Investing inside the Lottery over Mutual Funds???Even though I am not a smart investment advisor and never hold myself out as you, clients still 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 these are wise investments. Why? Among other reasons, all of them involve putting money into an investment vehicle over which they've little control concerning investment and timing and most people wind up choosing Mutual Funds his or her investment within diets. In fact, putting your hard earned 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 in a government-sponsored game of chance where I have little possibility of winning? Where millions of other everyone is putting in money in hopes of winning the big one? Where the majority of the money visits someone else along with the chances are strong that I will lose part or all my money?
Wait a moment - am i talking now in regards to the Lottery or about Mutual Funds? Hmm, a government sponsored program where I have little probability of winning. Sounds like a lot like Mutual Fund investment in a very 401(k) or IRA. After all, precisely what are my probability of retiring on Mutual Fund investments? Not very high, actually.
A year or so ago, I was playing a financial program about the radio going into work. The interviewer was asking the representative of a big Mutual Fund regarding the performance with the Fund. The Rep responded how the Mutual Fund had risen in value by typically 20% per year for the prior two years. But when the interviewer asked about the average return to the average investor in the Fund, the Rep responded how the average investor had actually lost 2% each year. Why? Because with the timing of going in and out in the market. Compare this on the Lottery, where everyone knows the exact probability of winning as well as the exact amount that may be won!
But what about the great tax features of putting my money right into a 401(k) or even an IRA? Yeah, right! Get a tax deduction if you are young and inside a relatively low tax bracket to help you pay taxes for the money you are taking out when you find yourself retired and in the higher tax bracket? Yeah, this is a good deal. Or, consider the difference in tax rates on capital gains and dividends if you are not in a very 401(k) or IRA versus the normal income tax rates around the earnings if you pull them from the 401(k) or IRA.
So now you are thinking that you can just spend money on Mutual Funds outside your 401(k) or IRA? Wrong again. Mutual Funds result in capital gains taxes if the Fund Managers trade them even though you don't see the bucks! You have to pay taxes even though the Fund might actually have gone down in value! And what about the lost opportunity price of that money you are now paying in taxes that one could have place into other investments? At least with the Lottery, you know the precise amount of taxes you can expect to pay in case you win and you only have to pay taxes in the event you do win.
Yes, you say, but 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 goes with a Mutual Fund. You have zero control over the stock market and neither does the Fund Manager. The market falls, does your Fund. At least you recognize that website you are gambling when you play the Lottery. You don't have the federal government, loan companies and your employer telling you that the Lottery is a great investment. And your employer doesn't go so far concerning match the sum you put in the Lottery like it might with 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 inside a Mutual Fund!
But surely, you say, there exists a 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 of the money you put into a Mutual Fund than there's losing all the money you put to the Lottery. But you are never planning to win big in the Mutual Fund. In fact, Mutual Funds are made to minimize your returns by developing 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 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, as you aren't wondering if the odds of winning 're going down overnight due to something that happens in Tokyo.
You say you never like the idea that most of your Lottery gamblings are going to support government programs? Where do you think almost all of the earnings out of your Mutual Fund 're going? No, to not support government programs, but rather to support your investment advisor's and the Mutual Fund manager's retirement? You take every one of the risk, you add in all the capital, but most of the earnings from the Mutual Fund go on the Fund manager along with your investment advisor. At least using the Lottery, the funds 're going to worthy causes, like the Arts.
Of course, I would never advise a client to rely for the Lottery because of their retirement. But neither would I advise them to depend on Mutual Fund investments. For my dollar, the Lottery is more fun and at least I know I'm gambling. But if you want to retire, have a look at other investments and help someone who would prefer to put in the time to assist you retire soon and retire rich. Financial freedom is available to those that are willing to work and learn about it, and not likely for those who want to rely on such risky investment strategies as Mutual Funds.