Even though I am not a great investment advisor rather than hold myself out together, clients carry on and ask me what to do to plan retirement. Should I max out my 401(k) contribution? Should I do an IRA? Should I put more inside my profit sharing plan or type of pension?
Contrary to popular belief, none of such are wise investments. Why? Among other reasons, all of them involve putting money into a smart investment vehicle over which they have little control about investment and timing and a lot people wind up choosing Mutual Funds for their investment within diets. In fact, putting your dollars into the Lottery would be a better investment.
Really? The Lottery as a great investment vehicle? Sound crazy? Gamble my retirement funds away in a very government-sponsored game of chance where I have little possibility of winning? Where millions of other people are putting in cash in hopes of winning the big one? Where the majority of the money travels to someone else along with the chances are strong that I will miss part or every one of my money?
Wait a moment - are we talking now in regards to the Lottery or about Mutual Funds? Hmm, a government sponsored program where I have little possibility of winning. Sounds like as being similar to Mutual Fund investment inside a 401(k) or IRA. After all, precisely what are my likelihood of retiring on Mutual Fund investments? Not very high, actually.
A few years ago, I was playing a financial program around the radio walking on into work. The interviewer was asking the representative of a large Mutual Fund in regards to the performance of the Fund. The Rep responded the Mutual Fund had risen in value by about 20% per year for the prior a couple of years. But when the interviewer asked concerning the average return to the normal investor in the Fund, the Rep responded the average investor had actually lost 2% annually. Why? Because of the timing of moving in and out with the market. Compare this to the Lottery, where everyone understands the exact chances of winning and also the exact amount that could be won!
But what about the great tax benefits of putting my money right into a 401(k) or an IRA? Yeah, right! Get a tax deduction when you are young and in a very relatively low tax bracket to help you pay taxes around the money you take out if you are retired and in a higher tax bracket? Yeah, this is a good deal. Or, take into account the difference in tax rates on capital gains and dividends if you are not inside a 401(k) or IRA versus the ordinary income tax rates about the earnings if you pull them out of your 401(k) or IRA.
So you 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 in the event the Fund Managers trade them even when you don't see the bucks! You have to pay taxes even though the Fund may actually have gone down in value! And what concerning the lost opportunity tariff of that money that you are now paying in taxes that one could have place into other investments? At least with the Lottery, you know the exact amount of taxes you will probably 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 don't have 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 trading stocks 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 this Lottery is a superb investment. And your employer doesn't go so far about match the amount you put into the Lottery like it might with your 401(k). Nobody is lying to you about the Lottery being gambling, but those who work in positions of authority are lying to you concerning the chances of success in the Mutual Fund!
But surely, you say, there exists a better potential for making money inside a Mutual Fund than there is in the Lottery? Hardly. There may be less of a chance of losing every one of the money you put right into a Mutual Fund than there's losing all of the money you put into the Lottery. But you are never gonna win big in a very Mutual Fund. In fact, Mutual Funds are built 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 always that nobody can minimize the risk with the market without sophisticated hedge strategies that aren't typically utilized in Mutual Funds. At least with the Lottery, you have a chance of winning big. And you can sleep in the evening, when you aren't wondering if the odds of winning 're going down overnight because of something that happens in 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 the majority of the earnings from a Mutual Fund are getting? No, to not support government programs, but rather to support ignore the advisor's as well as the Mutual Fund manager's retirement? You take all the risk, you put in most of the capital, but the majority of the earnings in the Mutual Fund go towards the Fund manager as well as your investment advisor. At least with the Lottery, the funds are inclined to worthy causes, including the Arts.
Of course, I would never advise a client to rely for the Lottery for retirement. But neither would I advise them to depend on Mutual Fund investments. For my dollar, the Lottery is a bit more fun and at least I know I'm gambling. But in case you want to retire, take a look at other investments and work with someone who would prefer to put within the time to help you retire soon and retire rich. Financial freedom is accessible to those who're willing to work and find out about it, but not likely for many which va lottery games have the best odds who want to count on such risky investment strategies as Mutual Funds.