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Forget the National Lottery: I’d buy FTSE 100 stocks in a Lifetime ISA to retire early

While the FTSE 100’s recent volatility may cause some investors to become increasingly cautious about buying shares, it could prove to be a worthwhile time to do so. After all, for a stock to trade at an attractive price, there must usually be some kind of risk or threat to its financial prospects.

Although the global trade war could become increasingly concerning for investors, in the long run, the FTSE 100 has a solid track record of delivering growth. When large-cap shares are purchased through a Lifetime ISA, moreover, a government bonus of 25% could make them a far more appealing destination for your spare cash than the National Lottery.

25% bonus

Anyone under the age of 40 is eligible to open a Lifetime ISA and benefit from a government bonus of up to £1,000 per year. The bonus is 25% of any contributions to a Lifetime ISA up to the annual allowance of £4,000 per year, with contributions being allowed until age 50.

The government bonus by itself could amount to £33,000 over a lifetime if you open a Lifetime ISA at age 18 and maintain a £4,000 contribution per year until age 50. However, when it is invested in FTSE 100 shares, the track record of the index shows that a £33,000 bonus could produce a much larger nest egg over the long run.

In fact, assuming the FTSE 100 delivers the same level of total return since its inception in 1984 of around 8% per annum, a £1,000 annual government bonus could become £146,000 by the end of the 33-year time period. When combined with a £4,000 contribution over the 33 years, you could have a nest egg of £730,000 by the time you are aged 50 – assuming that 8% annual return and £4,000 annual contribution from age 18 to 50.

FTSE 100 appeal

Of course, the FTSE 100 could deliver a stronger return in the coming years than it has in the past. The index has become increasingly international since its inception, with many of its members now having modest or even no exposure to the UK economy.

This could lead to higher growth rates for the index over the long run. Exposure to economies such as China and India could enable large-cap stocks to enjoy a tailwind that is unavailable to companies that rely on developed economies such as the UK and mainland Europe. And, with an increasingly diverse geographical exposure potentially reducing risk, the risk/reward opportunity presented by the FTSE 100 seems to be highly appealing.

With it never having been easier to access the stock market through products such as a Lifetime ISA, now could be the right time to invest any spare cash you have in FTSE 100 companies for the long run. Given the long-term returns that are available, it could prove to be a much better idea than trying to beat the National Lottery’s exceptionally high odds.

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Peter Stephens 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.