Did you know that the average person in the UK spends £13 a week on the National Lottery?

I don't know about the USA, or countries in Europe, but I would guess it would be a similar percentage. Obviously this is an average so there are people like me who spend £0 per week and people who spend £26 a week. I'm going to go into percentages a lot more as it's one of my bugbears (I think they are public enemy No 1 when it comes to wealth creation), but for the time being hold that thought about the Lottery.

What about Premium Bonds or the US equivalent? Millions of people invest in Premium Bonds and I think they have worked out that holders of the maximum amount of premium bonds, £20,000, average a return similar to the worst performing 'safe' investment vehicle - the building society or high interest deposit account at a bank.

Smokers, now that's a game of chance. How much does the average smoker spend on fags? I'm not passing a moral judgment here but if cigarettes are averaging £5.00 a pack and you smoke just 10 per day, you will spend £17.50 per week or £75.83 per month. Statistic prove that you will have a very high chance of dying early of a smoking related disease, but if you do nothing else to increase your wealth, you will have a 100% chance of not becoming a millionaire in your lifetime.

So you don't smoke, don't drink cappuccino, haven't bought a premium bond and don't think of yourself as a gambler. Your money, say £10,000 or $10,000 is safely stashed away in a One Year Notice, High Interest, Free Woolly Hat and Free Intravenous Mobile Phone, You Can't Bend It Deposit Account. Paying a guaranteed 5% a year. If inflation is running at a very nice 2%, you are only actually getting 3%. And if you are a 40% tax payer so you will only be effectively receiving £180. Hmmmm, who's gambling on their future now?

Compounding and other miracles
The American Indians were diddled into selling the island of Manhattan for $24 worth of beads, cloth, doodads and gee-gaws. If they had taken their $24 in Treasury Bills or a similar vehicle that incorporated compounding, they would have enough today to buy back the entire island of Manhattan, one of the most expensive pieces of real estate in the world.

So if the average person in the UK spends £13 per week on the Lottery, that's would be the mean figure arrived at between someone like me, who spends nothing, and someone half as daft as my dad, who would spend £26 per week (work that one out!). An average is designed to give you a feel for what most people / things are doing, designed to smooth out the peaks and troughs of human behaviour.

The Footsie 100 is a collection of companies whose shares can be bought by individuals and institutions on the open market. If they have 1000 shares issued and today's price is £10, then the company is valued at £10,000. Their share price moves up and down, according to profits reported, market sentiment about the products they have, the market sector they are in and a variety of other factors including the economy, inflation and what Saddam Hussain is up to.

If the Footsie 100 is an average of the Top 100 most valuable companies in the stockmarket, and more share prices go down than up one day, then the Footsie 100 goes down, as it reflects the average share price movement of those 100 companies.

Does this mean that all 100 company's share prices have gone down? No. It means that some have gone up (sometimes by a lot) and more have gone down. Which companies do you want to invest in?

But when the Footsie 100 falls, it's doom and gloom all round.

If property prices rise, or fall, across the country by 10% does that mean that all property in every area has gone up, or down, by 10%? No, it might mean that there are areas that have fallen by 20% and areas that have gone up by 10%. So where would you want to invest?

There was a great TV show a while ago that pitted expert investors against novice investors, giving them an amount of money to invest in the stockmarket, over a set period of time. The novice teams, like the vicar, the verger and the church flower lady. On average, the novice teams did much better than the experts at picking great shares to invest in.

Does this mean that all of the experts were rubbish? No. Does it mean that all of the novice teams were great? No. It means that more of the novice teams did well, than the experts. Who are you giving your money to, to look after?

And how are you looking after your money yourself - are you managing it or merely letting it fend for itself?

 

© Nicola Caincross of The Money Gym 2008. No content to be reproduced without written approval of the author.

Nicola is a Wealth Coach, Author, Publisher and Speaker, and the Director of The Money Gym.

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