I AM NOT an investment advisor and never hold myself out as one, however my clients continue to ask me how to better prepare for retirement. Should I do an IRA? Should I max out my 401(k) contribution? Should I put more in my profit sharing plan or pension plan? What do I tell them? You may as well invest in the Lottery!

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.

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