It’s been almost 26 years since the first National Lottery draw. While there have been plenty of lucky winners over this period, millions more will have wasted their money. Today, I’m going to explain just how costly this ‘little bit of fun’ has been.
The true cost of the National Lottery
Let’s ignore the new games and changes in ticket prices that have happened over the time the National Lottery has been around for. Instead, we’ll simply assume that someone has spent £20 playing every week for the last 25 years and that they have had no ‘wins’ whatsoever (i.e., not even three numbers) over this period. Based on the odds, this is certainly not impossible.
All told, I calculate this person has spent £1040 per year and a staggering £26,000 in total.
Think about that. That’s £26,000 that could have been spent on luxurious holidays, a new car, or some pretty awesome gadgets. More sensibly, that money could have been used as a house deposit or paid for the vast proportion of a child’s university tuition fees.
But wait – it gets a lot worse for our hypothetical lottery player! Had they invested that money in the stock market instead, they would likely be quids in.
Nevermind how much money they lost, let’s see how much money they could have made.
Crikey – how much?!
Assuming an annual return of 10%, that £26,000 would now be worth a little over £102,000. Had they prioritised investing in small-cap and/or high-growth stocks, and achieved, say, a 13% average annual return, they’d now be sitting on almost £162,000!
To this, a sceptic might say that achieving such a big return over a long period would probably have involved an unnecessary level of risk. The average annual return is more likely to be around 7%, they might argue. Fair enough – this still gives our hypothetical investor almost £66,000 after 25 years. I’d rather have that than flush £26,000 down the National Lottery drain.
Regardless of which return feels more realistic, surely we can agree that the true cost of playing the lottery is the opportunity cost of not allowing that money to grow instead?
Knowing this, here’s what I’d do for the next 25 years.
A better route to riches
First, I’d set up a Stock and Shares ISA.
The ISA allows us to protect any profits we make on the market from HR Revenue & Customs. There’s also no tax due on any dividends received. Interestingly, ISAs have been around since 1999 – only five years after the first National Lottery draw. Before then, you had Personal Equity Plans (or PEPs).
Having done this, I’d then decide on my investment approach.
For those who can’t devote much time to watching the market, a passive strategy might be best. This can be achieved through buying a bunch of cheap exchange-traded funds that track major indexes like the FTSE 100. This strategy won’t beat the market but it will match it (minus commission, fund fees, and a smidgen of tracking error).
For those with time, however, I think searching for the best UK stocks could be far more financially rewarding. Look for companies with big brands, a dominant market position, strong finances, loyal customers, and/or a route to growth.
You’ll make mistakes but the odds of becoming rich are, I submit, significantly better compared to those of holding a National Lottery winning ticket.
