Ahhh, finally. The opportunity to write about gambling.
With the current Advertised Mega Millions Jackpot (in the USA) reaching into the Billions, I think it is time to cover the lottery, gambling, and the math behind it all. If you end up playing anyways, I will even delve into how you should invest your winnings so that they can last you forever! (statistically 1 in 3 lottery winners goes bankrupt after winning the jackpot)
First, lets get this out of the way: Investing is NOT Gambling, and Gambling is NOT Investing. Some people say that investing in the stock market is a form of gambling, and that is a load of crap. Here is the difference:
Gamblers and Investors both should have a knack for numbers, most importantly probabilities, payouts, and maximum risk. So lets take a look at the numbers in regard to the Mega Millions lottery, specifically the Jackpot.
The odds of winning the Mega Millions Jackpot is 1 in 302,000,000 (Please compare this with the odds of getting struck by lightning at 1 in 700,000...)
The maximum loss is $2.00 (the price of the ticket)
The payout (if you take the lump sum, which is always the better option) is (LUMP SUM*.5)*(1-Tax Rate). So with the current Jackpot of $1.6 Billion, you would actually net approximately $450 Million in cash to your bank account. Is it worth it to play? Try and decide for yourself before scrolling any further!
In order to math it out, you have to take the probability of winning and multiply it to the cash payout. Then take the probability of losing, and multiply it by the maximum loss. If the dollar value of (Winning * Probability of winning) is greater than (Max Loss * Probability of losing), then it is worth it to play. If it is the other way around, then it is not mathematically worth it on a probability adjusted basis.
So if you take the probability of 1 in 302,000,000, you get: 0.000000003 If you multiply that by the cash payout to you ($450M) the probability weighted gain would be $1.49. If this is GREATER than the probability of losing multiplied by the max loss ($2), it is worth it to play.
The probability of winning is 0.000000003, leaving us with a 99.9999997% chance of losing. Multiplying this by our maximum loss of $2, we see that the probability weighted loss would be $1.99, which is greater than the $1.49 we would potentially gain on a probability weighted basis. This ratio shows that it is STILL not worth it to play the lotto, even with an advertised value of $1.6B
So you must be thinking to yourself: "Ok MDAS, well when IS it worth it to play the lottery? There has to be SOME number where it becomes mathematically profitable?"
And you would be right! At an advertised Jackpot value of $2.4 Billion, assuming the odds of winning and ticket prices stay the same, you will reach the breakeven point. Anything above a $2.4B Jackpot would produce a mathematical profit and the lottery SHOULD be played. (Again, this is assuming that the price per ticket is $2 and the odds of winning are 1 in 302 Million).
So NOW you're thinking: "Alright, well I already played. So what if I win! What should I do?!"
Well you're in luck, because I am about to tell you what I would do if I won the lottery. ( I do not gamble, so I could never win in real life, but we will speak as if I did win a $450M Jackpot)
The combination of these investments should provide me $10+ Million in income every year forever and will allow my principle to grow UNTOUCHED so that my wealth can continue to climb. With this type of spending style, it would be virtually impossible to go bankrupt (there is no debt on anything, all houses, cars, businesses, would be completely paid off free and clear)
One closing thought on gambling: It is virtually never worth it to play casino games or the lottery. These games are built to mathematically favor the house, that is where the saying "The House Always Wins" comes from! So if you find yourself wanting to gamble, just be sure that you know that you are at a mathematical disadvantage and are much more likely to lose than to win.
What do you think about my investment choices? Would you break yours down differently? Shoot me a message on instagram or a text at the number on my home page if you want to fantasize about becoming a hundred-millionaire overnight together!
If you found this article interesting, feel free to share it with friends and family so they too can realize how crazy the odds are of winning the lottery! (And if they do win, they might keep you in mind!)
If you thought this was helpful, terrible, or somewhere in the middle, please leave me feedback in the form of a Direct Message on instagram @MakeDollarsAndSense, or feel free to send me an e-mail/text to the information on my Home Page. I truly appreciate constructive criticism and opposing views, so bring em on!
P.S. New blog posts coming your way every Monday!
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