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Lottery and gambling vs investing. How do you choose to grow your money?

Success means different things to everyone. Some find success in making a difference in this world, others find success in fulfilling their dreams such as traveling or being good at a hobby. Regardless of how we view success, I think many of us would agree it wouldn’t hurt to have a little bit of financial backing for us to chase our dreams.

 

While lottery and gambling sell the hope of instant wealth, investment takes time, dedication, and patience. Do we want to leave our financials to luck, chance or do we make calculated moves to advance our financial standings?

 

Probability of winning a lottery

It is fun to buy lottery tickets with family and friends, gather and excitedly await the yearly Lunar New Year draw (also known as the Hong Bao draw) and silently wish you are the winner of the jackpot even though you know the chances are slim.

 

Anyone who joins the lottery realizes the odds of winning are not in their favour. In fact, the odds are not in anyone’s favour. To win the lottery you have to least 3 numbers that match the Winning Numbers from the 6 numbers you’ve chosen. But even having 3 Winning Numbers only rewards you with $10. Having all 6 Winning Numbers will win you the jackpot, which is equivalent to 38% of the prize pool and the guaranteed minimum amount is $1 million.

 

But what’s the actual probability of you having all the 6 Winning Numbers in the Singaporean lottery? The answer is about one in 14 million. To put this in perspective, the chance of being struck by lightning is around one in 2.5 million. How many people do you know died from a lightning strike? How many people do you know won the lottery jackpot? The answer to both questions is very likely to be none.

 

Probability of winning through investing

Similar to buying into the lottery, there is no sure way to guarantee that you will gain in whatever you choose to invest in.

 

But the similarity ends here. The probability of getting a return on your investment when investing is more than 10 times higher than the probability of you winning the lottery. Especially when you know what you are getting into.

 

Let’s say you spend $20 a month to buy 20 lottery tickets. That means your chance of winning the jackpot is about one in 700,000. Next, imagine you’re in a concert with 100,000 people and your favorite singer is picking one random person to join them on stage. You might skip a beat thinking that the lucky person could be you, but that’s it. It’s a game of luck. You know your chance of getting on stage with your favorite singer is very slim, and your chance of winning the lottery with $20 a month is seven times as slim. Meaning, your monthly $20 gains you nothing but temporary excitement.

 

On the other hand, if you save and accumulate that $20 a month in investment products like stocks or unit trust, you can easily gain a potential return of around 9% per year. Even if you invest it in a low-risk product like certificates of deposit, you can gain a 3-5% return per annum. Your money doesn’t go to waste; it grows over time, instead.

 

Gambling vs. investing

Some people might think that investing is just another form of gambling, that you can only “win” profit or gain returns by sheer luck. That is nowhere near the truth. Professional investors and traders count on two principles when it comes to the financial market: price action and confluence.

 

Price action is the movement you see on a price chart. If you see a chart on a longer time frame, you will see that the market tends to repeat itself, creating patterns that professionals use to find buy and sell opportunities. They analyse the patterns and according to their strategies, execute them to gain potential profit.

 

Meanwhile, a confluence is when several things happen around the same time and cause a certain condition to happen. For example, the pandemic caused a recession, and the recession caused the stock market to go bearish. Simply put, price action produces technical analysis while confluence produces fundamental analysis.

 

This shows that investing is very different from gambling and lottery. You cannot control the result of the latter because they only count on good luck. While with investing – and trading for this matter – you can calculate the expected return and loss based on your strategies and analysis.

 

Increasing your chances.

 

It’s wise to do your homework when investing. Take time to understand the medium of investment, the type of industry and read up on recent news to fully understand what you are investing into. Doing so increases your chances of success significantly. If you don’t have time on your hands, fret not. Consider investing in deals curated for you by a team of experts.

 

And think about this, even investing in a low-risk investment, you can gain a 3-5% return per annum. You still gain when money grows over time, instead of losing money the moment you purchase a lottery ticket.

When you invest long term – five years or more – you can use a dollar-cost averaging strategy, where you regularly invest a certain amount of money in blue-chip stocks no matter the market condition. Such strategies follow the concept of not “timing the market”. Therefore, your investment capital hits the average price spot and the value of your investments increases over time with the cost of inflation.

Alternatively, you can invest in alternative products at Minterest, which allows you to invest in deals curated by experts and offers a return of up to 18% p.a.

 

Remember, lottery and gambling are a game of luck. The keyword here is game. Games are made for entertainment and fun, not created for the purpose of growing your money. So, here’s our two cents for next time you want to try the lottery: have some fun but don’t treat it as an investment. As my father always says – “Buying the lottery is like buying a glimmer of hope.” But a good reminder for all of us is, investing is taking a step towards turning dreams into reality.

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Shaun Tan

Loan Executive

With 6 years of financial planning experience, Shaun has helped many individual and corporate clients achieve their goals. 

Shaun is passionate about life and adventure, and is a licensed divemaster who enjoys bringing the joy of the underwater world to others.