With headlines buzzing about a $1.3 billion Powerball lottery jackpot (at the time of this writing), it is tempting to dream about striking it rich with a single ticket.
With headlines buzzing about a $1.3 billion Powerball lottery jackpot (at the time of this writing), it is tempting to dream about striking it rich with a single ticket.
“America has waited all year for the chance to play for a billion-dollar jackpot,” proclaimed Matt Strawn, Powerball Product Group Chair and Iowa Lottery CEO, as he trumpeted the estimated $1.10 billion top prize in the Labor Day lottery drawing. The figure rose to $1.4 billion after no winners were selected on September 1.
Few seem willing to point out that the odds on Powerball are still unattractive, even after the big prize has not been won for more than three months.
The chance of winning the grand prize is 1 in 292,201,338 according to Powerball.com, but tickets sell for $2. This means that a $2 wager would require an after-tax payout of more than $584 million AND an impossible guarantee that the jackpot not be shared with another winner for the lottery draw to have been a good investment.
True, most folks derive entertainment value from thinking what they might do with their riches, while there is a 1 in 38.32 chance of winning a lesser prize ranging from a humble $4 to a tidy $1 million sum, but only one-half to two-thirds of lottery ticket revenue is returned to players.
$2 in the Stock Market Instead of the Powerball Lottery
Consider what the same $2 can do in equities over time. Historically, U.S. stocks have grown at an annualized rate near 10% per year. At that pace, just $2 invested for 50 years grows to $234.78 without any additional investments. The power of that growth is amplified with consistent contributions. Instead of purchasing a lottery ticket each week, contributing the same $2 to an investment account for 50 years at 10% grows to about $150,000. Admittedly, markets fluctuate, but it’s better than an almost 37 in 38 chance of losing 100% of your $2 with a lottery ticket.
| Scenario | Odds / Probability | Potential Outcome |
|---|---|---|
| Winning Powerball jackpot | 1 in 292,201,338 | ~$1.3 billion before taxes, shared if multiple winners |
| Winning $1 million Powerball prize | 1 in 11,688,054 | $1,000,000 before taxes |
| Positive 1-year stock return | ~74% of rolling years since 1926 | Long-run average gain near 10% a year |
| Positive 10-year stock return | ~94% of rolling decades since 1926 | Compounding begins to dominate outcomes |
| Positive 20-year stock return | Historically 100% of rolling 20-year periods since 1926 | Wealth builds meaningfully with time in the market |
| $2 invested once for 50 years at 10% | Not an odds event | ~$235 future value |
| $2 invested weekly for 50 years at 10% | Not an odds event | ~$150,000 future value |
Important Information: Lottery odds per published Powerball probabilities. Taxes, fees and timing affect investment and lottery outcomes.
The Real Jackpot
Buying a ticket can be fun entertainment. It is not a plan, and the odds are certainly not in your favor. For those with a long horizon, the stock market has been the more reliable jackpot generator, turning small steady contributions into meaningful wealth. We believe luck is fleeting while discipline, patience and the growth of business profits can change financial lives.
