Know the odds of picking winners in Melbourne Cup and investment

If you’ve made a punt on today’s Melbourne Cup there’s a chance you’ll go home a winner. But is it your best way to bring home the big bucks? See how the odds compare with other financial gambles.

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This week is the only time of the year that many Australians place a bet.

The Melbourne Cup remains the race that stops the nation through long lunches, visits to the TAB or putting aside work to place a couple of bets online or join a Cup sweep or two.

Most of us will lose.

On pure numbers, you have a one in 24 chance of winning given there are 24 runners. Knowledge, skill, research and luck might improve those odds but it’s always going to be much worse than a 50-50 chance.

We accept those odds as part of the fun of the Cup and giving us a horse to watch, but what about other forms of gambling?

Or the odds of losing money on something we don’t even think is risky? This is common in the financial world.

LOTTERIES

Similar to the Melbourne Cup, most of us don’t expect to win the lottery.

But just knowing you have an entry and can dream about wonderful ways to spend your potential winnings is reason enough for some to buy a ticket.

Locking yourself into weekly lottery numbers can be an expensive exercise.

A potential problem is when people pick the same numbers, such as family birthdates.

That locks them into a long-term cycle of spending because they’re too afraid to stop in case the numbers do come up, even though the odds are millions to one.

For Monday Lotto, the chance of winning Division One is one in 8.2 million. For Powerball, the odds are a massive 135 million to one.

SPECULATIVE SHARES

Some people see the sharemarket as a great way to make fast money but ignore the risks. For every stock that does well, many more don’t.

If a company can’t turn a profit, it’s eventually going to come unstuck.

So if you’re going to speculate on a hot share tip, make sure it’s using only a small portion of your money.

Long-term wealth comes to people who spread their money across many quality investments, have patience, reinvest their dividends and other income that compounds over money years.

BITCOIN

Remember the cryptocurrency boom a couple of years ago, when everyone wanted to buy bitcoin?

This digital currency was set to transform the world and replace dollars, euros, pounds and yen, according to its true believers.

Bitcoin has been a big gamble that’s worked for some but not others.

Everyone wanted bitcoin in 2017 when it surged in value from $1300 in January to $24,000 in December.

But a year later it had sunk to $4504. Ouch.

Bitcoin bounced back up to $18,000 in July this year but has since dropped to about $13,000.

That’s some serious volatility. If you bet on bitcoin, you could get burnt.

DODGY DEPOSITS

Even something as low-risk as term deposits can potentially trap savers.

There’s a growing trend of investments being dressed up as term deposits and offering income yields of about 5 per cent – well above the 1.5 per cent people are getting from cash in the bank.

But these aren’t true term deposits offered by banks that come with a government guarantee.

They’re marketed by private promoters and put your money in risky corporate debt or other complex products. If they collapse, you lose your cash.

Even low-risk can be risky if you don’t know the odds.

@keanemoney

Originally published as Know the odds of picking winners in Melbourne Cup and investment