Young poker players and their winnings?

[Newt_Buggs]

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.

[jively]

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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.

[/ QUOTE ]
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

[buffett]

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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.

[jively]

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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

[buffett]

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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.

[mwgr5]

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.

[Newt_Buggs]

wow, there has been a lot of excellent advice here. A big thanks to everyone, it is much appreciated.

[ QUOTE ]

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*


[/ QUOTE ]
Something like this looks great. One question though, if my only concern is expected value and not risk couldn't I only invest in the ones that have a higher rate of return than the S&P?

[eastbay]

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wow, there has been a lot of excellent advice here. A big thanks to everyone, it is much appreciated.

[ QUOTE ]

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*


[/ QUOTE ]
Something like this looks great. One question though, if my only concern is expected value and not risk couldn't I only invest in the ones that have a higher rate of return than the S&P?

[/ QUOTE ]

You mean "had" a higher rate of return? That is not the same as "have" or more importantly "will have." That's the rub.

eastbay

[Sniper]

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[ QUOTE ]
wow, there has been a lot of excellent advice here. A big thanks to everyone, it is much appreciated.

[ QUOTE ]

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*


[/ QUOTE ]
Something like this looks great. One question though, if my only concern is expected value and not risk couldn't I only invest in the ones that have a higher rate of return than the S&P?

[/ QUOTE ]

You mean "had" a higher rate of return? That is not the same as "have" or more importantly "will have." That's the rub.

eastbay

[/ QUOTE ]

As Eastbay said, past performance does not necessarily mean the future will look the same... the reason for diversification is to reduce the variance.

That said, if you want to assume a higher risk level, you can do that by changing the % allocations (and the fund types)! Which is exactly the high-level thinking that primarily passive investors should be doing on a periodic basis.

[jively]

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[ QUOTE ]

20% US Total Stock Market Index
[...]


[/ QUOTE ]
Something like this looks great. One question though, if my only concern is expected value and not risk couldn't I only invest in the ones that have a higher rate of return than the S&P?

[/ QUOTE ]
You could.

However, the biggest mistake that most investors make (over and over throughout their lifetimes) is selling out of things that have gone down recently, and buying into things that have done well lately - the hot funds, the 5-star ones that are on Money magazine.

I think if you only had small stocks and emerging markets stocks, you would have a higher expected return with a really high level of risk. So, the bad years would pretty bad. And most investors don't have the discipline to stick with the same allocation year after year.

If you want to be a little more aggressive than my previous recommendation, how about:

15% US Total Stock Market Index
15% US Large Cap Value Index
15% US Small Cap Index
15% US Small Cap Value Index
10% REIT Index
10% European Index
10% Asia/Pacific Index
10% Emerging Markets Index

-Tom