Don’t gamble on the National Lottery. I’d make a million with the FTSE 100!
The chances of winning the National Lottery are one in 45m. This implies that it is virtually impossible to win the jackpot with just one or even a handful of tickets. Indeed, you could gamble your money away on the National Lottery for decades without any seeing any return. That’s why I would much rather invest my hard-earned cash in the FTSE 100.
I can’t promise that you will make a £1m investing your money in the stock market. However, I do believe that the chances of you hitting this life-changing sum are much higher with stocks than with gambling.
I would go so far as to say that as long as you have a watertight saving and investing plan in place, the odds of hitting this target are firmly in your favour.
The reason why I am so confident that the FTSE 100 can help you make a million is that the index is composed of 100 of the largest companies in the world. These companies are continually growing and investing as well as paying out money to shareholders.
Over the past decade, the index has produced an average annual return for investors in the region of 7%. And there’s a good chance the index will continue to churn out returns in this region. Assuming that the earnings of the FTSE 100 constituents continue to grow at or slightly above the rate of inflation, combined with an average dividend yield of 4.5%, a long term growth rate of 6.5% is possible.
At this rate of return, investors would double their money every 11 years. That may not seem like much, but when you consider the fact that many people who play the National Lottery go a decade or more without winning anything, only paying out money on tickets, it is a big reversal.
Making a million
So, at an average annual rate of return of 6.5%, how much would a saver need to contribute every year to make £1m?
The answer to this depends on how much the saver would be willing to put away every month.
For example, according to my calculations, at an average annual return rate of 6.5%, it would take deposits of £225 a month for 50 years to make a million. To hit the target in 40 years, it would require around £425 a month. To make the target in 20 years, a saver would need to put away £2,000 a month and to meet it in 10, £6,000 a month or £72,000 a year would be required.
The bottom line
These contribution figures might seem excessive, but compared to the money you might lose playing the National Lottery, they’re pretty insignificant.
Playing four lines of numbers twice a week would cost around £69 a month, that’s a total outlay of £8,130 over 10 years or £16,260 over two decades.
Put simply, if you’re serious about getting rich, investing in the FTSE 100 is, in my opinion, your best option. Gambling on the National Lottery will only cost you money.
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.
Motley Fool UK 2019