Even though I am not a smart investment advisor and never hold myself out together, clients still 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 inside my profit sharing plan or pension plan?
Contrary to popular belief, none of such are wise investments. Why? Among other reasons, all of them involve putting money into a good investment vehicle over which they have got little control concerning investment and timing and most people wind up choosing Mutual Funds as their investment within diets. In fact, putting your cash into the Lottery will be a better investment.
Really? The Lottery as an 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 almost all of the money visits someone else and the chances are strong that I will miss part or all of my money?
Wait a few minutes - 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 as being similar to Mutual Fund investment inside a 401(k) or IRA. After all, what are my odds of retiring on Mutual Fund investments? Not very high, actually.
A couple of years ago, I was playing a financial program for the radio walking on into work. The interviewer was asking the representative of a big Mutual Fund in regards to the performance from the Fund. The Rep responded that the Mutual Fund had risen in value by around 20% annually for the prior two years. But once the interviewer asked regarding the average return to the typical investor inside Fund, the Rep responded that the average investor had actually lost 2% each year. Why? Because in the timing of going in and out from the market. Compare this on the Lottery, where everyone knows the exact odds of winning and the exact amount that may be won!
But what in regards to the great tax advantages of putting my money right into a 401(k) or even an IRA? Yeah, right! Get a tax deduction if you are young and in the relatively low tax bracket to help you pay taxes about the money you take out when you're retired and in the higher tax bracket? Yeah, what a good deal. Or, consider the difference in tax rates on capital gains and dividends should you are not in the 401(k) or IRA versus the normal income tax rates for the earnings when you pull them from your 401(k) or IRA.
So you are thinking that you can just put money into Mutual Funds outside your 401(k) or IRA? Wrong again. Mutual Funds result in capital gains taxes once the Fund Managers trade them while you don't see the cash! You have to pay taxes even though the Fund could possibly have gone down in value! And what in regards to the lost opportunity tariff of that money that you are now paying in taxes that you could have put in other investments? At least with all the Lottery, you know the actual amount of taxes you could pay in case you win so you only have to pay taxes if 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 with a Mutual Fund. You haven't any control over the stock market and neither does the Fund Manager. The market falls, the same is true your Fund. At least you recognize that you will be gambling if you play the Lottery. You don't have government entities, financial institutions and your employer telling you that the Lottery is a good 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 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's a better possibility of making money in a Mutual Fund than there is in the Lottery? Hardly. There may be less of a probability of losing all of the money you put in to a Mutual Fund than there exists losing most 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 of the market itself, this might be okay. But the problem is the fact that nobody can minimize the risk from the market without sophisticated hedge strategies which are not typically found in Mutual Funds. At least using the Lottery, you have a possibility of winning big. And you can sleep during the night, because you aren't wondering if the chances of winning 're going down overnight due to something that occur in Tokyo.
You say you don't like the idea that a majority of of your Lottery gamblings are getting to support government programs? Where do you think a lot of the earnings out of your Mutual Fund are going? get more info No, to never support government programs, but alternatively to support your investment advisor's and the Mutual Fund manager's retirement? You take all the risk, you place in every one of the capital, but a lot of the earnings in the Mutual Fund go on the Fund manager along with 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 lot more fun and at least I know I'm gambling. But if you want to retire, look at other investments and help someone who would prefer to put in the time that may help you retire soon and retire rich. Financial freedom can be acquired to those who are willing to work and discover it, although not likely in case you want to count on such risky investment strategies as Mutual Funds.