Playing the National Lottery can be an alluring way to make a vast amount of money. With jackpots of more than £100m on offer, paying just £2 for a chance to win this life-changing sum seems like a no-brainer.
However, your chances of winning the jackpot are so small, rather than winning money, it’s more likely you’ll spend your entire life throwing cash away.
You might have more chances in the casino at the blackjack tables. The National Lottery is classed as gambling, so it’s technically the same thing.
So, rather than gambling on the National Lottery, I would invest my money in FTSE 100 stocks instead. Indeed, that’s just what I’m doing as I believe I’ve a much higher chance of making a life-changing sum of money from these companies over the long term than buying lottery tickets.
Investing for the long term
What I am looking for is blue-chip companies that have a definite competitive advantage in their respective industries and a history of changing with the times. In other words, I’m looking for firms like Royal Dutch Shell, which is one of the world’s largest energy traders, and has been around for more than 100 years.
Another example is life insurance and long-term savings provider Legal & General. This company dominates the pensions market in the UK, managing more than £1trn of assets for clients. It can also trace its history back more than a century. I would also include consumer goods giant Unilever and defence products giant BAE Systems.
These are just a handful of some of the blue-chips you could buy instead of spending your money on the National Lottery. I calculate a basket of these four companies would offer a dividend yield of just under 6%. That’s a potential return of 6% per annum without including any capital growth.
Assuming earnings per share expand in line with inflation (2.5%) for the foreseeable future, shareholders could see a total return of as much as 8.5% per annum.
It all adds up
It currently costs £2 per line of numbers to play the National Lottery. Four lines twice a week would cost a total of £16 per week, or £832 a year. But what about if you took this money and invested it in an equally weighted basket of the shares I’ve laid out above?
Well, assuming an investor starts with a base portfolio of £1,000, with £250 invested in each of Royal Dutch Shell, Legal & General, Unilever and BAE Systems, I calculate they could accumulate a portfolio worth £15,226 over 10 years.
This is based on the assumption that rather than wasting £16 a week on the lottery, this money is invested back into the portfolio. Assuming an average annual rate of return of 8.5% per annum, these deposits will help the overall balance grow to more than £15,000.
If you spent the same amount on the National Lottery, it’s more than likely you would have nothing to show for it. That’s why I’d rather buy FTSE 100 stocks than play the National Lottery.
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Rupert Hargreaves owns shares in Royal Dutch Shell B and Unilever. The Motley Fool UK owns shares of and has recommended Unilever. 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.