Even though I am not a smart investment advisor and not hold myself out as you, 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 monthly pension?
Contrary to popular belief, none of those are wise investments. Why? Among other reasons, they all involve putting money into a smart investment vehicle over which they've little control about investment and timing and a lot people end up choosing Mutual Funds for their investment within these plans. In fact, putting your dollars into the Lottery would be a better investment.
Really? The Lottery as a smart 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 most of the money would go to someone else as well as the chances are strong that I will forfeit 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 potential for winning. Sounds like similar to Mutual Fund investment in a 401(k) or IRA. After all, exactly what are my chances of retiring on Mutual Fund investments? Not very high, actually.
A few years ago, I was paying attention to a financial program about the radio going into work. The interviewer was asking the representative of a big Mutual Fund in regards to the performance of the Fund. The Rep responded the Mutual Fund had risen in value by about 20% each 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 how the average investor had actually lost 2% a year. Why? Because of the timing of moving in and out from the market. Compare this on the Lottery, where everyone understands the exact odds of winning and also the exact amount that is won!
But what about the great tax benefits of putting my money in to a 401(k) or even an IRA? Yeah, right! Get a tax deduction when you're young and in a relatively low tax bracket in order to pay taxes about the money you take out if you are retired and in the higher tax bracket? Yeah, what 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 normal income tax rates on the earnings when you pull them from the 401(k) or IRA.
So congratulations, you are thinking that you can just invest in Mutual Funds outside your 401(k) or IRA? Wrong again. Mutual Funds lead to capital gains taxes once the Fund Managers trade them even when you don't see the bucks! You have to pay taxes however the Fund may actually here have gone down in value! And what regarding the lost opportunity price of that money that you're now paying in taxes that you might have put in other investments? At least with all the Lottery, you know the precise amount of taxes you will pay should you win and also you only have to pay taxes should you do win.
Yes, you say, though the Lottery is gambling and I have zero 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 stock market trading and neither does the Fund Manager. The market fails, so does your Fund. At least you recognize you are gambling once you play the Lottery. You don't have the government, finance institutions and your employer telling you the Lottery is an excellent investment. And your employer doesn't go so far regarding match the amount you put into the Lottery as it might using your 401(k). Nobody is lying to you about the Lottery being gambling, but those in positions of authority are lying to you about the chances of success in a very Mutual Fund!
But surely, you say, there is a better chance of making money in a Mutual Fund than there is inside Lottery? Hardly. There may be less of a possibility of losing all of the money you put in a Mutual Fund than there is losing all the money you put in to the Lottery. But you are never going to win big in a Mutual Fund. In fact, Mutual Funds are made 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 that nobody can minimize the risk of the market without sophisticated hedge strategies that aren't typically utilized in Mutual Funds. At least using the Lottery, you have a probability of winning big. And you can sleep during the night, because you aren't wondering if the probability of winning are inclined down overnight as a result of something that occur in Tokyo.
You say you don't like the idea that most of your Lottery gamblings are inclined to support government programs? Where do you think a lot of the earnings out of your Mutual Fund are getting? No, not to support government programs, but alternatively to support neglect the advisor's as well as the Mutual Fund manager's retirement? You take all the risk, you set in most of the capital, but the majority of the earnings through the Mutual Fund go to the Fund manager and your investment advisor. At least with the Lottery, the funds are inclined to worthy causes, like the Arts.
Of course, I would never advise a customer to rely for 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 should you want to retire, take a look at other investments and help someone who will to put within the time that will help you retire soon and retire rich. Financial freedom is available to those who will be willing to work and learn about it, although not likely in case you want to depend on such risky investment strategies as Mutual Funds.