When I turned 18, I got as crazy as someone with conservative values who was raised by conservative parents is likely to get.
I registered to vote.
I bought a pack of cigarettes (but didn't smoke anything).
And I bought a lottery ticket.
I scratched it off right there, and I won a couple of bucks.
Even now, I sometimes buy a lottery ticket -- just to see what happens -- but I know that the lottery isn't a retirement plan. It would be fun to win, but I've never won more than five dollars, and I know I'm not likely to.
The odds against striking it rich with lottery winnings are depressingly high. You can use an online Powerball simulator to get an idea of your odds of winning. The odds of winning the big jackpot at the time of this writing are 1 in 175,223,510.
Think of the money you could be spending to try and win the lottery. If a Powerball ticket costs $2, and you buy five tickets a week, you spend $10 a week. That's $520 a year! Over the course of 30 years, that's $15,600.
What if you took that money and, rather than trying to fight a losing battle to win the big jackpot, you invested it? Let's see how that would work out.
It's true that investing isn't a sure thing. However, your chances of seeing an increase -- rather than just throwing money away on Powerball -- are much greater when you invest.
If you put $520 a year (compounded monthly) into a cash product that returned 1.05%, after 30 years your total would be $18,343.34. That's better than spending $15,600 on the lottery. If you are willing to take a little more risk, say putting the money in bonds yielding 3.69%, you could do better: $28,555.56.
If you could get an annualized return of 7.5% on a stock portfolio, after 30 years that $520 a year would result in $58,754.23. My colleague Amy Calistri, editor of StreetAuthority's Daily Paycheck newsletter, gets those kinds of returns and better with her dividend-focused investing strategy.
Inflation might take a bite out of your earnings, but it would still be better than spending all of that money on the lottery.
The appeal of the lottery, of course, is that you could strike it rich and win. Discovery's WebMATH site points out that one-third of the people living in the United States think that winning the lottery is the only way to become financially secure in life. But, as you can see, you have a better chance of seeing solid returns if you invest.
Of course, Powerball isn't the only way to play the lottery. When I play the lottery for fun, I usually buy instant-win scratch tickets. These tickets are a little more fun, and you have a better chance of winning something -- even if that something is only $2 or $3. Let's take the $10-a-week example of playing the lottery, and assume that you manage to win $4 each week. That means that you are only out $6 a week.
However, you are still behind. You win $208 a year, or $6,240 after 30 years, but you've spent $15,600 over those three decades, so you're still short $9,360. Instead of earning compound interest for 30 years by investing that $10 a week, you're losing money -- and it's made worse by the fact that your purchasing power is eroded by inflation.
That's not to say that you should never buy a lottery ticket. I think it's fun to occasionally spend a few bucks on an instant-win ticket. But I never think for a minute that I'm going to make it big. And I don't "invest" regularly in buying lottery tickets hoping that my retirement dreams will come true when I hit the jackpot.
To me, the lottery is entertainment. It's something that I enjoy after all of my other obligations have been paid and if I have money left over for fun. A solid investment strategy, taking into account proper asset allocation, is my long-term financial plan.
The Investing Answer: The chance of winning millions and being set for life is a powerful draw. However, your odds of winning big in the lottery are so slim that you are more likely to find a pearl in an oyster or get struck by lightning. Instead of considering the lottery your long-term financial plan, start investing. You can open a brokerage account with as little as $25, and make small investments over time. The power of compound interest is much more reliable than Powerball.
The 10 States That Pay Out the Biggest Lottery Jackpots
Here's an Almost Guaranteed Way to 'Win' $50,000 or More at the Lottery
Business news website 24/7 Wall St. has compiled a list of the 10 states that pay out the most in lottery winnings. The figures used are based on the most recently available full set of data, which is from 2010, but it turns out that the best states in which to buy a ticket don't change much from year to year. So which state holds the crown? Read on to find out.
Photo: The spectators gather in front of ABC studio at Times Square to watch the draw for MEGA Millions jackpot winning numbers of an estimated $370 million in New York, Tuesday, Mar. 6, 2007. The company officials have claimed the prize is the largest in the game's history, In a studio in frigid Times Square, lottery officials announced the winning numbers: 42-39-29-22-16; Mega Ball number 20. It wasn't immediately known how many tickets were sold nationwide or who, if anyone, held the winning ticket.
Largest Jackpot: $363 Million, (two-state lottery win shared with Illinois, 2000) Prizes Paid: $1.41 billion Ticket Sales: $2.35 billion State Profit from Sales: $704 million Government Use: K-12 education
The Michigan Lottery has been operating since 1972. In that time, it has generated more than $16 billion in revenue for the state's education fund. In 2006, Michigan joined five other states to found a multistate lottery called The Big Game, which would eventually become Mega Millions. Along with Powerball, it produces the largest jackpots in the country. In May 2000, when it was still called The Big Game, one Michigan resident won half of a $363 million jackpot, the third-largest combined jackpot ever won in a lottery in the U.S. The largest single-ticket prize in the state went to a couple in Port Huron, who won $208 Million before taxes.
Photo: In this photo provided by the Michigan Lottery, Fred Topous, Michigan Mega Millions jackpot winner, displays his lucky ticket on June 17, 2008 in Lansing. Topous, who vowed to continue to play the lottery, elected to take a lump sum payment of $33,989,267.
Largest Jackpot: $390 Million (two-state lottery win shared with Georgia, 2007) Prizes Paid: $1.47 billion Ticket Sales: $2.61 billion State Profit From Sales: $924 million Government Use: K-12 education
In 1969, voters from the Garden State approved a lottery system, and by 1971, the first drawing had been held. Though 2010, the lottery generated roughly $18 billion for the state's education budget. In 2005, Harold and Helen Lerner won a $258 million Mega Millions drawing. In 2007, the biggest jackpot in Mega Millions history at the time was shared by ticket holders in New Jersey and Georgia.
In January 2010, New Jersey began participating in the Powerball. Three months later, Sandra McNeil of Morristown was the single-ticket winner of a $211.7 million Powerball ticket.
Photo: Powerball winners Celeste and Joseph Tamburello display a ceremonial check for $70 million from the New Jersey Lottery on March 26 in Lawrenceville. They will get a $41.5 million lump sum payout for the cash value ticket, which they bought at the Little Silver Family Pharmacy in Little Silver, N.J. At right is Foster Krupa, the New Jersey Lottery's marketing manager.
Largest Single Jackpot: $267 million (2006) Prizes Paid: $1.51 billion Ticket Sales: $2.49 billion State Profit From Sales: $729 million Government Use: Education
The Ohio Lotto's motto is "Take a chance on education. Odds are, you'll have fun!" Since it began in 1974, more than $17 billion in lottery profits have gone to a state education fund. Since 1989, the state lottery association has hosted a game show called Cash Explosion Double Play on Ohio TV. The largest jackpot in the state's history went to an individual in the town of Lyons for $267 million.
Photo: Jeffrey Erb, general manager of Main Stop, and Linda Freeworth, manager of Lyons Main Stop Citgo, receive a check from the Ohio Lottery's Marie Kilbane, right, in the store in Lyons, Ohio. on March 1, 2006. They were given $100,000 for selling the winning ticket for the $267 million Mega Millions drawing.
Largest Single Jackpot: $333 million (two-state lottery win shared with New York, 2009) Prizes Paid: $1.61 billion Ticket Sales: $3.09 billion State Profit From Sales: $1.06 billion Government Use: Education
California instituted its lottery in 1984, when it was looking a method for increasing spending on education without raising taxes. The largest jackpot which included a California resident was a $336 million prize shared with a ticket holder in New York in May 2000. The largest single-ticket win for a California resident was a $315 million Mega Millions jackpot awarded in November 2005. That remains the third-largest single-ticket prize in history: An Oregon resident won $340 million in 2005 and a Nebraska resident won $365 million in 2006. In 2010, as one of his last acts in office, then-Gov. Arnold Schwarzenegger proposed a bill which would increase the efficiency of the California Lottery while increasing the percentage of ticket sales that go to state profits. Payout for ticket holders remained at 50%.
Photo: On June 22, 2005, after California joined the Mega Millions club, patrons lined up to purchase the newly available lottery tickets for the first time -- as well as Super Lottos, scratchers and other California Lottery games.
Largest Single Jackpot: $115.5 million (1989) Prizes Paid: $1.87 billion Ticket Sales: $3.07 billion State Profit From Sales: $916 million Government Use: Services for the elderly
Since the Pennsylvania State Lottery began, it has steered $20.6 billion to a variety of causes, but its profits have primarily been funneled into an elderly benefits fund. This fund includes subsidies for transportation, tax rebates and Medicare. Currently, about 61% of the roughly $3 billion in annual ticket sales goes to prizes, while 30% goes to the state, and the rest covers expenses. That's a higher percentage of prize return than most other states.
Photo: Kristine (center left) and Steven White (center right) of Skillman, N.J., the holders of the single winning Powerball ticket for the May 8, 2004 drawing, receive their ceremonial check from the Secretary of Revenue Gregory Fajt, (left) and Executive Director of the Pennsylvania Lottery Edward Mahlman in Harrisburg, Pa. The Whites won the largest prize in the Pennsylvania lottery's history, with an annuity value of $213.2 million.
Largest Single Jackpot: $390 million (two-state lottery win shared with New Jersey, 2007) Prizes Paid: $2.13 billion Ticket Sales: $3.65 billion State Profit From Sales: $884 million Government Use: Education
One Georgia resident was part of the largest jackpot in the history of the American lottery, winning half of $390 million on February 18, 2006. The other half went to a ticket holder in New Jersey. The state has one of the least efficient lottery systems in the country, with 17% of sales going to pay for the cost of operations. The Georgia lottery also only returns a third of total sales to the public fund, where the money goes to support education. The state didn't begin selling lottery tickets until 1993, making it one of the newest systems in the country. In its first year in operation, the Georgia lottery system sold roughly $1.1 billion in tickets, the most successful entry year on record. Georgia joined the Multi-State Lottery Association (MUSL) in 2010.
Photo: Mega Millions winners Margaret, left, and James Jones, right, embrace as they hold an oversize replica of their $77,744,832. check during a news conference at the Georgia Lottery Corporation headquarters in Atlanta on Jan. 21, 2005. When the Washington, Ga., couple claimed their prize, worth an annuitized $130 million, they became the second-largest winners in Georgia Lottery history. They selected the cash option.
Largest Single Jackpot: $330 Million, (four-state shared lottery win, 2007) Prizes Paid: $2.30 billion Ticket Sales: $3.75 billion State Profit From Sales: $1.10 billion Government Use: Education, state general fundThe Texas Lottery began operating in 1992, just a year before Georgia. Since then, the program has raised $17 billion for the state, with $5.1 billion of that going to the state's general fund, $180 million going to health care programs, and the lion's share -- $11.6 billion -- going to education. In its relatively short history in the MUSL, Texas hasn't had an truly big winners. In August 2007, one resident won part of a $330 million jackpot, but the winnings were split between holders in three other states.
Photo: Lottery posters are displayed at the Times Market in Bishop, Texas. Bishop native Joan Ginther, who now lives in Las Vegas, won $10 million in June 2010 on a $50 scratch-off ticket. Overall, she has won four Texas Lottery jackpots for a combined $21 million, and the last two winning tickets were purchased at the Times Market.
Largest Single Jackpot: $189 million (2011) Prizes Paid: $2.35 billion Ticket Sales: $3.90 billion State Profit From Sales: $1.25 billion Government Use: Education trust fund
Florida's lottery benefits the state education trust fund, to which $20 billion has gone since system began operating in 1987. At the moment, lottery income represents about 5% of the state education budget. Florida joined the Multi-State Lottery Association in 2009. Because of its late entry into the MUSL, Florida hasn't had a winner whose jackpot was on the scale of some of the others. However, in October, just nine months after joining MUSL, a Florida resident hit the Powerball jackpot and won $189 million. The MUSL now has 33 members (including Washington, D.C., and the Virgin Islands).
Photo: Scott Adams, one of the three Powerball hosts, announces winning numbers. The drawings are broadcast nationally from a studio in Universal Orlando Resort.
Largest Single Jackpot: $294 million (2004) Prizes Paid: $3.17 billion Ticket Sales: $4.42 billion State Profit From Sales: $903 million Government Use: City and town funds, compulsive gambling, the arts
In 2009, the Massachusetts lottery paid out roughly $3.2 billion in prizes to lottery winners, making it the second highest paying state in the country. The extent to which the state profits, however, is low compared to other states. In 2009, the state beneficiaries, which include city and town governments, a state arts fund, and a compulsive gambling support group, received only $859 million. Florida's respective payouts were less, $2.4 billion, but the state still earned $1.28 billion.
Photo: Judith Zahn of Hatfield, receives a giant check from Massachusetts State Treasurer Tim Cahill at the Massachusetts Lottery Commission Headquarters on July 5, 2007, in Braintree, Mass. Pictured at left is Steve Zahn, Judith's husband, and second from right is Judith's daughter, Hannah. Judith Zahn, a nurse at the VA Medical Center in Northampton, Mass., won a $20 million lottery jackpot. She'll receive a lump after-tax sum of $14 million.
Largest Single Jackpot: $333 million (two-state lottery win shared with California, 2009) Prizes Paid: $3.95 billion Ticket Sales: $7.82 billion State Profit From Sales: $2.67 billion Government Use: EducationBesides having the largest lottery system in dollar terms in the country, New York has one of the richest histories of government-run gambling. Since the late 1880's, lotteries and raffles have been used to raise funds for regional public works projects. New York was one of the first states to begin a state-wide system as well, voting in the program in 1966. Since the lottery began in official capacity the following year, more than $36 billion has been raised to fund education. This sum accounts for approximately 13% of all the money that has been raised in the history of U.S. state-run gaming.
Photo: Mega Millions Winners Richard and Mary Morrison of Miller Place, N.Y. were elated after being presented with their ceremonial check for $165 million by New York Lottery jackpot announcer Ralph Buckley and the Lottery's Yoland Vega at the New York Lottery Customer Service Center on Thursday, Jan. 7, 2010, in Garden City, N.Y.