The Motley Fool

Forget the National Lottery, here’s my way to boost your retirement cash

At a shop near me, there’s a customer who bets £50 on National Lottery tickets, twice every week.

That’s £100 per week, or £5,200 per year. And if that’s not enough to make your eyes water, it’s £52,000 over 10 years.

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Admittedly, it’s a syndicate bet, and he’s putting the money in for a group of work colleagues. But it’s still an awful lot of money to gamble away like that. I’ve no idea how long the syndicate has been going, or whether they’ve ever won anything. But considering he’s still in there every week, they don’t seem to have won the big one yet and retired.

Rich

Sometimes when I ramble on about the money wasted on the lottery, people say something like “But it’s most people’s only chance of getting stinking rich.” I suppose that’s true, but I just think about how the odds are so vastly stacked against the Lotto gamblers, and wonder what they could do with the money instead.

Saving and investing modest amounts of cash instead of gambling it on lottery tickets is, I have to admit, unlikely to turn anyone into a multi-millionaire. But by investing what you can afford, and doing so regularly over the long term, you could make quite a bit of difference to your quality of life when you reach retirement.

So, what might that £50 twice per week generate over the years if put to better use?

Cash ISA

When people think of saving and investment, they frequently think of an ISA. Now, I reckon that’s a good choice, but the majority of investors every year take out the wrong kind. I’m talking about a Cash ISA, which only pays around 1.3% in interest these days. Oh, that’s if you’re lucky – many pay a good bit less.

Inflation ran at approximately 1.4% in December, which, as you might notice, is higher than the interest of a Cash ISA. So it’s not really worth working out what you might get from using one – we know it will lose you money in real terms.

Stocks & Shares

But what about a Stocks and Shares ISA? According to an annual study by Barclays, the UK stock market has generated average annual returns of 4.9% above inflation for more than a century. After inflation, which means a very tasty profit in real terms. And that’s worth getting my spreadsheet out for.

If you invest £100 per week in shares and the historical rate of return holds out, you could expect to build a pot of about £74,200 before inflation (assuming inflation comes in around 2% per year over the long term.) That’s equivalent to £66,800 after inflation.

So a total investment of £52,000 spread over a decade would grow by 42% before inflation, and by 28% after inflation. What if you carry on investing the same way for 20 years, with the same average annual return? The £104,000 invested should grow to around £218,700 (110%) before inflation, or £174,600 (68%) after inflation.

And that would be worth sharing among your syndicate.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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.