Even though I am not a smart investment advisor and never 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 within my profit sharing plan or monthly pension?
Contrary to popular belief, none of the are wise investments. Why? Among other reasons, they all involve putting money into a smart investment vehicle over which they've little control as to investment and timing and a lot people wind up choosing Mutual Funds for their investment within diets. In fact, putting your money into the Lottery would have been a 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 folks are putting in money in hopes of winning the important one? Where almost all of the money travels to someone else and the chances are strong that I will suffer part or all of my money?
Wait a moment - shall we be held talking now about 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 401(k) or IRA. After all, what are my probability of retiring on Mutual Fund investments? Not very high, actually.
A few years ago, I was playing a financial program on the radio going into work. The interviewer was asking the representative of a big Mutual Fund concerning the performance in the Fund. The Rep responded how the Mutual Fund had risen in value by about 20% per year for the prior a couple of years. But in the event the interviewer asked concerning the average return to the common 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 for the Lottery, where everyone knows the exact likelihood of winning as well as the exact amount that is won!
But what regarding the great tax advantages of putting my money in a 401(k) or an IRA? Yeah, right! Get a tax deduction when you're young and in the relatively low tax bracket in order to pay taxes on 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 inside a 401(k) or IRA versus the standard income tax rates about the earnings if you pull them out of 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 bring about capital gains taxes in the event the Fund Managers trade them while you don't see the money! You have to pay taxes however the Fund could actually have gone down in value! And what in regards to the lost opportunity price of that money that you are now paying in taxes you could have put into other investments? At read more least using the Lottery, you know the actual amount of taxes you can expect to pay in the event you win and also you only have to pay taxes in the event you do win.
Yes, you say, though 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 goes with a Mutual Fund. You haven't any control over stock market trading and neither does the Fund Manager. The market goes down, the same is true your Fund. At least you recognize that you will be gambling whenever you play the Lottery. You don't have the government, financial institutions and your employer telling you how the Lottery is a great investment. And your employer doesn't go so far about match the total amount you put in the Lottery want it might with 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 regarding the chances of success inside a Mutual Fund!
But surely, you say, there exists a better chance of making money in a very Mutual Fund than there is inside the Lottery? Hardly. There may be less of a probability of losing all of the money you put right into a Mutual Fund than there is certainly losing every one of the money you put in the Lottery. But you are never gonna win big inside a Mutual Fund. In fact, Mutual Funds are made to minimize your returns by developing a "balanced portfolio." If they could minimize your risk from the market itself, this might be okay. But the problem is that nobody can minimize the risk of the market without sophisticated hedge strategies which aren't typically used in Mutual Funds. At least while using Lottery, you have a probability of winning big. And you can sleep in the evening, when you aren't wondering if the odds of winning are going down overnight because of something that is situated Tokyo.
You say you never like the idea that a lot of of your Lottery gamblings 're going to support government programs? Where do you think a lot of the earnings out of your Mutual Fund are inclined? No, never to support government programs, but alternatively to support your investment advisor's and the Mutual Fund manager's retirement? You take every one 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 while using Lottery, the funds are going to worthy causes, such as the Arts.
Of course, I would never advise litigant to rely on the Lottery for their retirement. But neither would I advise them to depend on Mutual Fund investments. For my dollar, the Lottery is much more fun and at least I know I'm gambling. But if you want to retire, examine other investments and work with someone who will to put inside time to help you retire soon and retire rich. Financial freedom is accessible to those who're willing to work and learn about it, however, not likely for those who want to count on such risky investment strategies as Mutual Funds.