Why relying on luck is a bad way to save money
PUBLISHED: 09:23 28 October 2019 | UPDATED: 09:23 28 October 2019
Relying on luck is a pretty bad saving strategy, says financial expert Peter Sharkey.
How many of us, seeking an immediate change of fortune, have impulsively shelled out £2.50, crossed our fingers and bought a lottery ticket in the hope of scooping a £155 million jackpot?
I can only imagine the number of folks nodding their heads after reading that sentence, which begs the question: what would you do if you did win £155 million, boosting your wealth to a level comparable to that of Queen drummer Roger Taylor?
According to a study by online retailer Pixmania, the first purchase made by more than a quarter of lottery winners who scoop a million pounds or more is a washing machine - followed by a new sofa. All very rock n' roll, isn't it?
While £155 million would almost certainly solve everyone's financial problems (actually, the £5 million would be ample - there's no need to be greedy), the chances of winning such a colossal sum are negligible. A few years ago, statisticians calculated that you have more chance of being decapitated by a frisbee than winning in excess of £100 million. Granted, somebody wins, but the odds against doing so are ridiculously long.
If the odds against winning a giant jackpot are against us, is there anything knocking around the house capable of claiming centre stage on Antiques Roadshow?
That battered, mahogany tripod table next to the armchair where you place your mug of tea while watching the box for instance: could it be an original Chippendale? Or that old teapot your Gran gave you - is it possibly an original Wedgewood piece?
Again, the chances of happening upon a forgotten masterpiece hidden at the back of the attic, or discovering that the teapot you've been using for years is a rare, fifteenth century Chinese Yixing version, are regrettably slim, but it does happen.
In France recently, art historians announced that the wood-panelled painting found hanging above a hotplate in the kitchen of a widow's home was, in fact, a masterpiece by Cimabue, the Florentine artist known as "the father of the Renaissance".
Several works by Cimabue are known to have been lost to wars, floods and earthquakes, but the artist's thirteenth century painting innocuously decorating a small, domestic kitchen appears to be the real deal: it's said to be worth around £5.3 million.
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Though most of us will never enjoy a seven-figure Lottery win or discover a Renaissance masterpiece in grandad's kitchen, it's clear that luck, or any other description of an unexpectedly favourable outcome, plays an integral part in our lives.
What makes luck so frustrating is its infrequency and the fact that it's completely out of our control - which is why I'd always advocate buying Premium Bonds rather than a lottery ticket, ostensibly because you cannot lose your stake, although the occasional let's-have-a-go purchase of a Lucky Dip is perfectly okay.
So, what does this have to do with saving and investment?
The answer is: Everything.
A modest flutter on the Grand National, the lottery or the weekend's football matches provides the overwhelming majority of people who enjoy a punt with pleasure as well as an outside chance of sizeable, one-off returns, but it's no basis for a longer-term saving or investment strategy.
Enjoying the figurative spin of the potentially lucky roulette wheel is activity best undertaken with spare cash. It's discretionary expenditure , whereas the influence of luck on building a long term pension pot, for example, should be eradicated as far as possible. No-one wants to get to the cusp of retirement and discover that their pension pot is empty because everything was lost on the last race at Haydock Park.
In other words, building savings, be it in an investment ISA, pension, Premium Bonds, or a host of other legitimate saving vehicles, is invariably a long-term project. You're unlikely to celebrate wildly when receiving your quarterly ISA statement, or when notice of a £25 Premium Bond win is delivered through your letterbox because saving and investment is a slow process. If it was easy and you could make a million overnight, everyone would be in clover, but the fact is, they're not.
There's no harm in hoping you'll win £155 million, or willing that painting in your granny's kitchen to be a forgotten masterpiece, but this is not a strategy capable of proving successful over the longer term.
Accept that saving can be, ahem, boring, but set a little aside with which to have some fun. Oh, and good luck.
TAM Asset Management Ltd offer savers the opportunity to invest in Investment ISA portfolios comprising a variety of different funds pursuing cautious, balanced or adventurous strategies. For further details, please visit the MoneyMapp website.
For more financial advice, check out Peter Sharkey's regular column, The Week In Numbers.
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