Talking to a Financial Advisor Tomorrow

[Im_Your_ATM]

I'm a senior in college and although I'm not sure my overall plans post-graduation I'd like to get some of my finances in order. Basically I feel stupid about all the opportunity cost I've wasted due to my money sitting in a 2% interest bank account. My dad mentioned that his mutual funds got an 18% return last year and that really made me feel dumb.

I'm going to be traveling this summer and after that I don't know. I might go get my MBA not this fall but next so that's a big financial concern. Poker has been good to me so no debt either. Also going to H&R Block to figure out how much I owe the government for poker this year.

What should I do with my money? Are mutual funds < index funds? Is the only difference in index funds the amount of money paid for their upkeep? Best money market account online? Can money markets lose money? Buy investment property as soon as possible?

Lots of questions but even if you could answer one I'd appreciate it.

[yellowbastard]

Mutual funds are less tax efficient because of higher turnover (managers buying and selling securities), they are much less cost efficient than index funds, and something like 80% of all mutual funds fail to beat their benchmark index. For the above three reasons the index fund is always going to be the lay investor's best choice.

There are many good savings accounts that can be directly linked to your personal checking account. HSBC and Emigrant Direct are two such savings accounts with leading rates at or above 5% APY. These accounts are FDIC insured up to $100,000 so there is zero risk of losing your principal.

Have you been filing quarterly statements for poker? If not you may owe some penalties. There are two main ways to file poker winnings. One way is to file a schedule C where you will owe self employment taxes. The other way is to claim your winnings as "other income" and deduct your losses as a schedule A itemized deduction. If you do it this way you will avoid self-employment taxes. I hesitate in telling you this because I don't know if you can do it this way if most of your income has come from poker. Ask the H&R Block person. Also, try searching around for a good H&R Block representative to help you as some of them really suck.

Also, what company is the financial advisor with? I've noticed that there is much less transparency with commission based financial advisors (Edward Jones, Ameriprise, ect...). They will try to sell you their company's mutual funds to make higher commissions. Most of the time these funds are "in house" and are unusually inefficient in terms of cost.

You would be better off opening an account with Vanguard and buying VTSMX.

[meditate89]

If you search the forums you will find all the answers to these questions in about ~5 minutes... google is also your friend.

I'm getting kind of sick of having three of these threads per week... I don't mean to lash out at the OP or anyone else in particular.

mod(s): any chance we can put a lot more of these types of questions into the FAQ? Such as:

What is a mutual fund?
what is an index fund?
What is a money market fund? (Link to fatwallet thread with all the interest rates maybe)
What is a stock/bond?
What should I do with $XX,000 to invest?
Is my financial advisor looking out for my best interests, or trying to make money off of me?

The last two questions are probably the most irritating imo, but I think it'd be really helpful to have all of these questions in the FAQ, and certainly more that I can't think of

[RedJoker]

Meditate,

We don't have a mod at the moment but hopefully we'll have one or maybe two soon.

I've been asking to set up an FAQ in that thread as well. There are a wide range of topics which need to be covered IMO.