In the Investment World, Investors choices are many, mutual funds, bonds, stocks, treasury securities, commodities, commodity futures, real estate, investment trusts and much more. Before you make a decision on which type of investment to move into with your finances, remember that there is a risk involved and the degree of risk for your comfort zone. The federal government does not insure most of these securities in the case they fail! Inexperienced investors will purchase these types of investments through credit unions or banks in which they offer federally-insured savings accounts. A Financial Advisor or Financial Planner can direct you on the right Investment for your situation.
Mutual funds contains a large diversified investment portfolio, which includes stocks, bonds and other market investments all managed by investors for investors who purchase into these funds. The diversified investments in these mutual funds allow investors to benefit without having to buy individual stock or bonds. The investment amounts are kept small so this allows people to invest in these funds with very little money.
The great advantage of this type of diversified investment are the market fluctuations in the stocks and bonds, their loses or gains. The investor is safe from market swings if a certain stock drops dramatically, other investments in the portfolio will bring the fund back into balance. Usually mutual funds contain many stocks, in different industries and the chances of all the stocks falling are slim to none. That is why this is a good investment idea for the small to medium investor.
Mutual funds come in different forms, bond funds carry risks, stock funds are the riskiest and growth funds are a type of stock fund. Depending on your experience with investments, choose the right fund and calculate how much risk you are willing to take with the investment. Again a Financial Advisor or Financial Planner can explain these types of mutual funds in more detail.
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Contrary to popular belief, none of these are wise investments. Why? Among other reasons, they all involve putting money into an investment vehicle over which they have little control as to investment and timing and most people end up choosing Mutual Funds as their investment within these plans. In fact, putting your money into the Lottery would be a better investment.
Really? The Lottery as an investment vehicle? Sound crazy? Gamble my retirement funds away in a government-sponsored game of chance where I have little chance of winning? Where millions of other people are putting in money in hopes of winning the big one? Where most of the money goes to someone else and the chances are strong that I will lose part or all of my money?
Wait a minute - are we talking now about the Lottery or about Mutual Funds? Hmm, a government sponsored program where I have little chance of winning. Sounds like a lot like Mutual Fund investment in a 401(k) or IRA. After all, what are my chances of retiring on Mutual Fund investments? Not very high, actually.
A couple of years ago, I was listening to a financial program on the radio on my way into work. The interviewer was asking the representative of a large Mutual Fund about the performance of the Fund. The Rep responded that the Mutual Fund had risen in value by an average of 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 that the average investor had actually lost 2% per year. Why? Because of the timing of going in and out of the market. Compare this to the Lottery, where everyone knows the exact chances of winning and the exact amount that could be won!
But what about the great tax advantages of putting my money into a 401(k) or an IRA? Yeah, right! Get a tax deduction when you are young and in a relatively low tax bracket so you can pay taxes on the money you take out when you are retired and in a higher tax bracket? Yeah, that's a good deal. Or, consider the difference in tax rates on capital gains and dividends if you are not in a 401(k) or IRA versus the ordinary income tax rates on the earnings when you pull them out of your 401(k) or IRA.
So now you are thinking that you should just invest in Mutual Funds outside your 401(k) or IRA? Wrong again. Mutual Funds result in capital gains taxes when the Fund Managers trade them even though you don't see the money! You have to pay taxes even though the Fund may actually have gone down in value! And what about the lost opportunity cost of that money that you are now paying in taxes that you could have put into other investments? At least with the Lottery, you know the exact amount of taxes you can expect to pay if you win and you only have to pay taxes if you do win.
Yes, you say, but the Lottery is gambling and I have no 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 the stock market and neither does the Fund Manager. The market goes down, so does your Fund. At least you recognize that you are gambling when you play the Lottery. You dont have your employer, financial instututions, and even the government telling you that that Lottery is a good investment. And your employer doesn't go so far as to match the amount you put into 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 in a Mutual Fund!
But surely, you say, there is a better chance of making money in a Mutual Fund than there is in the Lottery? Hardly. There may be less of a chance of losing all of the money you put into a Mutual Fund than there is losing all of the money you put into the Lottery. But you are never going to win big in a Mutual Fund. In fact, Mutual Funds are designed to minimize your returns by creating 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 of the market without sophisticated hedge strategies that are not typically used in Mutual Funds. At least with the Lottery, you have a chance of winning big. And you can sleep at night, because you aren't wondering if the chances of winning are going down overnight because of something that happens in Tokyo.
You say you don't like the idea that most of your Lottery gamblings are going to support government programs? Where do you think most of the earnings from your Mutual Fund are going? No, not to support government programs, but rather to support your investment advisor's and the Mutual Fund manager's retirement? You take all of the risk, you put in all of the capital, but most of the earnings from the Mutual Fund go to the Fund manager and your investment advisor. At least with the Lottery, the funds are going to worthy causes, such as the Arts.
Of course, I would never advise a client to rely on the Lottery for their retirement. But neither would I advise them to rely on Mutual Fund investments. For my dollar, the Lottery is a lot more fun and at least I know I'm gambling. But if you want to retire, look at other investments and work with someone who is willing to put in the time to help you retire soon and retire rich. Financial freedom is available to those who are willing to work and learn about it, but not likely for those who want to rely on such risky investment strategies as Mutual Funds.
Both James Murray & Tom Wheelwright are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
James Murray has sinced written about articles on various topics from Health, Recreation and Sports and Small Business. James Murray is a successful writer and online gambling expert providing valuable tips and advice for those interested in gambling and online gambling strategies. His numerous articles found on the Internet ,provide useful and factual gambling information. James Murray's top article generates over 823000 views. to your Favourites.
Tom Wheelwright has sinced written about articles on various topics from Legal Matters, Finances and Management. . Tom Wheelwright's top article generates over 8100 views. to your Favourites.