Financial IQ: Is playing lotto okay?

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Financial IQ Philippines Quick Hit(s):

Lotto betting is okay.  Though chances of winning is like getting struck by lightning twice... :)


Is playing the lotto okay or not? How should someone invest P730 million in lotto winnings? I appreciate your columns about saving money and hard work to get rich, but I think the majority of people in our society still prefer faster ways to get rich like playing the lotto, with a record prize money of P730 million. My questions: Is it okay to try government-sanctioned games of chance like the lotto? Is it credible or possibly tainted by fraud, too? Are you yourself buying lotto tickets? Should middle-class people like me buy lotto chances also and continue to hope? Last question: just in case I win the lotto prize of P730 million, where would you recommend that I invest that money (please share several options) and how much should I be free to spend?


Angela Paz Rosario, 37 years old, housewife, part-time entrepreneur, Cavite


Answer


Personally, I think there is nothing wrong with people playing the lotto and hoping to become overnight zillionaires for as long as they realize that the probability of them winning is one in 29 million — this is about the same probability as a person being hit by lightning twice standing exactly on the same spot, as my mentor Rex Ma. A. Mendoza used to say.


To answer your question on how to invest P730 million, please allow me to walk you through the dynamics of investing:


Investment result is usually a function of three components: 1) the amount of money invested; 2) the time the money is invested; and 3) the rate of return. The challenge is to find the ideal combination of all three to achieve the investment result that we desire. For example, if I am aiming for P1 million to fund a child college education seven years from now, to accomplish this, I need to invest 1) P9,967.24 per month; 2) do this religiously for seven years; and 3) earn no less than 5% net per year.


Winning a P730 million bonanza will give you the luxury of completely ignoring the last two components (time invested and rate of return); placing that amount in an ordinary time deposit earning 2% per year will already give you P14.6 million a year or about P1.2 million/month, enough for a very comfortable lifestyle for most people.

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