance of winning the grand prize in the Powerball and Mega Million is 175 MILLION to ONE! (So, you’re saying there’s a chance?!) If we dream for a moment and say that you are the incredibly lucky winner; there is then a 66% chance that you will be sharing those winnings with at least one other person. To put these numbers in context, the odds of becoming a movie star are only 1.5 million to one, so that might be a more lucrative path!
Would Nearly $1 Million Feel Like a Jackpot to You?
Suppose your parents played the lottery and paid an average of $1 a day throughout their lives. You have observed this behavior over your lifetime and assumed you would do likewise. But at 18 years old, you took an introduction to finance class and think: “What if I invested that dollar a day instead? What might that look like?”
Beginning at 18 years old, you then put $1 a day into a low-cost ETF (Exchange Traded Fund) until you are 70 years old. We will assume for the purpose of this illustration that you invest in a total market index fund with extremely low expense ratios.
On your 70th birthday, you take a look at your account and realize that you have amassed just under $1 million dollars. Meanwhile, your parents never did realize their big win and are down by that same $18,720.
Now don’t get me wrong. I’m not saying that you should never play the lottery. It can be fun and certainly provides for some good conversation when the jackpots do get high. It is important though to recognize what the true cost of that dollar is each time you play and to understand that you can create wealth by investing that dollar instead. So enjoy the parades and wearing green this month, have fun cheering on the underdog, but when it comes to your personal finances and deciding what to do with that $1, go out and make your own luck!
Please note: the examples used were for illustration purposes and excluded taxes, fees and inflation and are intended to demonstrate the power of investing that same $1/day.