Back on 19 January, it was reported that two lifelong mates from Perth had won $2 million between them in Western Australia's Lotterywest after winning the Division 1 prize.
They had been playing for 25 years with one of the friends quoted as saying …
… Rain, hail or shine, our numbers go on every week
This is a life-changing sum for each of them and I personally hope they treat themselves to a few luxuries. They've achieved this win despite the known odds of winning being a miniscule 1 in 8,145,060 (according to the Lotterywest website).
I don't know what the exact odds are in 'winning' when buying shares in proven performers on the ASX such as CSL Limited (ASX: CSL), REA Group Limited (ASX: REA) and Cochlear Limited (ASX: COH), but my best guess is that the odds are far lower than odds on the lotto.
The question I'd like to ask is how would an investment program have fared in comparison to a Division 1 lottery win?
For them to jointly pay up for one '50 games' ticket, costing $35.40 per week, they would have each spent $920.40 each year, or $23,010 over 25 years to win their prize.
One then must factor in the lost opportunity of not investing on the ASX, and assuming they did indeed spend the equivalent of $17.70 each and every week starting 25 years ago, their actual sum spent on tickets today in real terms (assuming a 9.5% compound annual growth rate or CAGR) would have been closer to $85,000 over the 25-year period.
The $1 million win then by each of the two gentlemen above certainly looks to have provided the better return when compared to investing on the ASX.
Except for the small matter of the very high odds in achieving that success, and the fact that the vast majority of individuals participating in lotteries, even after 25 years, walk away with nothing.
My advice?
Avoid the 1 in 8,145,060 'opportunity' and go for something with more certainty instead.
For example, buying shares in the cyclical BHP Billiton Limited (ASX: BHP) has earned a 12.15% CAGR over 25 years, turning $20 per week into $141,907.
Then there's the accident-prone National Australia Bank Ltd. (ASX: NAB) which has delivered a CAGR of 13.62% turning $20 per week into $178,241.
And imagine what you could do with companies that exhibited superior economics than these two?
In my view, given the poor odds of winning significant sums in a lottery, most people would be better off investing their money into boring old stocks or index funds.
All of the companies mentioned in this article were far smaller 25 years ago and have grown into where they are today, so it's not likely that each of these companies will deliver the same growth rates 25 years into the future.
But here are three companies that today could easily deliver CAGRs of 10%, 12%, or higher over the next 25 to 30 years. Smaller, 'expensive' companies such as:
- Catapult Group International Ltd (ASX: CAT),
- Integrated Research Limited (ASX: IRI), and
- Pro Medicus Limited (ASX: PME)
Foolish takeaway
There are no guarantees of course, but neither were there guarantees for shareholders in BHP back in 1992, or ARB Corporation Limited (ASX: ARB) back in late 1987 where a $1,000 investment is now worth $1,644,000.
If growth stocks aren't your thing and you're worried about stock market volatility, click on the link below and read up on 5 of our favourite dividend payers now.
The vast majority of lotto participants win nothing, and the (very) few big winners out there are statistically insignificant in number.
If you really want to sock money away every week towards a hoped-for winning sum, I'd take the route of investing in a portfolio of listed shares every time and bypass the gambling altogether.
