The Power of $1
December 5, 2011
Brian C. Rogers of T. Rowe Price is worried about the "irrational quest for safety" (see story, page one) that investors appear to be obsessed with, at the moment.
But if you think that investors are being irrational in putting their bucks into Treasury bonds that only return 2% a year over the next decade, just take a look at what some of the best wealth managers in the business are investing in.
This is a game of chance (much like the stock market, some wags will argue) run by 33 member lotteries from Arizona to the Virgin Islands.
Last week, of course, three wealth managers from Greenwich, Conn., landed a $254.2 million jackpot. They'll take home $103.6 million, after taxes. Some of that will go to charity.
But it's ironic and more than a little telling that even wealth managers feel the drive to "diversify" their search for above-market returns to the checkout counter at their local BP station. And that the payback came without any strategic thinking ... or worry.
They bought a Quick Pick ticket for $1. The sequence of six numbers they held they did not choose.
The point here is that every mutual fund investor should be putting $1 a month into the potential of a Powerball payoff.
The odds are extremely long-on the order of 195 million to 1-that that single dollar will produce a winning ticket for the holder, directly.
But the real beneficiaries are the states that make up the joint lottery. If, 40% of ticket sales go to winnings and 60% become state revenue, that represents a take of $424 million in this case for the states.
With pretty much every state from California to Connecticut facing deep budget cuts, voluntary self-taxation in the guise of investment diversification can only help. In Connecticut's case, a $3.4 billion deficit was erased only by a $3.7 billion tax hike, largest in state history.
Heading off heavy-duty annual or biennial ax-cutting can only help return stability to governments and the funds which invest in them.
Either way, ticketholders win.