Playing the National Lottery might seem like an easy way to make £1m, but success is far from guaranteed.
Indeed, the chance of winning a game is around one in 40m+. Some statistics suggest that you have a higher chance of becoming the Prime Minister of the UK than winning the National Lottery.
In other words, you are more likely to lose all of your stake than win the jackpot. And with this being the case, I believe that if you want to make a million pounds, the best way to do so is to invest your money in the stock market.
Investing for the future
The stock market might seem like a risky place to put your money at first, but figures suggest that over the past 120 years, UK equities have returned around 5% per annum after the impact of inflation.
These returns have been available to everyone who has invested.
In comparison, only a select few have won the National Lottery jackpot during the same period.
These numbers tell me that your chances of making money in the stock market are much higher than the National Lottery.
So, what are the best investments to own in the market?
Looking back at the past 120 years, the best way to get exposure to the performance of the market without taking on any additional risk has been to invest in the indexes that measure the market’s performance.
These include the FTSE 100 and FTSE 250. Today there are many passive tracker funds that offer exposure to these indexes for only a few basis points in costs every year.
If you want to match the performance of the market without being exposed to active manager risk, or losing a large percentage of your cash in investment management fees, I believe that these passive tracker funds are the best way to go.
The road to a million
According to my research, over the past 10 years, the FTSE 250 has produced an average annual return for investors in the region of 9%. At this rate of return, I calculate that it would take 52 years to turn a simple investment of £10,000 into a million.
With additional investments of £520 a year, or around £10 a month, my figures show that an investor could reduce the time it takes to hit this life-changing sum to just 47 years. Increasing the deposit to £200 a month could help you reach the target in 37 years.
These figures show just how straightforward it can be to make a million in the stock market if you buy and forget a low-cost passive tracker fund. The National Lottery might get you to a million faster if you win it, but it is more likely that you will lose 100% of the money you put into this game of chance.
Meanwhile, the chances of losing 100% of your investment in the FTSE 250 are almost zero. Every single company in the index would have to go out of business for the index to hit this level.
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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