Help With a New Year's Resolution

People want to save money (for education, for retirement) but find it difficult and sometimes scary.  Is putting money in the stock market the same as gambling?  Let’s take a look.

Here is a story from 2015 reporting that Americans spent $70 billion on lotteries the prior year, “more than $230 for every man, woman and child in [the 43] states where the lottery is legal.”  This amount varied from $36 in North Dakota, to nearly $800 per capita per year in Rhode Island.  (It could have something to do with access to high-paying petroleum jobs in North Dakota while the Rhode Islanders might catch a glimpse of all the rich people’s yachts and want to join them – or maybe not.)

To update the information a bit, I found a  CNN Money piece from last year giving the total lottery spending of $80 billion.  That would move the current average closer to $260 per person per year.

I’ve written about lotteries before, about what a bad deal they are, how the states consider them voluntary taxes, how you get better odds from casinos and how they generally prey upon the poor.  This is well reported on the news and should not surprise anyone.  But the bets are small and seem affordable even if the odds are terrible.  You can get rich quick but are much more likely just to be making a weekly donation to your state’s tax revenue.

What is the alternative?  If everyone took their (average) $260 per person and put it into a conservative investment portfolio, the results would add up surprisingly well.  After 10 years such a fund could have grown to over $3,600 per person or about $11,000 for a family of three.

To get those numbers I used a theoretical mix of real index mutual funds with 62% invested in stocks, 32% in bonds and the rest in a money market fund.  This is a very conservative and reasonable mix for a younger person (30-45).  It is also highly diversified and automatic by virtue of being an index fund.  When I looked up the returns for that mix over the last 10 years, the rate was 6.1% compounded annually.  Remember, that 10-year period includes 2008 when the stock market was seriously tanking and 2017 when it was soaring.  There was much variability, which can be scary, but the overall trend over long periods has historically been positive.

The question is whether it’s smarter to invest your money at those pathetically poor lottery odds – 10,000 to 1 on a simple pick 4 card or about 290 million to 1 for the Power Ball – or to actually have (in your pocket, so to speak) $11,000 for your family.  Making the right decision shows strong behavior in critical thinking and discipline.

Other sources of potential savings with no downside include homeopathic remedies.  After I mentioned them in an essay before Christmas, a reader sent this link to CBS with this excellent summary.  “The market for homeopathic ‘medicines’ has grown to $3 billion, according to FDA. These remedies are often sold next to bona fide treatments like Tylenol and aspirin despite little evidence they actually succeed at treating anything at all. In fact, homeopathic products have sometimes been ripped from shelves due to deleterious side effects, as when more than 100 people lost their sense of smell using products with zinc gluconate in 2009, or when a brand of teething tablets was linked to seizures and death in infants and children.”  Throw in another $28 billon spent on nutritional supplements and we are looking at the potential for big bucks in your own account, not gambled away on the lottery or outright thrown away on ineffective medicine.

More Easy Resolutions for 2017

Last time I got through the first three of seven science and health myths that need to go.  The source story argued that researchers have shown them to be false so often that it’s time to pull the plug and stop believing them.  This provides a great opportunity to make a few constructive and very doable New Year’s resolutions.  Since most of the effort would be to stop believing and acting like you believe in these debunked ideas, success should come easily.

Last time I covered the myths about how you can’t depend only on exercise for weight loss, misunderstanding about global warming and antibiotic abuse.  The remaining four concern: will power, dangers of GMOs, homeopathy and something called power posing. 

Beginning with will power, “psychologists are increasingly finding that willpower alone is an ineffective strategy.” They say it’s not something you develop or practice; it’s something you either have to some degree or not.  That seems like a formula to let most of us off the hook for a lack of self-control in the face of temptation. It could explain why most resolutions fail.

The authors really draw no conclusion in the article except to imply that we have been expecting too much by asking people to control their diets (among other things).  But one solution is to work on the environment.  Eat more meals at home and don’t have the junk food and salty snacks available, then the will power is needed only at the grocery store – or have someone else shop for you.  That might work.  Although to completely give up on will power seems a little fatalistic.

The next myth declares GMOs are harmful to humans.  Not so.  “Earlier this year National Academy of Sciences released a sweeping report on GM crops that should’ve put these fears to rest. It was an independent look at all the evidence to date, and it found, much as past reports have, that GM crops are just as safe to eat as their conventional counterparts.”

There is a lot of fear mongering going on in the press and by certain advertisers playing on this misunderstanding.  The evidence is clear, but people continue to spend more money than necessary for groceries, while less fortunate people in other countries are starve because their governments endorse this myth and ban GMO crops.

The next myth is that “Homeopathy is a real medical treatment.”  This is an easy one.  Stop throwing away money on false cures.  For a more in-depth treatment of this subject including the history and fallacies behind the theory, see this youtube video.

 “‘Power posing’ will make you act powerful” comes as the final myth.  The notion arose from a 2010 study conducted at Columbia University reporting that making yourself look big by stretching out made you feel more powerful and take greater risks.  They actually measured higher levels of the hormone testosterone in some of the participants.

Unfortunately, follow-up studies with larger sample sizes failed to replicate these findings.  Last year one of the researchers from the original project team withdrew her support, conceding that the effects they detected were not real.

In summary, maybe I will resolve in 2017 to not use power posing as a shortcut to feeling more powerful.  I will not spend a penny on homeopathic medicine and will eat GMO products with reckless abandon.  I can do all these without depending on will power.  In fact it will take about as much will power as my usual sacrifice of giving up spinach for lent!  Happy New Year.