If you are going to sink your money into something with regularity, you may as well do it with something that will grow; like a bespoke investment portfolio or your KiwiSaver account, says Nick Stewart.
If you are going to sink your money into something with regularity, you may as well do it with something that will grow; like a bespoke investment portfolio or your KiwiSaver account, says Nick Stewart.
OPINION
I think everyone has some kind of “if I won Lotto” wishlist, regardless of whether they are regular players.
The car they would buy, the whānau they would pay off debt for, the house they would live in, the legacy they would leave. It’s the ultimate game of what-if;what you could d, if you got very, very lucky.
Over in the US, some lucky Floridian recently won the equivalent of NZ$2.6 billion. Yes, you read that correctly, that is 1000 x $2.6m.
More than the total value of some top NZX20-listed companies! There have been four $1b US jackpots in 2023 so far, which is more than previous years combined.
People aren’t getting luckier, though. The odds of a Mega Millions ticket securing the big prize for the players have gone from 1 in 258.9 million to 1 in 302.6 million since they changed the odds in 2019.
Our own Powerball is up to $33 million this weekend — an amount that could tempt even the most prudent of people to dip in for a ticket. The biggest-ever draw was back in 2016 when the jackpot hit over $44m for Lotto and Powerball combined.
People flocked in droves for tickets and made it the biggest sales day in Lotto history.
Dreams are free. Lotto tickets have to be purchased, and can run quite the cost per pop if you are so inclined.
Nick Stewart.
Gambling in any form, Lotto included, works so well to tempt folks because of our cognitive bias.
We tend to believe we have a disproportionate amount of control over things that are truly random. There is also something known as the gambler’s fallacy, which is the belief that you are more likely to win after a losing streak.
This belief can keep you on the hook for the payday that must be around the corner — even if it never comes.
Add to that the FOMO associated with Lotto as a whole ... you’ve got to be in it to win it!
In reality, any individual player has only a 1-in-38.3 million chance of winning first-division Powerball and getting that massive payout. I think we can safely conclude, given the very small chance of winning, that depending on winning Lotto is not a viable financial plan.
I am happy to report that investment is not the same as entering a lottery. If anyone tells you otherwise, they are probably thinking of stock picking instead of well-researched, scientifically proven investment strategies designed to help you accumulate wealth over time.
There are risks involved in investing, of course, but good portfolios are built around the knowledge that we cannot know what will happen in the future — so we’ll need to spread the risk into asset classes, countries, and industries.
The fact is there’s no guaranteed way of picking winning stocks, or winning Lotto numbers. A lot of what is dressed up as science is mere speculation. Lotteries and other gambling avenues wouldn’t stay in business if the odds were not stacked against the punter in the long term. Many have heard the phrase “the house always wins”.
If you are going to sink your money into something with regularity, you may as well do it with something that will grow; like a bespoke investment portfolio, your KiwiSaver account, a diversified PIE portfolio investment entity or even an interest-bearing savings account. The savings account after tax will barely keep up with inflation but you would end up with more than you would by placing a bet once or twice a week.
Speculators who say they can outguess the market rarely do so over long periods. The random nature of returns from stock picking means any short-term success is invariably due more to luck than skill. Legitimate investment has no quick win, no instant gratification; instead, you have a long-view plan that takes into account your goals, lifestyle and ethics.
By starting with the assumption that markets work, and structuring a diversified portfolio around the known long-term sources of higher expected return, you can keep costs low, and if you stay disciplined you are much more likely to have a successful experience.
As the late Paul Samuelson (Nobel memorial prize winner and well-known American economist) once said: “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
By all means, buy the Lotto ticket if you’re wanting a thrill ... there is a (small) chance that you may be that lucky 1 person in 38.3 million. But if you’re wanting a real and robust financial plan, you’re better off getting in touch with a trusted fiduciary to discuss your options.
Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a financial adviser and CEO at Stewart Group, a Hawke’s Bay-based CEFEX & BCorp-certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, wealth management, risk insurance and KiwiSaver scheme solutions. Article No. 317.
— The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a financial adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
