Getting rich quick sounds great in theory, doesn’t it? Unfortunately, the chances of this happening are slim. Take the National Lottery.
Despite the overwhelming odds against winning the jackpot (45,057,474 to 1), millions of people still play the game habitually. Today, I’ll show you a far more likely way of achieving financial freedom, albeit one that requires patience.
Now, don’t for one minute think I’m knocking those that consider the lottery a harmless bit of fun (as opposed to those who genuinely believe it will be their path to riches). For many people, the mere possibility of winning is enjoyable enough.
However, quite aside from the fact that grabbing the jackpot appears to be more trouble than it’s worth (considering the number of lucky people who’ve gone on to experience a host of problems after picking the right numbers in the draw), it’s worth remembering that the cost of doing so adds up over time.
A single line in the main Lotto draw costs £2. Let’s say you regularly pick fives lines of numbers when entering. Now let’s assume that you do this twice a week. That’s £20 a week or £1,040 a year. The latter could buy you a nice holiday or a high-end TV.
Let’s take things to the extreme. The National Lottery has been around for 25 years. Let’s say you play for the next 25 years and there’s no increase to the cost of doing so. That’s £26,000 exactly.
It won’t surprise you to know that I think there’s a better use for this cash. What’s more, the probability of success is far higher.
Forget what you’ve heard about the stock market being a dangerous place. Over the long term (think decades), stocks are the best performing asset around.
Let’s go back to that example. Instead of using £80 to play the lottery every month, what would happen if you invested this amount and it earned 7% annually (based on the historical performance of the market). Here, you’d end up with a little under £61,000 by 2044.
So, that’s £61,000 vs £0 (if you won nothing, which is likely). Don’t forget, we’re only talking about money you would use for the lottery, not including anything else you might be able to save over the years.
This is just a hypothetical example, of course. Your return clearly depends on something we can’t predict with absolute accuracy (like the behaviour of the markets). Moreover, it also rests on what sort of strategy you adopt, which in turn should take into account your risk tolerance and how much time you’re willing to keep your money invested.
For younger people, a higher weighting in growth-focused businesses could be the way to go. For those with more moderate risk appetite and/or closer to retirement, strong and stable dividend-paying stocks might be appropriate.
Just remember that whatever investing style you adopt will require patience and a willingness not to meddle. That’s easy to say but it’s actually much harder to do in practice. As experienced Foolish investors know, learning to sit on your hands is a skill that tends to be developed over time.
In sum, probability suggests that playing the National Lottery religiously is not the best use of your cash. If you’re serious about growing wealthy, I’d ditch the bi-weekly draw.
It ‘could be you’…but it probably won’t be.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.