Young poker players and their winnings?
 

I just thought that I'de double check and see if anyone had some insights that I'm missing. I'm extreemly fortunate to be a young successful profesional poker player. I did some basic research on how to invest my winnings and decided on the Vanguard 500 Index Fund. I read good things about it and once I got past $100K invested they bumped it up to admiral shares lowering the fees.

Some questions:
-Would it be a good idea to diversify outside of just a single fund? How important is this?
-Are there any investments that have a higher average return that I might be missing? I am completely risk neutral and don't mind large fluctuations as long as I am receiving a higher expected rate of return as a result.

Also please note that my time is limited because I am still in school and am looking for investments that don't require a significant amount of time.

Re: Young poker players and their winnings?
 

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-Would it be a good idea to diversify outside of just a single fund? How important is this?
-Are there any investments that have a higher average return that I might be missing? I am completely risk neutral and don't mind large fluctuations as long as I am receiving a higher expected rate of return as a result.

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Congratulations on your success, and having over $100K at Vanguard.

Vanguard has index funds around the world, and by diversifying, you should get a higher expected return with a similar amount of risk. I'd suggest something like this:

20% US Total Stock Market Index
20% US Large Cap Value Index*
10% US Small Cap Index*
10% US Small Cap Value Index*
10% REIT Index
10% European Index
10% Asia/Pacific Index
10% Emerging Markets Index*

The funds with a * should have an expected return higher than the S&P 500 Index fund. The others should have expected returns about the same as the S&P 500.

I'm not sure if you lose Admiral status with all these funds, but even if you do your expected return is higher than the few basis points of expense ratio you'd give up.

If you moved to this allocation, you may have a capital gain when you sell the S&P 500. You could keep the first 20% in the S&P 500 fund instead of that Total Stock market fund; they overlap quite a bit. The Total Stock market fund is more tax efficient over the long haul.

I know you said you don't have a lot of time, but if you could real one book I'd suggest The Four Pillars of Investing by William Bernstein. I think this allocation or something a lot like it is from there.

If not, you could reallocate to this mix, and not look at it at all. If you add new money, add to the funds that have a lower percentage than the target. Longer term, you might reallocate once a year or so, doing small exchanges from the funds that are overweight to the ones that are underweight. Make sure you hold all funds for over a year before exchanging out so gains are all long-term. This rebalance might take you an hour per year. That's really all the time you'd need to allocate to it.

Good luck!

-Tom

Re: Young poker players and their winnings?
 

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20% US Total Stock Market Index
20% US Large Cap Value Index*
10% US Small Cap Index*
10% US Small Cap Value Index*
10% REIT Index
10% European Index
10% Asia/Pacific Index
10% Emerging Markets Index*

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Scott Burns' Couch Potato and Margarita portfolios do this same sort of thing, but with 2 and 3 funds, respectively.

Re: Young poker players and their winnings?
 

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Scott Burns' Couch Potato and Margarita portfolios do this same sort of thing, but with 2 and 3 funds, respectively.

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Those portfolios have 50% and 33% in fixed income, so their expected return is much less. Plus, the small and value tilt of my recommendation should have a higher expected return for the level of risk.

-Tom

Re: Young poker players and their winnings?
 

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Those portfolios have 50% and 33% in fixed income

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Good point. I should have said in my earlier post that if I were in OP's shoes (and having no investing expertise), I would probably just put it all in Vanguard Total Stock Market Index.

Re: Young poker players and their winnings?
 

I would add the vanguard small cap index and the vanguard total international stock market index. For proper diversification, it is important to be invested internationallu and not only in large cap stocks. For sample portfolios and asset allocations visit this
web page.

Later, you could add more funds, such as emerging markets or REITS.

Post deleted by Mat Sklansky
 

Re: Young poker players and their winnings?
 

Ok here is the deal: if you are looking to use this money in the next 5 years or less, stocks are the Wrong investment. Short term money (5 years or less) needs to be in a combination money market funds and short term bond fonds.

You should probably divide your money into 2 pots; one for your short term needs, and the other for your long term investms. Long term investments should really be looked at as 'untouchable' until you retire. Because more intermediate needs (5-10 years) should be invested for differently than long term needs (15+ years).

For your long term investments ,you will need a portfolio of Domestic & International equities + domestic bonds:
any of the portfolios above are good. The Vangaurd 500 alone will not cut it because you need to diversify across asset classes as well as across stocks.


Short Term "safe" Money: (5years or less)
I would recomend the Vangaurd Prime money market fund or ING Direct + the Vangaurd Short Term Bond Fund. You could use a 50/50 split. Truth be told, if your short term funds could just as easily be put into just ING or a MMF because the difference in return will be very small as opposed to adding in short term bonds.

-Matt

Re: Young poker players and their winnings?
 

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Short term money (5 years or less) needs to be in a combination money market funds and short term bond fonds.

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I'm just putting my shorterm money in the Emigrant Direct American Dream account (basically money market). Why should I also be investing in bonds? I don't know anything about bonds, but am interested to hear.

Re: Young poker players and their winnings?
 

5 years is a long time to tie up funds in low return investments, depending on how replaceable these funds are due to variance and current income, you should manage your risk, taking into account your risk tolerance and as part of your overall financial plan!