Investing in the Lottery over Mutual Funds???Even though I am not an investment advisor and don't hold myself out jointly, clients continue to ask me what to do to plan for retirement. Should I max out my 401(k) contribution? Should I do an IRA? Should I put more during my profit sharing plan or monthly pension?
Contrary to popular belief, none of such are wise investments. Why? Among other reasons, each of them involve putting money into an investment vehicle over which they have got little control regarding investment and timing and quite a few people wind up choosing Mutual Funds as their investment within these plans. In fact, putting your dollars into the Lottery would be a better investment.
Really? The Lottery as a good investment vehicle? Sound crazy? Gamble my retirement funds away inside a government-sponsored game of chance where I have little chance of winning? Where millions of other everyone is putting in cash in hopes of winning the top one? Where most of the money visits someone else and the chances are strong that I will miss part or most of my money?
Wait a moment - shall we be talking now concerning the Lottery or about Mutual Funds? Hmm, a government sponsored program where I have little probability of winning. Sounds like similar to Mutual Fund investment in a very 401(k) or IRA. After all, exactly what are my chances of retiring on Mutual Fund investments? Not very high, actually.
A couple of years ago, I was hearing a financial program for the radio going into work. The interviewer was asking the representative of a sizable Mutual Fund concerning the performance of the Fund. The Rep responded that this Mutual Fund had risen in value by an average of 20% annually for the prior two years. But if the interviewer asked about the average return to the common investor inside Fund, the Rep responded the average investor had actually lost 2% annually. Why? Because in the timing of moving in and out in the market. Compare this to the Lottery, where everyone should know the exact probability of winning and the exact amount that might be won!
But what about the great tax features of putting my money into a 401(k) or an IRA? Yeah, right! Get a tax deduction when you are young and in the relatively low tax bracket in order to pay taxes on the money you are taking out if you are retired and in a very higher tax bracket? Yeah, this is a good deal. Or, take into account the difference in tax rates on capital gains and dividends in case you are not in a 401(k) or IRA versus the ordinary income tax rates around the earnings once you pull them through your 401(k) or IRA.
So now you 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 in the event the Fund Managers trade them even if you don't see the amount of money! You have to pay taxes although the Fund may actually have gone down in value! And what concerning the lost opportunity cost of that money you are now paying in taxes that you could have put into other investments? At least with all the Lottery, you know the precise amount of taxes you will pay in case you win so you only have to pay taxes in case you do win.
Yes, you say, however 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 have zero control over trading stocks and neither does the Fund Manager. The market falls, so does your Fund. At least you recognize that you are gambling whenever you play the Lottery. You don't have government entities, loan companies and your employer telling you the Lottery is an excellent investment. And your employer doesn't go so far concerning match the amount you put to the Lottery as it might using your 401(k). Nobody is lying to you concerning the Lottery being gambling, but those in positions of authority are lying to you about the chances of success in a 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 possibility of losing all of the money you put in to a Mutual Fund than there's losing all 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 that nobody can minimize the risk in the market without sophisticated hedge strategies which aren't typically employed 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 chances of winning are getting down overnight due to something that occurs in Tokyo.
You say you never like check here the idea that most of your Lottery gamblings are getting to support government programs? Where do you think almost all of the earnings from the Mutual Fund are inclined? No, never to support government programs, but alternatively to support neglect the advisor's along with the Mutual Fund manager's retirement? You take most of the risk, you set in all of the capital, but the majority of the earnings from the Mutual Fund go for the Fund manager and your investment advisor. At least while using Lottery, the funds 're going to worthy causes, for example the Arts.
Of course, I would never advise a client to rely about the Lottery for 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 if you want to retire, examine other investments and assist someone who is willing to put within the time that will help you retire soon and retire rich. Financial freedom is accessible to those that are willing to work and find out about it, but not likely in case you want to depend on such risky investment strategies as Mutual Funds.