Even though I am not a great investment advisor and don't hold myself out as one, clients always 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 in my profit sharing plan or type of pension?
Contrary to popular belief, none of the are wise investments. Why? Among other reasons, each of them involve putting money into a smart investment vehicle over which they have little control as to investment and timing and most people wind up choosing Mutual Funds his or her investment within diets. In fact, putting your 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 people are putting in money in hopes of winning the big one? Where most of the money travels to someone else and the chances are strong that I will suffer part or every one of my money?
Wait a minute - are we talking now about the Lottery or about Mutual Funds? Hmm, a government sponsored program where I have little chance of winning. Sounds like nearly the same as Mutual Fund investment inside a 401(k) or IRA. After all, what exactly are my likelihood of retiring on Mutual Fund investments? Not very high, actually.
A few years ago, I was hearing a financial program around the radio going into work. The interviewer was asking the representative of a sizable Mutual Fund regarding the performance of the Fund. The Rep responded how the Mutual Fund had risen in value by around 20% each year for the prior 2 yrs. But in the event the interviewer asked in regards to the average return to the typical investor in the Fund, the Rep responded that the average investor had actually lost 2% annually. Why? Because from the timing of moving in and out of the market. Compare this to the Lottery, where everyone knows the exact chances of winning and the exact amount that is won!
But what regarding the great tax benefits of putting my money right into a 401(k) or perhaps an IRA? Yeah, right! Get a tax deduction when you are young and in a very relatively low tax bracket so that you can pay taxes about the money you are taking out when you are retired and in a very higher tax bracket? Yeah, which is a good deal. Or, think about the difference in tax rates on capital gains and dividends if you are not in a very 401(k) or IRA versus the standard income tax rates around the earnings if you pull them from the 401(k) or IRA.
So you now are thinking that you should just put money into Mutual Funds outside your 401(k) or IRA? Wrong again. Mutual Funds lead to capital gains taxes when the Fund Managers trade them even if you don't see the cash! You have to pay taxes even though the Fund could actually have gone down in value! And what concerning the lost opportunity cost of that money that you will be now paying in taxes you could have place into other investments? At least with all the Lottery, you know the exact amount of taxes you will pay should you win so you only have to pay taxes in the event you do win.
Yes, you say, but 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 with a Mutual Fund. You have zero control over the stock exchange and neither does the Fund Manager. The market goes down, so does your Fund. At least you recognize that you will be gambling once you play the Lottery. You don't have government entities, loan companies and your employer telling you the Lottery is a good investment. And your employer doesn't go so far concerning match the amount you put in the Lottery enjoy 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, there is a better potential for making money in 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 most of the money you put in the Lottery. But you are never likely to win big in the Mutual Fund. In fact, Mutual Funds are meant to minimize your returns by developing a "balanced portfolio." If they could minimize your risk with the market itself, this might be okay. But the problem is that nobody can minimize the risk from the market without sophisticated hedge strategies which are not typically used in Mutual Funds. At least using the Lottery, you have a potential for winning big. And you can sleep at night, since you aren't wondering if the odds of winning are inclined down overnight due to something that occurs in Tokyo.
You say that you do not like the idea that most of your Lottery gamblings 're going to support government programs? Where do you think a lot of the earnings from your Mutual Fund are going? No, not to support government programs, but alternatively to support ignore the advisor's along with the Mutual Fund manager's retirement? You take all of the risk, you place in most of the capital, but almost all of the earnings from the Mutual Fund go to the Fund manager as well as your investment advisor. At least with all the Lottery, the funds are inclined to worthy causes, for example the Arts.
Of course, I would never advise a client to rely around 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 a bit more fun and at least I know I'm gambling. But in case you want to retire, look at other investments and work with someone who would like to put within the time to more info assist you retire soon and retire rich. Financial freedom can be acquired to those who will be willing to work and discover it, however, not likely for those who want to count on such risky investment strategies as Mutual Funds.