HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
Your State Lottery
Before there were state lotteries, the mob ran the “numbers”. The payoff was about 650:1 on a number from 000-999. The winning number for the game had to be 1) generated at random, 2) beyond the manipulation of the mob, and 3) published where anyone could look it up. It was the final three numbers of the total number of shares traded daily on the New York Stock Exchange.
What makes me write on this now is that for my birthday earlier this month one of my gifts was a $5 “scratcher” ticket. You scratch off the 5 numbers at the top of the card. These are your winning numbers. You then scratch off 20 numbers to see if there are any matches. If there are, your winnings are listed below that particular number. On this particular card, the winnings range from $5 to $100,000.
I was a winner (but won’t say the exact amount)!!
In Missouri, for wins over $600, you must redeem the ticket at one of the lottery offices. For wins up to $5K, if you provide a Social Security number, state taxes (of course), but not federal taxes, are withheld. If you don’t provide a SS number, state and fed taxes are withheld. For wins above $5K, state and fed taxes are withheld whether you provide a SS number or not.
There is a lottery ticket dispensing machine in the office where you redeem the winning tickets. One elderly lady was in there feeding the machine, scratching the tickets to her heart’s content, as fast as she could move her quarter across the card (see below).
While we were waiting for our winning card to be processed, a man comes in. He is clearly a regular; calling the office personnel by name. He cashes a winner; turns around, walks 10 feet, and starts to feed the money he just won into the ticket dispensing machine. It was totally, over-the-top, surreal.
If a cruel, despotic ruler wanted to create the most regressive tax he could think of, that fell disproportionately on the poor, the ones who could least afford it, that almost completely spared his rich friends who help keep him in power, and yet one that the people wanted, that they clamored for, that was actually addictive (Think about that: the politician’s ultimate dream, an addictive tax), they would create—the lottery.
Voltaire (Francois Marie Arouet) called the lottery “a tax on stupidity”.
I once heard someone say “The lottery is the only chance a working person has to make it big, to get ahead”. I think you have a far better chance of getting ahead if you work hard, save your money, stay out of debt—and don’t play the lottery!!
The Missouri State Lottery pays out 63% of the take as prizes (many states pay out less). Think about it: The mob not only gave better odds, but it is safe to say they didn’t report your winnings to the IRS or withhold state or federal taxes.
RMD
Barron’s, 3/28/11: In an article about Greece’s economic difficulties. “If history over the last 50 years is any guide, when politicians need cash after raising taxes, the next-most-expedient measure may be to legalize certain outlawed activities in order to raise badly needed funds.
Time and again, strapped governments widen the scope of legalized gambling—considered a voluntary tax—in an attempt to mitigate increased levies”.
Wall Street Journal, 3/22/11. “Existing home sales dropped 9.6%, and the median price was $156K, the lowest since February, 2002 (RMD: a 30% drop from the peak in late 2005)…The housing market is still clearly years away from staging any meaningful recovery…Low prices in many markets reflect a new reality as sellers finally give in and reduce asking prices for their homes in hopes of a fast deal”.
Barron’s, 3/28/11. Single family new home sales fell in February to a seasonally-adjusted annual rate of 250K, the lowest on record.
RMD comment:
1) “Real estate is the best investment you can ever make, it never goes down”. Myth.
2) “Borrow all you can to make an investment”. Myth.
3) “Buy and hold forever”. Myth.
4) The residential real estate market is still dead. Think what will happen when interest rates rise.
The US dollar continues to weaken against both other paper currencies (see chart of the US Dollar Index, page 4) and against the precious metals. I again suggest that the core position of your entire investment portfolio be gold and silver bullion coins in your personal possession.
Barron’s, 3/21/11. A nice article highlights the work of Wharton Professor Jeremy Siegel, who wrote Stocks for the Long Run.
There is a strong tendency for mean reversion. Periods of worse-than-average returns are followed by stretches of better-than-average returns, and vice versa. “Through year-end 2010, 30-year returns on Treasuries beat those on stocks for the first time ever…Bonds as an asset class have been set up for poor returns going forward…The current period is not unlike the late 1950s and 1960s, when bond yields were low, yet growing inflation was ready to inflict bondholders with their single worst performance over the next two to three decades”.
RMD comment: As I have been stressing for some time; 1) decrease your allocation to fixed-income, and 2) keep the maturities short.
This just further reinforces, from a different perspective, that point
A friend’s 25 year old son was caught speeding. He could either 1) pay the $125 fine, or 2) pay $400 to attend a driver’s safety course. If he did #2, the violation would never appear on his record (and thus not have to be reported to his insurance company), and there would be no points on his license. He chose #2.
Son Michael once said “Dad, a DWI/DUI could easily cost a person $5-10K. If there is a 1% chance of getting pulled over, each time a person drives with alcohol theoretically costs them $50-100”.
RMD comment: Observing the traffic laws and not driving with any ETOH in your system is not only safer but will save you money (and potential embarrassment).
When I was at the Mass General, there was a guy who worked part-time in the Emergency Ward. He was a BC (Boston College) grad, and was getting his MBA in hospital administration.
To make a few extra bucks, he also sold football cards for the bookies. A card was $1. The object was not to pick the winner; you had to beat the spread. Ex: Say you chose the Steelers, who were favored by 14 over the Cardinals. Even if the Steelers won the game, if they didn’t do it by more than 14, you lost. If you picked 4 of 4, you won $10. If you picked 10 of 10, you won $200 (cousin Tony remembers the numbers a little differently, but these are close).
I once asked this fellow how many cards he sold a week. He said about 300. He then smiled, leaned over, and said “Doc, I look over the cards, and the ones that I think are poor choices, usually about half of them, I don’t turn them in, I finance them myself”.
Now that can be hazardous to your health.
There are maladies associated with repetitiously performing the same activity. Ex: “tennis elbow”. If the elderly lady described above developed problems due to holding a quarter in her hand and repeatedly rubbing it back and forth across a scratcher card, it might make a case report in the New England Journal as “lottery hand”.
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