Even though I am not a smart investment advisor and not hold myself out as one, 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 within my profit sharing plan or pension plan?
Contrary to popular belief, none of the are wise investments. Why? Among other reasons, they all involve putting money into a great investment vehicle over which they have little control concerning investment and timing and quite a few people wind up choosing Mutual Funds as his or her investment within these plans. In fact, putting your dollars into the Lottery will be a better investment.
Really? The Lottery as a smart investment vehicle? Sound crazy? Gamble my retirement funds away in a government-sponsored game of chance where I have little possibility of winning? Where millions of other folks are putting in take advantage hopes of winning the big one? Where most of the money visits someone else as well as the chances are strong that I will suffer part or every one of my money?
Wait a few minutes - shall we be held talking now regarding the Lottery or about Mutual Funds? Hmm, a government sponsored program where I have little chance of winning. Sounds like nearly the same as Mutual Fund investment inside a 401(k) or IRA. After all, exactly what are my probability of retiring on Mutual Fund investments? Not very high, actually.
A couple of years ago, I was listening to a financial program around the radio on my way into work. The interviewer was asking the representative of a sizable Mutual Fund concerning the performance from the Fund. The Rep responded the Mutual Fund had risen in value by typically 20% per year for the prior two years. But in the event the interviewer asked regarding the average return to the normal investor inside the Fund, the Rep responded how the average investor had actually lost 2% annually. Why? Because with the timing of moving in and out of the market. Compare this on the Lottery, where everyone knows the exact chances of winning along with the exact amount that is won!
But what in regards to the great tax benefits of putting my money into a 401(k) or even an IRA? Yeah, right! Get a tax deduction if you are young and inside a relatively low tax bracket so that you can pay taxes about the money you are taking out when you are retired and in a very higher tax bracket? Yeah, this is a good deal. Or, think about the difference in tax rates on capital gains and dividends if you are not in a very 401(k) or IRA versus the standard income tax rates around the earnings if you pull them from the 401(k) or IRA.
So you now are thinking that you can just spend money on Mutual Funds outside your 401(k) or IRA? Wrong again. Mutual Funds result in capital gains taxes when the Fund Managers trade them even when you don't see the money! You have to pay taxes although Fund might actually have gone down in value! And what regarding the lost opportunity expense of that money that you are now paying in taxes you could have place into other investments? At least using the Lottery, you know the actual amount of taxes you can expect to pay in the event you win so you only have to pay taxes in the event you do win.
Yes, you say, but the Lottery is gambling and I haven't any control over whether I win or lose. You are right. The Lottery is gambling. But so is a Mutual Fund. You don't have any control over stock market trading and neither does the Fund Manager. The market falls, does your Fund. At least you recognize that you are gambling once you play the Lottery. You don't have government entities, finance institutions and your employer telling you that this Lottery is a good investment. And your employer doesn't go so far concerning match the sum you put in to the Lottery as it might together with your 401(k). Nobody is lying to you in regards to the Lottery being gambling, but those involved with positions of authority are lying to you concerning the chances of success in the Mutual Fund!
But surely, you say, there is a better chance of making money in a Mutual Fund than there is in the Lottery? Hardly. There may be less of a chance of losing all of the money you put right into a Mutual Fund than there is certainly losing every one of the money you put in the Lottery. But you are never gonna win big in a Mutual Fund. In fact, Mutual Funds are made to minimize your returns by making a "balanced portfolio." If they could minimize your risk with the market itself, this might here be okay. But the problem is nobody can minimize the risk in the market without sophisticated hedge strategies which aren't typically utilized in Mutual Funds. At least using the Lottery, you have a possibility of winning big. And you can sleep in the evening, when you aren't wondering if the probability of winning are inclined down overnight as a consequence of something that is situated Tokyo.
You say that you do not like the idea that a lot of of your Lottery gamblings 're going to support government programs? Where do you think almost all of the earnings from the Mutual Fund are getting? No, never to support government programs, but to support neglect the advisor's and also the Mutual Fund manager's retirement? You take all the risk, you place in all the capital, but the majority of the earnings from the Mutual Fund go to the Fund manager and your investment advisor. At least while using Lottery, the funds are getting to worthy causes, including the Arts.
Of course, I would never advise litigant to rely around the Lottery for their retirement. But neither would I advise them to depend upon Mutual Fund investments. For my dollar, the Lottery is more fun and at least I know I'm gambling. But should you want to retire, take a look at other investments and work with someone who will to put inside the time to assist you retire soon and retire rich. Financial freedom can be obtained to those who are willing to work and discover it, however, not likely for those who want to depend upon such risky investment strategies as Mutual Funds.