David Lerner Associates: Gambling with your Retirement
Investing (when done right) is a good thing. Gambling, generally speaking, is a bad thing, unless it’s done for entertainment purposes with money that you don’t mind losing.
Let’s look at the dictionary definition of these words:
Gamble: "To stake or risk money or anything of value on the outcome of something involving chance."
Invest: "To put money to use by purchase or expenditure in something offering profitable returns."
Some investments may well qualify as a gamble based on that definition, and it’s never a wise choice to gamble with your retirement fund. Most people in retirement are dependent on the success of their investments. According to the FDIC, current average savings account rates are a measly 0.06%, and many banks have rates as low as 0.01%. So, it’s not surprising that people are tempted to try riskier investments to earn a decent rate of return.
Some element of investment risk is necessary to earn the growth necessary to stay ahead of inflation, but don’t make investments without being fully cognizant of their downsides. Risk management is critical in retirement because drawing money out of your accounts to live on can amplify the impact of downturns, and your near-term spending needs mean that you don’t have as much time to recover from losses as when you were still working.
While a happy retirement is not defined solely by finances, money has a big influence on your state of mind and stress levels. For one thing, it dictates your level of comfort and the number of options you have.
Try the Sensible Middle Ground of Investing
When faced with too-good-to-be-true odds and returns, it may be easy to go “all-in” on an investment. But the truth of the matter is that the old adage, “If it looks like it’s too good to be true, then it is,” really applies here. How many times have we seen the catastrophic results of a reckless gambling mentality in investments?
Gamblers are risk-takers by nature. They seek out the high risk/high reward situation. Investors should be diametrically opposed to this philosophy, making educated decisions and saving for long term goals such as retirement.
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.
Member FINRA & SIPC