The Mega Millions jackpot earlier this week hit $648 million,
once again drawing attention from enthusiastic players seeking to
make their fortunes. Predictably, most financial planners came
out saying how bad a move it is to play the lottery. But does it
make sense to spent $1 in the hopes of turning into millions?
In the following video, Dan Caplinger, The Motley Fool's
director of investment planning, looks at the question of when
playing Mega Millions actually makes sense from a financial
perspective. Dan runs through the numbers, explaining how you
have to consider the odds of winning, the size of the prize, and
the likelihood that you'll have to split the pot with multiple
winners, as this week's winning players did. Moreover, Dan points
out that the lump-sum amount winners get is much less than the
headline jackpot figure, which assumes an annuity paid out over
20 years or more in most lotteries. With taxes reducing the
effective payout even more, Dan concludes that it would take an
unprecedented jackpot of $1 billion or more to make playing the
lottery make sense -- and even then, the number of multiple
winners could make it unprofitable.
The smarter alternative to playing the lottery
Investing even small amounts of money give you a much better
chance of a long-term payoff than playing the lottery. Yet
millions of Americans have missed out on huge gains in stocks
over the past five years, leaving their financial futures in
jeopardy. In our brand-new special report, "
Your Essential Guide to Start Investing
Your Essential Guide to Start Investing Today," The Motley
Fool's personal finance experts show you why investing is so
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