Even though I am not a great investment advisor and never hold myself out jointly, clients always ask me what to do to prepare for retirement. Should I max out my 401(k) contribution? Should I do an IRA? Should I put more in my profit sharing plan or monthly pension?
Contrary to popular belief, none of these are wise investments. Why? Among other reasons, all of them involve putting money into a smart investment vehicle over which they have little control concerning investment and timing and quite a few people end up choosing Mutual Funds as his or her investment within efforts. In fact, putting your money into the Lottery would have been a better investment.
Really? The Lottery as an investment vehicle? Sound crazy? Gamble my retirement funds away inside a government-sponsored game of chance where I have little potential for winning? Where millions of other people are putting in money in hopes of winning the large one? Where a lot of the money travels to someone else along with the chances are strong that I will lose part or all my money?
Wait a moment - shall we be held talking now concerning the Lottery or about Mutual Funds? Hmm, a government sponsored program where I have little potential for winning. Sounds like similar to Mutual Fund investment inside a 401(k) or IRA. After all, exactly what are my chances of retiring on Mutual Fund investments? Not very high, actually.
A few years ago, I was hearing a financial program about the radio on my way into work. The interviewer was asking the representative of a big Mutual Fund regarding the performance with the Fund. The Rep responded that the Mutual Fund had risen in value by typically 20% each year for the prior couple of years. But in the event the interviewer asked in regards to the average return to the typical investor inside the Fund, the Rep responded that the average investor had actually lost 2% each year. Why? Because in the timing of going in and out from the market. Compare this for the Lottery, where everyone should know the exact probability of winning and the exact amount that could be won!
But what concerning the great tax benefits of putting my money right into a 401(k) or perhaps an IRA? Yeah, right! Get a tax deduction when you are young and inside a relatively low tax bracket so that you can pay taxes on the money you are taking out if you are retired and in a very higher tax bracket? Yeah, that's a good deal. Or, consider the difference in tax rates on capital gains and dividends should you are not inside a 401(k) or IRA versus the normal income tax rates for the earnings once you pull them through your 401(k) or IRA.
So you now are thinking that you should just put money into Mutual Funds outside your 401(k) or IRA? Wrong again. Mutual Funds cause capital gains taxes if the Fund Managers trade them even when you don't see the amount of money! You have to pay taxes even though the Fund might actually have gone down in value! And what about the lost opportunity price of that money you are now paying in taxes that one could have place into other investments? At least with all the Lottery, you know the exact amount of taxes you will probably pay should you win and you also only have to pay taxes in case you do win.
Yes, you say, though the Lottery is gambling and I haven't any control over whether I win or lose. You are right. The Lottery is gambling. But same with a Mutual Fund. You haven't any control over the stock exchange and neither does the Fund Manager. The market fails, so does your Fund. At least you recognize that you're gambling whenever you play the Lottery. You don't have the us government, loan companies and your employer telling you that the Lottery is a good investment. And your employer doesn't go so far as to match the amount you put into the Lottery like it read more might with your 401(k). Nobody is lying to you about the Lottery being gambling, but those in positions of authority are lying to you about the chances of success in a Mutual Fund!
But surely, you say, you will find there's better probability of making money in a very Mutual Fund than there is inside Lottery? Hardly. There may be less of a potential for losing all of the money you put into a Mutual Fund than there is certainly losing all the money you put in to the Lottery. But you are never planning to win big inside a Mutual Fund. In fact, Mutual Funds are meant to minimize your returns by setting up a "balanced portfolio." If they could minimize your risk with the market itself, this might be okay. But the problem is nobody can minimize the risk from the market without sophisticated hedge strategies that are not typically found in Mutual Funds. At least with the Lottery, you have a potential for winning big. And you can sleep through the night, as you aren't wondering if the probability of winning 're going down overnight because of something that occurs in Tokyo.
You say that you do not like the idea that most of your Lottery gamblings are going to support government programs? Where do you think a lot of the earnings from the Mutual Fund are going? No, never to support government programs, but instead to support ignore the advisor's along with the Mutual Fund manager's retirement? You take all the risk, you add in every one of the capital, but most of the earnings from the Mutual Fund go to the Fund manager and your investment advisor. At least using the Lottery, the funds are inclined to worthy causes, such as the Arts.
Of course, I would never advise a customer to rely around the Lottery for their retirement. But neither would I advise them to rely on Mutual Fund investments. For my dollar, the Lottery is a lot more fun and at least I know I'm gambling. But in the event you want to retire, examine other investments and help someone who is willing to put within the time that may help you retire soon and retire rich. Financial freedom is accessible to those who will be willing to work and discover it, and not likely for individuals who want to count on such risky investment strategies as Mutual Funds.