When Playing Mega Millions Is Actually a Smart Money Move

Before you go, we thought you'd like these...
Before you go close icon

The Mega Millions jackpot earlier this week hit $648 million, once again drawing attention from enthusiastic players seeking to make their fortunes. Predictably, most financial planners came out saying how bad a move it is to play the lottery. But does it ever make sense to spent $1 in the hopes of turning into millions?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the question of when playing Mega Millions actually makes sense from a financial perspective. Dan runs through the numbers, explaining how you have to consider the odds of winning, the size of the prize, and the likelihood that you'll have to split the pot with multiple winners, as this week's winning players did. Moreover, Dan points out that the lump-sum amount winners get is much less than the headline jackpot figure, which assumes an annuity paid out over 20 years or more in most lotteries. With taxes reducing the effective payout even more, Dan concludes that it would take an unprecedented jackpot of $1 billion or more to make playing the lottery make sense -- and even then, the number of multiple winners could make it unprofitable.

The smarter alternative to playing the lottery
Investing even small amounts of money give you a much better chance of a long-term payoff than playing the lottery. Yet millions of Americans have missed out on huge gains in stocks over the past five years, leaving their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

The article When Playing Mega Millions Is Actually a Smart Money Move originally appeared on Fool.com.

Neither Fool contributor Dan Caplinger nor The Motley Fool has any position in any stocks mentioned. 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

People are Reading