Learning the Odds
Understanding the odds of events in life is important. It can lead to better choices with our money decisions. We should encourage this topic's study among friends and our children.
The gambling houses know the odds of you winning and handily "adjust" the rules so that they are favored to win over time. Warranty plans and product mail in rebates are based on the odds that you will act in a certain way, or a product's reliability will keep repairs down. Life insurance companies gauge how many people will die per year. Same with games of chance like the state lotteries. They design and advertise the games to draw in the most money, then offer you much less than what is advertised if you opt for the lump sum payment. In their defense, it wouldn't make sense to pay out all the money...they operate as a state-run business more or less to fund their budgets, education, etc. I guess I feel a little better knowing this when I lose. I get a kick out of the names they've created: Fantasy Five, Mega-millions, Megabucks, etc.
Some examples: Tonight is a big night for the nation's lotteries: $350 million is up for grabs, ranging from $6 million in Ohio to the huge $181 million Multi-state Powerball game across 27 states. Surprisingly, the smaller Florida Lotto at $25 million, is a worse bet than the Powerball, because the latter has grown so huge that it will pay over 7 times more money for only 5-1/2 times less odds to win. Of course, if multiple winners are announced, then the odds change again and could favor the Florida Lotto game.
Knowing which option to take when you retire can relate to odds-making. Do you roll over the lump sum, or accept the annuity payments for life? Is your health good, fair or poor? Did your brothers, sisters and parents live long, or have challenges with their health and longevity that could affect you - and your money decisions now?
The stock market is sometimes referred to as a lottery, mostly by those investors that have not fared well investing in stocks. Over time, the stock market can be expected to provide about a 10% gain each year. So...do you index your portfolio, accepting the standard 10% return, or do you take some risk to do better? I can help you decide if I know what "type" of investor you are (or want to be) and how you handle risk when it shows up. I can give you options and a historical perspective. I might talk you into, or out of something after we talk things over.
I hope this short piece on odds will get you to thinking about your decisions, especially ones of a financial nature.
Stay cool in these 'dog days of August'.