Playing the Lottery or Investing in the Stock Market: Which is the Bigger Gamble?
By Karen Ramsey

Oh the things you could do if you won a million dollar lottery jackpot! Luxury vacations! New cars! Early retirement! The dreams of how to spend the potential windfall of a lottery jackpot are themselves almost worth the price of the $1 ticket. For most people, unfortunately, dreams end up being the only thing that a lottery ticket purchase affords them. Reality gives way to the long odds of the lottery. Rare is the opportunity to stand in front of a crowd of flashing cameras while holding a giant cardboard novelty check filled with dollar signs and zeros. How rare is it?

Playing the lottery

If you purchase a $1 ticket for the Washington State Lottery you have a 1 in 28 chance of winning $3. Odds of winning a $1 million jackpot start at 1 in 6,991,908*. Each $1 ticket has two opportunities to win and if you play every game of every year for 35 years, you will have 10,920 opportunities to win.

Imagine you are thirty and plan to stop playing at age 65. Over 35 years, the odds suggest that the average person will likely win between $1,000 and $2,000. The cost of all the lotto tickets over 35 years is $5,460. Winning $2,000 equates to a -7.2% annualized return on your investment in the lottery. Well, at least you still have your dreams.

Investing in the stock market

What would happen if you took that dollar you spend on a lottery ticket and invested it? It may not be exciting, but it may be your best chance at that luxury vacation. Think about this:

Imagine again that you are age thirty and you plan to retire at age 65. If you save the $156 you spend on lotto tickets annually and place that money in an investment that tracks the S&P 500 index, which has produced an annual rate of return of 10.4% over the last 80 years, at the end of each year for 35 years, you will have approximately $46,000 at the end of that time period.

So what is the better choice with your money, buying lottery tickets or investing in the stock market?

It appears the better results come from investing in the stock market. I think I would rather have $46,000 instead of $2,000. Investing in the stock market is not a guaranteed investment and should therefore not be treated as such. However, it seems to me that over the long run it makes more sense to invest in the S&P 500 index instead of lottery tickets. I think it’s easier to purchase a new car with cash instead of old useless lotto tickets.

* Washington State Lottery, Retrieved December 14, 2007 http://www.walottery.com/sections/LotteryGames/Lotto.aspx?Page=FAQ

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