As a species, we humans are notoriously bad at understanding statistics and probabilities, and things like that.
That’s probably at least part of the reason why the British public gambled £6.95bn on the National Lottery in the year to March 2018. I wouldn’t be surprised if that tops the £7bn mark this year — we might be feeling the economic squeeze, but it’s at times like these that people often start to dream big.
As if to emphasise that lack of logic, I overhead two people on the bus once, talking about the lottery. One was berating a family member for choosing the numbers 1, 2, 3… in sequence, and with a shake of the head ridiculing them with “what are the chances of that winning?“
It was all I could do to resist interrupting and answering “exactly the same as any other combination, stupid!“
But what are the chances? When it was first launched, the odds against hitting the jackpot were approximately 14 million to one, and even that was pretty daunting. But with rule changes and added complexity, the jackpot odds today have lengthened to one in 45 million.
And if you play for Euromillions, you’re facing staggering odds of a shade under one in 140 million.
The same people who’ll blow their hard-earned cash on a near certain lottery loss will suck their teeth when I talk about investing in FTSE 100 shares, convinced that it’s either a capitalist con or a sure way to lose your shirt.
“But it’s only a couple of pounds twice a week,” you might say. If only.
What a waste
I once queued behind a guy who spent £40 on lottery tickets. It was apparently a syndicate of five people who gambled the same amount every week — and there are people who risk far bigger stakes.
That got me thinking about how well you might do investing £40 a week in FTSE 100 shares instead, and leaving it there until you retire.
I reckon a total annual return from investing in top quality companies of around 6% per year is entirely feasible — in fact, the Footsie is expected to provide 4.9% this year in dividends alone.
Putting £40 per week into that kind of investment and reinvesting dividends over a 30-year timescale would result in a pot of close to £170,000. If that’s split between five friends, each could have a nice nest egg of £34,000 to help ease them into retirement.
You might have saved sensibly in pension plans and have a comfortable income lined up for the day when you can abandon your work boots, but just think of the cracking time you could have on that much extra cash. It will be far better than ruing the £12,480 you’d have spent on the lottery with probably very little to show for it.
Even if you only buy one £2 ticket every week for each of the mid-week and weekend draws, you could still gain around £17,000 extra for your retirement by instead investing it in shares for 30 years at that 6% rate of return.
Isn’t that better than ploughing £6,240 into the lottery with such scant hope of success?
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Views expressed 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.