How did you go bankrupt?
Two ways. Gradually, then suddenly.
― Ernest Hemingway, The Sun Also Rises
Winning the lottery sounds like a dream come true, until you understand most people who win end up broke a few years later. (Most don’t invest their money properly to make it last.)
Everyone knows the possibility of making a large sum of money fast is a thrill, especially if you end up turning a small amount of money into a heap of cash. Maybe that’s why Americans on average spend over $1,000 a year on lottery tickets?
Now, you’re probably thinking that investing, especially saving for retirement, is completely different from buying a lottery ticket. Here’s the problem: your brain doesn’t really understand the difference.
When you win, whether it’s a $100 scratch-off prize, a Texas hold ’em pot or a great trade in your brokerage account, your brain rewards you. This psychological process is identical to gambling addiction. And it’s potentially just as destructive. Especially when it comes to investing or saving for retirement, gambling is a dangerous way to think Here’s why…
The way addiction works is just brutal. As Scientific American explains, over time the euphoria of winning decreases. People tend to risk more and more to recapture that feeling. And when a big bet goes wrong, you can get crushed by losses. Like a steamroller smashing your wealth into dust. Worse still, some “chase the high” by leveraging their investments on margin (and we’ve seen how that ends).
Which brings up an important question…
What makes these fast profit opportunities so tempting?
“Look! A shiny quarter! And there’s another one!”
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