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Forget winning millions on the National Lottery! The FTSE 100 could help you retire early

Peter Stephens
Two hands holding champagne glasses toasting each other with Paris in the background

The lottery is understandably appealing for anyone who wants to improve their financial position. However, with odds of one in 45m, the reality is that you are highly unlikely to ever win during your lifetime.

As such, investing your spare change in FTSE 100 stocks could be a better idea. The index has a long track record of delivering strong growth and it currently offers a wide range of potential buying opportunities.

Through investing even modest sums of money in FTSE 100 shares, you could build a surprisingly large nest egg over the long run.

FTSE 100 returns

Since its inception in January 1984, the FTSE 100 has recorded an annualised total return of around 9%. That may not sound like an especially large return at first glance. After all, a 9% return on the amount you spend on lottery tickets is unlikely to amount to much even over a few years of investing.

However, in a lifetime it could produce a surprisingly large nest egg. For example, assuming that you spend £2 per week on the lottery (which is the cost of one ticket), this amounts to £104 per year. Over a 50-year period, this would amount to £5,200. However, if that amount was invested on a regular basis in the FTSE 100 and it generates an annualised total return of 9%, it could be worth as much as £85,000 after 50 years.

Certainly, that may not be as much as the £1m+ that could be won on the lottery. But with the FTSE 100 having a long track record of growth, a 9% annualised return may be highly achievable for a large proportion of investors. Therefore, on a risk/reward basis it could offer significantly greater appeal than buying lottery tickets.

Accessibility

Fortunately, investing in the FTSE 100 has become easier in recent years from a cost perspective. Investors can now buy small amounts of a tracker fund at a minimal cost through regular investment services. They are available at a wide range of share-dealing providers, and are becoming more commonplace.

Over time, investors may wish to buy individual stocks to try to beat the index’s performance. This could further widen the difference in appeal between the lottery and investing in the FTSE 100.

With the index currently appearing to offer good value for money, now could be the right time to switch from the lottery to shares. The FTSE 100 has a dividend yield of around 4.5% at the present time, which suggests that its future returns may be impressive due to the existence of a margin of safety right now. And, with the index being internationally focused, it is highly diverse. This could reduce risk and volatility over the coming years, as well as allowing investors to capitalise on fast-growing economies around the world to improve their chances of making a million.

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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.

Motley Fool UK 2019