Why I Don't Buy Lottery Tickets

   I know this is a bit off topic, but for some reason the lottery, Powerball in particular, has come up in conversation a few times.  I don't mind fantasizing about what I would do with the money, but you have to play to win.
   I have never felt that playing the lottery was a good use of my money.  I have bought a few tickets over the last 20 years, but probably less than 10.  Usually it was when everyone else was buying due to the crazy amount of money in the jackpot.
   I ran a few numbers that explain my view as to why it is foolish to play.  Assume the average person spends $20 per week on lottery tickets.  Here is the 10 year total spend, with the addition of $1,000 in the first year which I'll explain in a bit.

1	$2,040.00
2	$3,080.00
3	$4,120.00
4	$5,160.00
5	$6,200.00
6	$7,240.00
7	$8,280.00
8	$9,320.00
9	$10,360.00
10	$11,400.00

   A conservative estimate for market return is %6, some models use 7 or 8%, but here are the numbers for your return from the same money above invested in an index fund with all returns automatically reinvested.

$2,162.40
$3,332.14
$4,572.07
$5,886.40
$7,279.58
$8,756.36
$10,321.74
$11,981.04
$13,739.90
$15,604.30

   Here are the numbers again, but at 7.5 percent, which is the average return of two basic stock index funds.

$2,193.00
$4,397.48
$6,767.29
$9,314.83
$12,053.44
$14,997.45
$18,162.26
$21,564.43
$25,221.76
$29,153.40

  Note that the lottery ticket buyer has spent $11,400 over the 10 years.  Had the money been invested at a conservative 6% they would have and additional $4,204 in the account.  And if the return was 7.5% the money spent would be more than doubled, earning $17,753.

   So, what about that additional $1,000?  Most funds require a minimum to start.  T. Rowe Price index funds require $2,500 to open an account, but that is reduced to $1,000 if you open an IRA account.  Vanguard has a $3,000 minimum.

Here are actual 10 year returns on some Index funds:

T. Rowe Price

Equity Index 500	7.40%
Extended Equity Indx	9.25%
Total Equity Indx	7.93%

Vanguard

500 Index	7.87%
Growth Index	9.21%
Total Stock Market Indx	8.36%

   So, what happens if you just invest $20 a week for 40 years?  A typical work life. At 6% return you would have $171,843 and at 7.5% you would have $466,171.  So, whether you buy lottery tickets or not, isn't it worth your time to start investing $20 a week?  Index funds are perhaps the easiest to get into and have low fees for marketing and management.