Do you want to accumulate enough money to make you rich in retirement? Here’s a trick to help you do it.
Odds that make it almost impossible to win
But first, did you know the odds of winning the National Lottery jackpot are about one in 45 million?
That means if you buy a ticket and punt your numbers each week, there’s a chance that any one of 44,999,999 other number arrangements will win instead of yours. And that’s the same every time you do it.
You could turn to EuroMillions. But the odds of winning are even worse at about one in 140 million!
Fluttering on the various lotteries really isn’t a sound retirement-saving strategy. All those pounds you spend on the ticket each week can add up to a tidy sum.
So maybe you should save it up and bung it into Bitcoin instead. After all, fortunes have been won on the cryptocurrency as it soared away to within a whisker of $20,000 in 2017. The trouble with that idea is the Bitcoin bubble seems to have burst, and fortunes have been lost too.
A busted flush?
As I write, Bitcoin stands at about $3,840, but it looks like a busted flush to me. You can dream of Bitcoin shooting back up again, but I think it’s more likely to drop further from where it is now. If it returns to its 2015 level, you stand to lose more than 90% of your money!
Perhaps buy-to-let property is a road to riches that you could pursue. But I don’t believe the prospects are as juicy as they have been over the past couple of decades. New tax rules surrounding buy-to-let mean you’ll pay more tax than you used to on any gains.
Also, property prices are less affordable compared to the average wage than they used to be. And, if property is to become as affordable as it was before, either prices must fall, or wages must rise, or both. The outlook for buy-to-let seems murky to me. If we have a half-decent property price crash down the road, you could end up in negative equity and therefore ‘trapped’ in your investment.
A trick that could make your savings and investments soar
I’d avoid the National Lottery, EuroMillions, Bitcoin and buy-to-let and focus on a trick that could be a surer way of building wealth for retirement. Instead of gambling on those four, I’d target the trick of compounding my money.
Compounding is the key to building wealth via saving and investing. For example, if you save or invest £100 each month for 10 years and earn a return of 7% each year, which you plough straight back in, you’ll end up with a pot of just over £17,000. If you do it for 20 years, you’ll have around £51,000. Thirty years, more than £117,000, and after 40 years, just short of £250,000.
Compounding multiplies your money exponentially, but where can you get a 7% return every year? Well, those investing in an FTSE 250 accumulation index tracker fund since 1992 have enjoyed an annual return of more than 7%. I’d also consider trackers that follow other indices and individual dividend-paying shares.
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Kevin Godbold has no position in any share 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.