Building a large retirement nest egg through investing in shares may be a more achievable goal than many people realise. The stock market’s track record shows that a high-single-digit annualised total return can be delivered over the long run. When compounded, it could lead to significant growth for a portfolio of high-quality stocks.
As such, playing the lottery and holding Premium Bonds in the hope of winning £1m+ may not be a sound move for most people. The low chances of winning a seven-figure amount could mean that investing your capital and spare change in FTSE 350 stocks is a better, and faster, means of retiring with a generous passive income.
With the chances of winning the lottery being one in 45m, and the annual prize rate for Premium Bonds standing at 1.4%, the reality is that neither option may be a worthwhile use of your capital.
When it comes to the lottery, most people are likely to end up with very modest returns on their spare change. They may be able to obtain a much better end result by investing even modest amounts in a portfolio of shares. For example, assuming they buy two lottery tickets per week at a cost of £4 in total, this could produce a nest egg of £120,000 over a 50-year working life. This assumes an annualised total return of 8% per annum, which is similar to the historic returns on the FTSE All-Share.
Likewise, the low annual prize rate on Premium Bonds means that investing in the stock market could be a far more worthwhile experience in the long run. For example, a £5,000 holding in Premium Bonds would take 50 years to double in value, assuming a 1.4% annual interest rate. If £5,000 was invested in the stock market at an annualised return of 8%, it would take just nine years to double.
Ease of investing
As well as offering high returns, the stock market is also an easy place to invest from a logistical standpoint. Online share-dealing accounts can be opened in a matter of minutes, while regular investing services cost from as little as £1.50 per trade. Furthermore, the increasingly popularity of online apps that automatically invest your spare change in shares mean that the stock market is becoming increasingly accessible to a wide range of individuals.
As such, now could be the right time to focus your capital on shares. Certainly, there may be volatility ahead from risks such as a global trade war and Brexit. But anyone who is seeking to improve their retirement prospects, and even retire early, may have a much higher chance of doing so if they buy a diverse range of high-quality stocks at low prices. History shows that this could be a better means to boost your financial future when compared to the lottery or Premium Bonds.
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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.