Even though I am not a good investment advisor rather than hold myself out as you, clients continue to ask me what to do to get ready for 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 those are wise investments. Why? Among other reasons, each of them involve putting money into a good investment vehicle over which they have little control concerning investment and timing and a lot people wind up choosing Mutual Funds as his or her investment within diets. In fact, putting your hard earned money into the Lottery would be a better investment.
Really? The Lottery as a good investment vehicle? Sound crazy? Gamble my retirement funds away in the government-sponsored game of chance where I have little potential for winning? Where millions of other individuals are putting in take advantage hopes of winning the large one? Where the majority 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 minute - shall we be talking now regarding the Lottery or about Mutual Funds? Hmm, a government sponsored program where I have little chance of winning. Sounds like a lot like Mutual Fund investment inside a 401(k) or IRA. After all, precisely what are my odds of retiring on Mutual Fund investments? Not very high, actually.
A few years ago, I was playing a financial program for the radio on my way into work. The interviewer was asking the representative of a large Mutual Fund regarding the performance in the Fund. The Rep responded the Mutual Fund had risen in value by an average of 20% per year for the prior two years. But once the interviewer asked concerning the average return to the typical investor within the Fund, the Rep responded that the average investor had actually lost 2% per year. Why? Because in the timing of opting and out with the market. Compare this towards the Lottery, where everyone should know the exact chances of winning along with the exact amount that is won!
But what in regards to the great tax features of putting my money right into a 401(k) or an IRA? Yeah, right! Get a tax deduction when you're young and inside a relatively low tax bracket so you can pay taxes for the money you're taking out when you are retired and in a higher tax bracket? Yeah, what a good deal. Or, look at the difference in tax rates on capital gains and dividends should you are not in a very 401(k) or IRA versus the normal income tax rates on the earnings when you pull them from the 401(k) or IRA.
So you are thinking that you need to just purchase Mutual Funds outside your 401(k) or IRA? Wrong again. Mutual Funds cause capital gains taxes if the Fund Managers trade them while you don't see the amount of money! You have to pay taxes even though the Fund could possibly have gone down in value! And what concerning the lost opportunity tariff of that money that you are now paying in taxes you could have put into other investments? At least with all website the Lottery, you know the exact amount of taxes you will pay if you win and you also only have to pay taxes if you do win.
Yes, you say, nevertheless the Lottery is gambling and I have zero control over whether I win or lose. You are right. The Lottery is gambling. But same with a Mutual Fund. You have zero control over the stock exchange and neither does the Fund Manager. The market goes down, the same is true your Fund. At least you recognize that you're gambling if you play the Lottery. You don't have the federal government, banking institutions and your employer telling you that this Lottery is a great investment. And your employer doesn't go so far concerning match the amount 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 in positions of authority are lying to you concerning the chances of success in the Mutual Fund!
But surely, you say, you will find there's better chance of making money inside a Mutual Fund than there is inside the Lottery? Hardly. There may be less of a probability of losing all the money you put in a Mutual Fund than there is losing all of the money you put in to the Lottery. But you are never planning to win big in a very Mutual Fund. In fact, Mutual Funds are meant to minimize your returns by creating a "balanced portfolio." If they could minimize your risk from the market itself, this might be okay. But the problem is the fact that nobody can minimize the risk with the market without sophisticated hedge strategies which are not typically employed in Mutual Funds. At least while using Lottery, you have a possibility of winning big. And you can sleep in the evening, when you aren't wondering if the odds of winning are getting down overnight as a result of something that happens in Tokyo.
You say you never like the idea that most of your Lottery gamblings are inclined to support government programs? Where do you think most of the earnings from a Mutual Fund are getting? No, not to support government programs, but alternatively to support ignore the advisor's and the Mutual Fund manager's retirement? You take all of the risk, you add in most of the capital, but a lot of the earnings in the Mutual Fund go to the Fund manager along with your investment advisor. At least with the Lottery, the funds are getting to worthy causes, like the Arts.
Of course, I would never advise a client to rely about the Lottery for his or her retirement. But neither would I advise them to count on 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, look at other investments and assist someone who is willing to put inside the time to assist you retire soon and retire rich. Financial freedom can be acquired to those who are willing to work and learn about it, and not likely for individuals who want to depend upon such risky investment strategies as Mutual Funds.