Even though I am not a great investment advisor and don't hold myself out together, clients continue to 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 during my profit sharing plan or pension plan?
Contrary to popular belief, none of the are wise investments. Why? Among other reasons, each will involve putting money into a good investment vehicle over which they have got little control as to investment and timing and a lot people find yourself choosing Mutual Funds his or her investment within efforts. In fact, putting your dollars into the Lottery has to be better investment.
Really? The Lottery as a smart investment vehicle? Sound crazy? Gamble my retirement funds away inside a government-sponsored game of chance where I have little probability of winning? Where millions of other everyone is putting in take advantage hopes of winning the important one? Where almost all of the money goes to someone else along with the chances are strong that I will miss part or most of my money?
Wait a few minutes - 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 as being similar to Mutual Fund investment in a very 401(k) or IRA. After all, what exactly are my probability of retiring on Mutual Fund investments? Not very high, actually.
A few years ago, I was listening to a financial program about the radio walking on into work. The interviewer was asking the representative of a big Mutual Fund in regards to the performance in the Fund. The Rep responded how the Mutual Fund had risen in value by about 20% per year for the prior two years. But in the event the interviewer asked in regards to the average return to the normal investor within the Fund, the Rep responded the average investor had actually lost 2% annually. Why? Because of the timing of planning and out in the market. Compare this to the Lottery, where everyone understands the exact chances of winning as well as the exact amount that could be won!
But what concerning the great tax attributes of putting my money into a 401(k) or an IRA? Yeah, right! Get a tax deduction if you are young and in a very relatively low tax bracket so you can pay taxes around the money you're taking out when you find yourself retired and in a higher tax bracket? Yeah, this is a good deal. Or, look at the difference in tax rates on capital gains and dividends in case you are not in a 401(k) or IRA versus the ordinary income tax rates around the earnings once you pull them through your 401(k) or IRA.
So now you are thinking that you ought to just spend money on Mutual Funds outside your 401(k) or IRA? Wrong again. Mutual Funds cause capital gains taxes in the event the Fund Managers trade them even though you don't see the cash! You have to pay taxes although Fund could possibly have gone down in value! And what regarding the lost opportunity tariff of that money that you are now paying in taxes that you could have put into other investments? At least using the Lottery, you know the precise amount of taxes you will pay in the event 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 have no control over whether I win or lose. You are right. The Lottery is gambling. But so is a Mutual Fund. You have no control over the stock market and neither does the Fund Manager. The market falls, so does your Fund. At least you recognize that you're gambling whenever you play the Lottery. You don't have the us government, banking institutions and your employer telling you that this Lottery is a superb investment. And your employer doesn't go so far about match the sum you put in the Lottery as it might using your 401(k). Nobody is lying to you in regards to the Lottery being gambling, but those who work in 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 the Mutual Fund than there is within the Lottery? Hardly. There may be less of a possibility of losing all the money you put into a Mutual Fund than there is losing all of the money you put in the Lottery. But you are never gonna win big in the Mutual Fund. In fact, Mutual Funds are made to minimize your returns by developing a "balanced portfolio." If they could minimize your risk of the market itself, this might be okay. But the problem is that nobody can minimize the risk in the market without sophisticated hedge strategies which are not typically found in Mutual Funds. At least using 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 occur in Tokyo.
You here say 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 your Mutual Fund are inclined? No, never to support government programs, but instead to support your investment advisor's along with the Mutual Fund manager's retirement? You take most of the risk, you place in all of the capital, but almost all of the earnings from your Mutual Fund go to the Fund manager plus your investment advisor. At least with all the Lottery, the funds are going to worthy causes, for example the Arts.
Of course, I would never advise litigant to rely on the Lottery because of their retirement. But neither would I advise them to count on Mutual Fund investments. For my dollar, the Lottery is much more fun and at least I know I'm gambling. But in case you want to retire, examine other investments and work with someone who would like to put in the time that may help you retire soon and retire rich. Financial freedom can be obtained to those who are willing to work and understand it, although not likely in case you want to count on such risky investment strategies as Mutual Funds.