Playing the National Lottery might seem like a fast way to make a million. But the chances of you actually winning the jackpot are so slim, most players are just wasting their money.
And that’s why I believe that rather than gambling your money away on the National Lottery, an investment in the FTSE 100 is a much better place for your hard-earned cash.
Long term gains
Buying a National Lottery ticket is, essentially, gambling. And while investing in the stock market might seem like gambling too many, it isn’t. For example, if we go back over the last 100 years, we can see that the average annual return from the stock market is around 5% after inflation.
While there have been peaks and troughs along the way, over the long term, the stock market has always produced a positive return for investors. Meanwhile, most National Lottery tickets acquired end up being worthless.
The best way to invest in the stock market with the least risk is to buy a low-cost FTSE 100 tracker fund. While some investors like to pick stocks themselves, with the FTSE 100 tracker all you need to do is set up a regular investment plan, sit back… and relax. Your money is then invested across the 100 largest companies in the UK, which have international operations and generate more than 70% of their earnings from overseas.
Because your money is well diversified across 100 world’s largest blue-chip companies, there’s only a tiny chance that you will end up taking a total capital loss. Every single company in the index will have to go bankrupt for this to happen, which is extremely unlikely.
The power of compounding
Over the past 10 years, the FTSE 100 has produced an average annual return for investors of approximately 10% per annum. Over the ultra-long term, (20-30 years) the index has averaged an annual return of 7-10%, before inflation. An annual growth rate of 10% is enough to turn an investment of £1,000 into just under £2,600 over a decade, which is a rough example of how much money you can make using this strategy rather than gambling on the National Lottery.
The main National Lottery costs £2 per play, and there are two draws each week, so if you’re playing four sets of numbers twice a week, that’s a total outlay of £16 a week, or just under £70 a month. Most of the time, players don’t see a return on this money. However, if the same £70 had been invested in the FTSE 100 every month for the past 10 years, I calculate you could have accumulated a pension pot worth £14,300.
The bottom line
So overall, while playing the National Lottery might seem an alluring prospect, your chances of winning are so slim it’s highly unlikely you’ll ever see the money again.
By comparison, the same money invested in the FTSE 100 could help you build a substantial savings pot over the long term. That’s why I would always choose the FTSE 100 over the National Lottery.
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Rupert Hargreaves owns no 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.