Even though I am not a good investment advisor and never hold myself out as one, clients continue to 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 pension plan?
Contrary to popular belief, none of such are wise investments. Why? Among other reasons, each will involve putting money into a smart investment vehicle over which they have got little control about investment and timing and a lot people find yourself choosing Mutual Funds for their investment within efforts. In fact, putting your dollars into the Lottery would have been a better investment.
Really? The Lottery as a great investment vehicle? Sound crazy? Gamble my retirement funds away inside a government-sponsored game of chance where I have little chance of winning? Where millions of other everyone is putting in cash in hopes of winning the large one? Where the majority of the money travels to someone else along with the chances are strong that I will miss part or all my money?
Wait a minute - are we talking now regarding the Lottery or about Mutual Funds? Hmm, a government sponsored program where I have little probability of winning. Sounds like similar to Mutual Fund investment in a 401(k) or IRA. After all, precisely what are my odds of retiring on Mutual Fund investments? Not very high, actually.
A couple of years ago, I was paying attention to a financial program around the radio walking on into work. The interviewer was asking the representative of a big Mutual Fund concerning the performance in the Fund. The Rep responded how the Mutual Fund had risen in value by an average of 20% annually for the prior 2 yrs. But in the event the interviewer asked in regards to the average return to the average investor inside the Fund, the Rep responded that the average investor had actually lost 2% annually. Why? Because of the timing of opting and out of the market. Compare this for the Lottery, where everybody knows the exact probability of winning and also the exact amount that is won!
But what concerning the great tax attributes of putting my money in a 401(k) or an IRA? Yeah, right! Get a tax deduction if you are young and in a relatively low tax bracket so that you can pay taxes on the money you are taking out when you find yourself retired and in a higher tax bracket? Yeah, which is a good deal. Or, take into account the difference in tax rates on capital gains and dividends should you are not in the 401(k) or IRA versus the ordinary income tax rates around the earnings if you pull them through your 401(k) or IRA.
So you now are thinking that you can just purchase Mutual Funds outside your 401(k) or IRA? Wrong again. Mutual Funds bring about capital gains taxes when the Fund Managers trade them even when you don't see the money! You have to pay taxes although Fund could actually have gone down in value! And what regarding the lost opportunity price of that money that you are now paying in taxes that one could have place into other investments? At least while using Lottery, you know the complete amount of taxes you can expect to pay in case you win and you only have to pay taxes should you do win.
Yes, you say, however 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 goes with a Mutual Fund. You have zero control over stock market trading and neither does the Fund Manager. The market goes down, does your Fund. At least you recognize that you're gambling once you play the Lottery. You don't have government entities, financial institutions and your employer telling you the Lottery is a great investment. And your employer doesn't go so far about match the amount you put into the Lottery enjoy it might using your 401(k). Nobody is lying to you regarding the Lottery being gambling, but those invoved with positions of authority are lying to you in regards to the chances of success in the Mutual Fund!
But surely, you say, there exists a better potential for making money in a Mutual Fund than there is within the Lottery? Hardly. There may be less of a probability of losing every one of the money you put right into a Mutual Fund than there is losing all the money you put in the Lottery. But you are never planning to win big in a Mutual Fund. In fact, Mutual Funds are made to minimize your returns by setting up a "balanced portfolio." If they could minimize your risk from the market itself, this might be okay. But the problem is always that nobody can minimize the risk of the market without sophisticated hedge strategies which are not typically employed in Mutual Funds. At least with the Lottery, you have a probability of winning big. And you can sleep during the night, because you aren't wondering if the chances of winning are inclined down overnight as a consequence of something that is situated lottery games georgia Tokyo.
You say you never like the idea that a lot of of your Lottery gamblings are inclined to support government programs? Where do you think almost all of the earnings from a Mutual Fund are getting? No, never to support government programs, but instead to support your investment advisor's and also the Mutual Fund manager's retirement? You take all of the risk, you set in every one of the capital, but almost all of the earnings through the Mutual Fund go on the Fund manager as well as your investment advisor. At least with all the Lottery, the funds 're going to worthy causes, for example the Arts.
Of course, I would never advise a client to rely on the Lottery for his or her retirement. But neither would I advise them to rely on Mutual Fund investments. For my dollar, the Lottery is more fun and at least I know I'm gambling. But in case you want to retire, have a look at other investments and work with someone who is willing to put in the time to assist you retire soon and retire rich. Financial freedom can be obtained to those who will be willing to work and understand it, but not likely for many who want to depend on such risky investment strategies as Mutual Funds.