Even though I am not a smart investment advisor and don't hold myself out jointly, clients always 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 monthly pension?
Contrary to popular belief, none of the are wise investments. Why? Among other reasons, all of them involve putting money into an investment vehicle over which they've got little control regarding investment and timing and quite a few people wind up choosing Mutual Funds as their investment within diets. In fact, putting your hard earned money into the Lottery would be a better investment.
Really? The Lottery as a great investment vehicle? Sound crazy? Gamble my retirement funds away in a government-sponsored game of chance where I have little probability of winning? Where millions of other individuals are putting in take advantage hopes of winning the large one? Where almost all of the money would go to someone else along with the chances are strong that I will forfeit part or all my money?
Wait one minute - are we talking now in regards to the Lottery or about Mutual Funds? Hmm, a government sponsored program where I have little chance of winning. Sounds like as being similar to Mutual Fund investment inside a 401(k) or IRA. After all, exactly what are my chances of retiring on Mutual Fund investments? Not very high, actually.
A year or two ago, I was paying attention to a financial program around the radio walking on into work. The interviewer was asking the representative of a large Mutual Fund in regards to the performance with the Fund. The Rep responded that the Mutual Fund had risen in value by typically 20% a year for the prior two years. But once the interviewer asked regarding the average return to the average investor within the Fund, the Rep responded how the average investor had actually lost 2% per 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 along with the exact amount that could be won!
But what concerning the great tax features 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 so that you can pay taxes for 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 if you are not inside a 401(k) or IRA versus the standard income tax rates around the earnings when you pull them out of your 401(k) or IRA.
So you are thinking that you should just purchase 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 even if you don't see the money! You have to pay taxes although the Fund could possibly have gone down in value! And what in regards to the lost opportunity tariff of that money you are now paying in taxes that you could have put into other investments? At least with the Lottery, you know the precise amount of taxes you will probably pay should you win and you also only have to pay taxes in the event you do win.
Yes, you say, nevertheless 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 no control over trading stocks and neither does the Fund Manager. The market decreases, does your Fund. At least you recognize that you are gambling once you play the Lottery. You don't have the us government, loan companies and your employer telling you that this Lottery is a superb investment. And your employer doesn't go so far about match the sum you put in the Lottery want it might along 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 in regards to the chances of success in the Mutual Fund!
But surely, you say, there exists a better possibility of making money inside a Mutual Fund than there is in the Lottery? Hardly. There may be less of a chance of losing all the money you put right into a Mutual Fund than there exists losing every one of the money you put in the Lottery. But you are never planning to win big inside a Mutual Fund. In fact, Mutual Funds are made to minimize your returns by creating a "balanced portfolio." If they could minimize your risk in the market itself, this might be okay. But the problem is nobody can minimize the risk with the market without sophisticated hedge strategies which are not typically utilized in Mutual Funds. At least with the Lottery, you have a chance of winning big. And you can sleep through the night, since you aren't wondering if the likelihood of winning are going down overnight as a consequence of something that occurs in Tokyo.
You say you do not like the idea that most of your Lottery gamblings are going to support government programs? Where do you think the majority of the earnings out of your Mutual Fund 're going? No, never to support government programs, but to support your investment advisor's and the Mutual Fund manager's retirement? You take all the risk, you place in every one of the capital, but the majority of the earnings from your Mutual Fund go towards the Fund manager along with your investment advisor. At least with all the Lottery, the funds 're going to worthy causes, for example the Arts.
Of course, I would never advise a customer to rely for the Lottery for his or her retirement. But neither would I advise them to more info depend upon 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, have a look at other investments and use someone who would prefer to put in the time that may help you retire soon and retire rich. Financial freedom is accessible to those who're willing to work and understand it, but not likely for many who want to depend upon such risky investment strategies as Mutual Funds.