Prize Bonds are arguably not an investment at all but a gamble with a capital return guarantee
How do you calculate the probability of winning a prize of any given week e.g.
Total number of prize bond units held by an individual = 2,500
Total number of prize bond units overall = 258,000,000
Total number of prizes awarded each week = 8,500
I calculate odds of 12/1 of winning a single prize of any denomination - is this correct?
How many people would buy an investment that was guaranteed to make them worse off in the future unless they were extremely lucky and happened to win a big prize?
Not many would be my guess.
In all these calculations and assumptions, don't forget that you also need to factor in the impact of inflation.
If your expected return is 2% but you anticipate inflation to average 2.5% then this would translate to a guaranteed loss of purchasing power over time.
How many informed investors making a considered decision would buy an investment that was guaranteed to make them worse off in the future unless they were extremely lucky and happened to win a big prize?
Not many would be my guess.
The government, unlike private individuals and companies, can, if it defaults, decide who it defaults on. I think Prize Bonds and An Post savings in general are last in the queue. There's only a few billion there anyway. If the government can't pay their last 10bn of debt then we surely are witnessing Armageddon. I rate An Post savings AAAAAAAA+++++++.Remember that Ireland is also rated BBB+ by Standard and Poors so you not only have the inflation risk but you also have some default risk that you are not being paid for.
Overall therefore a bad investment decision
I would expect someone looking after 10s mill of OPM would look a bit deeper than the one dimensional rating of the agencies.Duke
I hope you are right.
Unfortunately "hope" is not a legitimate strategy when looking after tens of millions of other people's money.
I don't have the luxury of hoping the State won't default.
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