The National Lottery acts like a fast lane to riches for a tiny number of people, but for most, it’s a slow lane that drips your money away.
The more you play, the more you pay, and the chances of winning the jackpot each time are about one in 45 million. In reality, that means your chances of becoming an overnight millionaire on the lottery are vanishingly small.
Instead of paying out on the lottery, you could stuff money into a cash ISA account. You won’t be spending the money that way but you will be losing some of the money’s spending power over time because cash ISA interest rates have not even been keeping up with the rate of inflation.
Here’s a time-tested method of building wealth
So neither the National Lottery or a cash ISA is likely to help very much on your quest to make a million. Instead, a time-tested method of building wealth is to invest in shares. Indeed, over the long haul, the total return from shares, in general, has outpaced that of all other major classes of asset, such as property, bonds and cash savings.
You can get involved with the stock market quite easily. One way of targeting the general returns available from the stock market is to invest in index tracker funds. These are low-cost, passive investing vehicles that follow the fortunes of indices such as the FTSE 100 and the FTSE 250, for example. They aim to reproduce the performance of a particular stock market index by investing in every share in that index.
You can invest in an income version, which pays your share of the dividends from the index back to you, or you can buy an accumulation version, which automatically reinvests the dividends back into your portion of the fund. If you are aiming to build up your wealth, I reckon the accumulation version is a good idea because it will help to compound your money.
If you want to go beyond simple index tracking, you could choose to invest in a managed fund. However, the fees will be higher because of the extra research and management work that the fund manager has to do. However, there’s little point in investing in a managed fund if you don’t believe the fund manager can deliver you total returns that beat those of the general market over time.
A step many investors eventually take
You can even go a step further and invest in individual shares yourself. Many people graduate towards investing for themselves after they’ve gained some experience with investing in funds first. Investing in individual shares requires a greater investment in time, but many people enjoy the process.
Whichever way you decide to go, it pays to shelter your investments within tax-reducing vehicles such as the Stocks and Shares ISA and the Self-Invested Personal Pensions (SIPP), which can help to increase your returns because of the tax advantages they have. And I also think it’s a good idea to introduce money into your investment portfolio gradually, perhaps in the form of a regular monthly payment.
Good luck on your journey towards making a million from investing and do explore the Motley Fool website for more ideas.