close

Kiplinger Today

Kip Tips


5 Better Investments Than Powerball and Mega Millions Tickets

Your odds of getting a good return on your money are much higher than winning the lottery.



Bought your Powerball or Mega Millions tickets yet? The grand prizes have climbed to $243 million and $415 million, respectively, and will climb even higher if no one matches the winning numbers this weekend.

SEE ALSO: 10 Reasons You're Still Broke

There's nothing wrong with putting a couple of bucks toward a lottery ticket every once in a while. Who doesn't dream of winning big some day? But don't confuse fantasy with reality. The odds of hitting the Powerball jackpot are 1 in 292,201,338; Mega Millions, 1 in 258,890,850.

There are smarter ways to spend your hard-earned cash. Let's say you've gone from shelling out $2 every month on the lottery to spending $20 a week. That adds up to $1,040 over the course of a year. Rather than dropping a grand on your lottery habit, spend the money in one of these five ways instead. You're all but guaranteed to come out ahead.

1. Pay down credit-card debt. Paying off a balance with a 13% interest rate is like earning 13% on your investments -- an incredibly valuable use of the money. And once you pay off your credit-card debt, you can start using that money to build your retirement savings (see also: The Best Rewards Credit Cards for Your Wallet).

Advertisement

2. Boost your 401(k) contributions. If you have an extra $1,040 to spare, then put that money to work for you in your retirement account. You'll really benefit if your employer matches your contributions. Investing an extra $86.67 a month (which is what $1,040 breaks down to over 12 months) in a 401(k) over 20 years costs you $20,801, but after two decades the account balance will be $49,632, assuming an 8% annual return and a 25% tax bracket. And that's with no company match. After factoring in the 25% tax savings, since the investment was made with pretax dollars, the real cost to you is just $15,601. So you effectively triple your money in 20 years (see also: 10 Things You Must Know About 401(k)s).

3. Open a Roth IRA. If you're already maxing out your retirement account at work, contribute to a Roth IRA. If you invest $86.67 every month in a fund that earns a 7% annual return, in 30 years you’ll have nearly $106,000. And you can withdraw your earnings tax-free after you turn 59½. For 2016, you can contribute to a Roth if your modified adjusted gross income is less than $132,000 if you're single ($194,000 for couples who file jointly).

4. Increase mortgage payments. A little extra goes a long way. A $200,000 mortgage at 4% over 30 years works out to a monthly payment of about $955 (excluding real-estate taxes and insurance). You'll pay nearly $144,000 in interest alone. But put an extra $86.67 a month toward the same mortgage and you'll save almost $24,000 in interest and retire the loan four-and-a-half years early.

5. Invest in a taxable account. You might want to use the money to buy stocks or shares of mutual funds outside of your retirement account. If you invest $86.67 a month for 20 years in stocks or mutual funds with a 7% annual return, you'll have nearly $42,000. Spend that same amount on lottery tickets each month for 20 years, and you will have shelled out $20,800. See our picks for the 25 favorite no-load mutual funds and 26 best stocks for 2016.



Editor's Picks From Kiplinger



DISCUSS

Permission to post your comment is assumed when you submit it. The name you provide will be used to identify your post, and NOT your e-mail address. We reserve the right to excerpt or edit any posted comments for clarity, appropriateness, civility, and relevance to the topic.
View our full privacy policy

Advertisement

Market Update