How Federal Reserve Decisions Are Causing Lottery Jackpots to Increase – Presented by Mark K. Lund, Financial Advisor in Utah

Presented by | April 17, 2023
Financial Advisor Utah

The chance of winning a billion-dollar Powerball jackpot with a single ticket are mind-numbingly small. The odds are roughly 1 in 302.6 million. Put that into a calculator and you get .0000000033.1

By comparison, your chance of being struck by lightning in any given year is 1 in 1.2 million, more than 250 times greater.2

Part of the reason jackpots have climbed so high in the past few years is that lottery officials have made it harder to win, increasing the chances that the prize will grow week by week. A bigger jackpot entices more people to play, thus raising the potential payout, and on and on in a virtuous cycle. At least for the entities running the lotteries.

But there’s been another factor pushing up prize amounts. It’s the rise in interest rates caused by the actions of the Federal Reserve.

Felix Salmon, writing for Axios explains. Late last year the Powerball jackpot topped $1.6 billion. If you held the winning ticket, your immediate payout (before taxes) would have been $782 million, a little more than half the advertised amount. To receive the full $1.6 billion you would have had to agree to take the “annuity option,” accepting your payout in installments over 30 years. Salmon notes that winners rarely take this option. The last to do so was in 2014.3

Powerball pays for this “annuity” through the purchase of U.S. Treasury bonds. The recent increase in interest rates by the Fed has allowed Powerball to tout higher jackpots, which has in turn prompted more people to play the lottery.

Salmon calls the difference between the advertised jackpot and what you can collect immediately as the “jackpot exaggeration ratio.”

He writes, “The amount by which the headline jackpot size exaggerates the actual amount of money in the prize pool has spiked from 1.2x in April 2020 to more than 2x today.”

Since your chance of winning a billion-dollar payout is so infinitesimally small, your odds essentially don’t change when you buy a ticket. No wonder they say, “Not to be played for investment purposes.”

Put another way, an increasingly common refrain among prudent investors is “The Lottery is just a tax on people who can’t do math.”

However, the connection between lottery jackpots and interest rates does illustrate the interconnected nature of our economy. Cause and effect can often be unexpected. Knowing this, the prudent investor will seek to build a portfolio that is as diverse as possible. Not only does this mitigate risk, but it enables him or her to participate in potential gains from unexpected sectors.

Talk to your trusted financial advisor about ways you can potentially increase your odds of success as you work toward your investment and retirement goals.

If you ever have any questions about your investments or retirement plans, please feel free to give me a call at 801-545-0696.

Regards,
Mark Lund
Stonecreek Wealth Advisors, Inc.
11576 S State Street, Bldg. 1002
Draper, UT 84020

Sources:
1. http://go.pardot.com/e/91522/on-mega-millions-jackpot-odds-/93276h/1880907854?h=seJXHzXUkQ_RVhEbfhzOJH92NHztZyPlAAjpBGIiUjA
2. http://go.pardot.com/e/91522/g-are-not-as-rare-as-you-think/93276l/1880907854?h=seJXHzXUkQ_RVhEbfhzOJH92NHztZyPlAAjpBGIiUjA
3. http://go.pardot.com/e/91522/rawing-jackpot-billion-dollars/93276p/1880907854?h=seJXHzXUkQ_RVhEbfhzOJH92NHztZyPlAAjpBGIiUjA

Disclosure:This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by Efficient Advisors, LLC (“EA’) for Mark Lund, Mark is a Financial Advisor in Utah. He is known as a Wealth Advisor, The 401k Advisor, Investor Coach, Financial Planner, Investment Advisor and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. a fiduciary, independent, fee-only, Registered Investment Advisor firm providing investment management and retirement planning for individuals and 401k consulting for small businesses. Mark’s newsletter is called The Effective Investor Newsletter. Cities served in Utah are: Salt Lake City, Salt Lake County, Utah County, Park City, Murray City, West Jordan City, Sandy City, Draper City, South Jordan City, Provo City, Orem City, Lehi City, Highland City, Alpine City, American Fork City. The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.

Category: Blog, Newsletters

About the Author ()

Mark K. Lund is the author of The Effective Investor, a #1 Best Seller, and founder of Stonecreek Wealth Advisors, Inc. an independent, fee-only, Registered Investment Advisory firm. He has provided articles for or been quoted in: The Wall Street Journal, The Salt Lake Tribune, The Enterprise Newspaper, The Utah Business Connect Magazine, US News & World Report, and Newsmax.com, just to name a few.  Mark publishes two newsletters called, “The Mark Lund Growth Report” and “Mark Lund on Money.”  Mark provides CPE (continuing professional education) courses for CPAs.  You may also have seen him on KUTV Channel 2, or as a guest speaker at a local association or business. Mark provides investment and retirement planning services for individuals and 401(k) consulting for small businesses. In his book, The Effective Investor, Mark exposes the false narrative magazines, media, big Wall Street firms, and most advisors want you to believe. The good news is that Mark will show you that you don’t need their speculative ways of investing in order to be a successful investor. Get a free copy when you schedule your initial consultation.

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