Every week, millions of people in the UK take a punt on The National Lottery. And I can see the motivation. Winning a fortune overnight would be transformational for many and enable an escape from a life of hard work and financial struggle. You could even offer generous support to your family, friends and as many good causes as you like. Who wants to be a millionaire? Who doesn’t!
But the odds of winning the lotto jackpot are massively stacked against you. Your chances of bagging millions on the lottery are vanishingly small. The most likely outcome of punting on the lottery every week throughout your adult life is that you will spend maybe hundreds or thousands of pounds over time. The lottery is a bit of fun, but it isn’t an investment.
Huge downside risk
Some folks turn to speculative instruments such as Bitcoin. And I’m as guilty as anyone of speculating with risky punts from time to time! But lately, Bitcoin has been more of a sure way to lose money than to make it. The problem is that it shot up by hundreds of percent in 2017 in what looks like a speculative bubble, which went way above any price you could justify with an argument about value. Then in 2018 that bubble deflated — a lot. However, even now Bitcoin is still several hundred percent above the price it was at the beginning of 2015, so I think there’s massive downside risk. You could lose more than 90% of your money by speculating on Bitcoin now.
Buy-to-let investing has more merit than The National Lottery and Bitcoin, I reckon. At least you are buying real assets with the money you borrow on a mortgage. Buildings can give you a rental income, but property also comes with running and maintenance costs. On top of that, it costs a lot to get into property in the first place. Just think of estate agency commissions and fees, solicitors’ bills, stamp duty (tax), survey fees and the like. They often add up to thousands.
A changing landscape for property
Yet, for the past couple of decades, many buy-to-let investors have done well with both rents and property values rising while they held their investments. However, I can’t help feeling that prices could struggle to rise in the years ahead and may even fall back. Indeed, homes are far less affordable compared to the average wage than they were 20-odd years ago. If they are to become more affordable again, prices must fall or remain static until earnings catch up. On top of that, recent tax changes make it harder to turn a profit with buy-to-let investing and, overall, the timing could be wrong for moving into investment property for the first time.
The big opportunity that I see today is in shares on the stock market. The valuations of many decent companies look attractive at the moment and, over the long haul, shares have outperformed all other major asset classes such as bonds and cash savings. Investing in the stock market is a time-tested way to get rich, but it does come with risks, especially if you go about it the wrong way. Luckily, you’ve come to the right place to find out more about shares right here at The Motley Fool.