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A lottery you always win

About one in every two Australian adults might buy a ticket in Oz Lotto’s expected $100 million Melbourne Cup day jackpot. You’ve got 28 times more chance of being killed by lightening than taking out the big prize, writes the party-poopers at The Motley Fool.

Given the hassle of making money the hard way, you’re probably thinking, “Wouldn’t it be nice just to get rich quick?”

Appealing to your dreams

Australians love a bet.

In part, people decide to spend money in the hope of getting rich quick because they don’t believe that the money they use has any real value in itself. For the chance of owning a yacht, mansion, and private jet, why shouldn’t you spend $19.95 for the secrets of making money fast?

As for the lottery, you might well think that spending a dollar a day on a lottery ticket isn’t really giving anything up; you figure that you won’t miss it, and it’s such a small amount that you might as well, for even a small chance at your dreams.

The real odds

Unfortunately, it’s hard for people to get a genuine understanding of just how unlikely they are to get rich using a quick scheme. Take, for example, Oz Lotto. The odds of winning Oz Lotto playing one standard game are about 45,379,000 to one.

Some people, when they hear this, just ignore it; they figure someone will win, and it’s just as likely to be them as anyone else.

Now consider an alternative. Instead of spending a dollar a day  — on scratchies or the Lotto — for 50 years, say you take that dollar and put it in a jar.

Every New Year’s Eve, you take your $365 and deposit it into your investment account. Assume you succeed in earning an average return of 10% on your investments. At the end of 50 years, taking into account both the money you put in and the returns on your investment, you would have almost $425,000. Granted, it’s not $10m Oz Lotto jackpot — but it’s a heck of a lot more than you and most of your friends are ever likely to win playing the lottery.

Slow and steady wins the race

Everyone likes excitement. The prospect of having a single random event improve your standard of living for the rest of your life appeals to anyone’s romantic side. However, the basic principle you need to understand is that spending money now doesn’t just mean that you won’t have that money in the future.

It also means that you won’t have the income that money would have earned for you. In economic terms, the opportunity cost of spending a dollar a day on lottery tickets isn’t just a dollar a day — it’s $425,000.

Some people will indeed get lucky with get-rich-quick schemes. Unfortunately, most people won’t. Slow, regular savings may not be glamorous — some might say they’re outright boring — but when you have time and the power of compound returns working for you, regular savings get the job done.

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This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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