By Craig Erwin, Ph.D.
Each year Americans spend about $70 billion on the lottery, one form of gambling, even though they are more likely to be struck by lightning than to win. Another form of gambling is sports betting. Americans spend between $200 and $400 per year on sports betting, where only 3-5% actually make money.
Gambling has been around for centuries, but cryptocurrencies offer a new twist on gambling. Buying cryptocurrencies is similar to buying lottery tickets because it gives you a very slim chance to land a big windfall. But for the lottery, sports betting, and crypto, the chances that you’ll hit the jackpot are slim and the chances that you will lose everything are good.
Why is gambling so appealing? It gives you hope of getting something for nothing. If you are approaching retirement and have no savings, gambling might seem like your only hope to pull off a miracle. But the odds are against that happening.
Although lotteries and sports betting have been around for centuries, cryptocurrency has only been around since 2009. That makes it easy for crypto cheerleaders to claim that it is new and different. But the cryptocurrency market looks like a giant Ponzi scheme as crypto companies experience a barrage of withdrawals and massive layoffs, go bankrupt, and see their share prices and crypto prices plummet. What is clear is that cryptocurrency owners are losing lots of money, and in many cases, all of their money.
What can you do if you want to improve your chances of accumulating wealth for retirement? You can invest in mutual funds where, unlike with gambling, the odds are in your favor if you buy and hold. If you invest in a broadly diversified mutual fund (e.g., a mutual fund with at least dozens of stocks), you’ll have a 68% chance of making a profit in one year. I like those odds, but it’s easy to make the odds even more favorable – just hold onto your stocks longer. If you hold a mutual fund three years instead of one, you’ll have a 75% chance of earning a positive return. In ten years you’ll have an 88% chance of a positive return. Those are good odds.
Gambling should not have any place in your retirement plan. Instead, set up a retirement savings plan by investing in a broadly diversified index stock fund and save and invest regularly (for decades, if possible). If you start in your twenties, you can fairly easily accumulate well over a million dollars. That sure beats losing everything.
How are you preparing for retirement? Is your approach enabling you to accumulated sufficient wealth to retire? Do you spend much money gambling? If so, have you made money or lost money?
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