My Invesment Plan. Any advice?

[cts]

I've been lurking in this part of the forums for a while and have really enjoyed the posts. I'm a rising junior in college and I've picked up poker as a hobby. I've made a fair amount of money from it and it's pretty stupid having it all in my checking account. The other day I picked up a couple of books, The Random Walk Guide to Investing and The Intelligent Investor, which I am in the process of reading.

After paying off my tuition, rent, etc. I've got about $50,000 left. Initially, I need to keep $30,000 fairly liquid as my immediate poker bankroll. Here is my current plan:

1.) Clear out my poker site account to just $15,000. This will be enough to multitable my current limits.

2.) Open an ING Direct savings account and put $14,000 in this account. I am planning on keeping the rest of my immediate poker bankroll in this ING account, which should be pretty easy to transfer to a poker site if necessary. It seems like everyone on this forum recommends ING for a savings account and the interest rate looks great.

3.) Leave $1,000 in my current checking account. I'll use this money for expenses, going out to eat, etc. and it'll be the last $1,000 designated as my poker bankroll. This leaves $20,000 to invest.

4.) Open a Roth IRA through Vanguard. All of the books and articles I have read have been stressing this nonstop. It sounds like something I need to do soon, so I am planning on throwing the maximum of $4,000 in a Roth IRA with Vanguard. I'm not entirely sure what I want to do with the money, but I was thinking about just putting all of my IRA money in the Vanguard Target Retirement 2045 Fund. Any thoughts on this?

5.) Open an individual account through Vanguard and invest the remaining $16,000. Here is where I am pretty clueless. I read and enjoyed this 2+2 post and while I know nothing about investing, it's advice sounded pretty good. The breakdown one poster recommend (and everyone pretty much agreed on) was:
[ 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 ]
So I was thinking about allocating the $16,000 in this manner.

As I make more money playing poker, I will try to keep my poker site account/ING account balanced at about $15k/$15k and put my additional winnings in my individual Vanguard account, rebalancing through those mutual funds.

Well, there's my plan. Thanks a lot for reading and I would really appreciate any suggestions you have to offer!

[ShawnHoo]

cts,

Congrats! I've worked with Vanguard for a year and a half and have had a great experience so far. A couple of thoughts:

[ QUOTE ]
2.) Open an ING Direct savings account and put $14,000 in this account. I am planning on keeping the rest of my immediate poker bankroll in this ING account, which should be pretty easy to transfer to a poker site if necessary. It seems like everyone on this forum recommends ING for a savings account and the interest rate looks great.

[/ QUOTE ]

Depending on what state you're in, Vanguard has a money market account with a $3K minimum opening deposit that's free from state/federal taxes. The effective interest rate is higher than what you can get at an online bank, plus the funds can be transferred from Vanguard to your checking account in a day or two.

[ QUOTE ]
5.) Open an individual account through Vanguard and invest the remaining $16,000. Here is where I am pretty clueless. I read and enjoyed this 2+2 post and while I know nothing about investing, it's advice sounded pretty good. The breakdown one poster recommend (and everyone pretty much agreed on) was:
[ 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 ]
So I was thinking about allocating the $16,000 in this manner.


[/ QUOTE ]

You might want to combine a few of these so that you can meet the account minimums (usually around $3K). For example, try investing 30% in the International Index (I forget the exact name), instead of splitting it up amongst Euro, Pacific, and Emerging. Your exposure will be about the same.

[mwgr5]

Your plan is solid. There are some technical problems, however.

First, you must have earned income to contribute to a Roth IRA. Unless you are declaring yourself a professional gambler, I don't believe gambling income is earned income. If you have another job that you have earned over 4K in this would not be a problem.

It is critical to contribute to the Roth IRA because of the huge future tax savings.

Your taxable account asset allocation is good. The allocation is very aggressive, so you need to be comfortable with large performance swings, which I assume you are.

However, the problem with your allocation is the minimum initial investment at Vanguard is 3K. Because of this you cannot invest in 8 funds. Different fund weightings further compound this problem. So with your current allocation you would need at least 30K. In fact, I think the only allocation you could have with 16K at Vanguard would be something such as:

70% Us Total Stock Market Index - 11.2K
30% Total International Stock Market Index - 4.8K

You could utilize your current allocation if you purchased Exchange Traded Funds (ETFs). However, these need to be purchased through a broker so you would need to pay commission for each purchase and subsequent investments, which would drive costs up.

I think you should just invest in the Total US Stock Market Index and Total International index. While this allocation may not be as aggressive, you are still completely diversified. As you assets grow, invest in new funds to complete your allocation. You can build around these core funds in the future to customize your allocation. Additionally, the total market indexes are very tax efficient.

You are ahead of a huge percentage of the population by being able to invest this much at an early age.

[mikeyKay]

[ QUOTE ]
5.) Open an individual account through Vanguard and invest the remaining $16,000. Here is where I am pretty clueless. I read and enjoyed this 2+2 post and while I know nothing about investing, it's advice sounded pretty good. The breakdown one poster recommend (and everyone pretty much agreed on) was:

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



So I was thinking about allocating the $16,000 in this manner.

[/ QUOTE ]

The problem with doing this through vanguard is that the index funds require you have to $10k in each fund or else they take a yearly fee. adding up all of those yearly fees can take away anywhere from a quarter to a full percent of your gains. also, i beleive most of the funds require you to invest atleast $3k in each fund, which you would not have enough to cover initially. finally, i hear some of the funds, large value, small cap, small value, REIT, are not very tax efficient. alas, i have only read this in a book and planned to make a future post about how to evaluate their effect on your taxes. also, re-balancing a taxable account will run up some capital gains, so you should rebalance through deposits and withdraws, rather than doing every year or two. id poke around on the vanguard website to see what kind of minimuns and fees are involved with the funds you would like to purchase.

hopefully this helps some, and hopefully somebody can prove me wrong if im giving bad advice.

-mike

[cts]

[ QUOTE ]
cts,

Congrats! I've worked with Vanguard for a year and a half and have had a great experience so far. A couple of thoughts:

[ QUOTE ]
2.) Open an ING Direct savings account and put $14,000 in this account. I am planning on keeping the rest of my immediate poker bankroll in this ING account, which should be pretty easy to transfer to a poker site if necessary. It seems like everyone on this forum recommends ING for a savings account and the interest rate looks great.

[/ QUOTE ]

Depending on what state you're in, Vanguard has a money market account with a $3K minimum opening deposit that's free from state/federal taxes. The effective interest rate is higher than what you can get at an online bank, plus the funds can be transferred from Vanguard to your checking account in a day or two.


[/ QUOTE ]

Hey ShawnHoo, thanks for the advice. I will definitely look into this, as it seems like a good alternative to an online bank account. I live in Virginia, and 1-2 day wait for transfers is no big deal for me.

[ QUOTE ]

[ QUOTE ]
5.) Open an individual account through Vanguard and invest the remaining $16,000. Here is where I am pretty clueless. I read and enjoyed this 2+2 post and while I know nothing about investing, it's advice sounded pretty good. The breakdown one poster recommend (and everyone pretty much agreed on) was:
[ 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 ]
So I was thinking about allocating the $16,000 in this manner.


[/ QUOTE ]

You might want to combine a few of these so that you can meet the account minimums (usually around $3K). For example, try investing 30% in the International Index (I forget the exact name), instead of splitting it up amongst Euro, Pacific, and Emerging. Your exposure will be about the same.

[/ QUOTE ]

Doh! Yea totally forgot about account minimums, I'll definitely consolidate the funds. With my orginial plan, I guess I'd need $30,000 in my Vanguard account to meet all of the minimums and obtain the correct allocation. I'm only $14,000 away from this amount, so maybe I'll wait until I earn this money before opening my Vanguard account. Thanks again for the suggestions!

[cts]

[ QUOTE ]
Your plan is solid. There are some technical problems, however.

First, you must have earned income to contribute to a Roth IRA. Unless you are declaring yourself a professional gambler, I don't believe gambling income is earned income. If you have another job that you have earned over 4K in this would not be a problem.

It is critical to contribute to the Roth IRA because of the huge future tax savings.


[/ QUOTE ]

Hey mwgr5, thanks for the response. I do not have another job right now so I guess if I open a Roth IRA I will have to declare as a professional gambler. I'm not quite sure what this involves, but I'll look into it and decide if it's worth it to start my Roth IRA ASAP.

[ QUOTE ]


Your taxable account asset allocation is good. The allocation is very aggressive, so you need to be comfortable with large performance swings, which I assume you are.


[/ QUOTE ]

I'm young and have a high capacity for risk. An aggressive allocation is what I am looking for, so I'm glad you confirmed that this is correct!

[ QUOTE ]



However, the problem with your allocation is the minimum initial investment at Vanguard is 3K. Because of this you cannot invest in 8 funds. Different fund weightings further compound this problem. So with your current allocation you would need at least 30K. In fact, I think the only allocation you could have with 16K at Vanguard would be something such as:

70% Us Total Stock Market Index - 11.2K
30% Total International Stock Market Index - 4.8K

You could utilize your current allocation if you purchased Exchange Traded Funds (ETFs). However, these need to be purchased through a broker so you would need to pay commission for each purchase and subsequent investments, which would drive costs up.

I think you should just invest in the Total US Stock Market Index and Total International index. While this allocation may not be as aggressive, you are still completely diversified. As you assets grow, invest in new funds to complete your allocation. You can build around these core funds in the future to customize your allocation. Additionally, the total market indexes are very tax efficient.


[/ QUOTE ]

Great idea! I think I'll pursue this allocation until I have the funds required to meet my orginal plan.

[ QUOTE ]

You are ahead of a huge percentage of the population by being able to invest this much at an early age.

[/ QUOTE ]

I figured leaving all my money in poker sites and checking accounts was a waste, so getting a head start in some investing has been on my to do list for a while. It's been fun learning about ways to make my money earn money,

[cts]

[ QUOTE ]
[ QUOTE ]
5.) Open an individual account through Vanguard and invest the remaining $16,000. Here is where I am pretty clueless. I read and enjoyed this 2+2 post and while I know nothing about investing, it's advice sounded pretty good. The breakdown one poster recommend (and everyone pretty much agreed on) was:

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



So I was thinking about allocating the $16,000 in this manner.

[/ QUOTE ]

The problem with doing this through vanguard is that the index funds require you have to $10k in each fund or else they take a yearly fee. adding up all of those yearly fees can take away anywhere from a quarter to a full percent of your gains. also, i beleive most of the funds require you to invest atleast $3k in each fund, which you would not have enough to cover initially. finally, i hear some of the funds, large value, small cap, small value, REIT, are not very tax efficient. alas, i have only read this in a book and planned to make a future post about how to evaluate their effect on your taxes. also, re-balancing a taxable account will run up some capital gains, so you should rebalance through deposits and withdraws, rather than doing every year or two. id poke around on the vanguard website to see what kind of minimuns and fees are involved with the funds you would like to purchase.

hopefully this helps some, and hopefully somebody can prove me wrong if im giving bad advice.

-mike

[/ QUOTE ]

Thanks for the advice Mike. What book have you been reading? It sounds interesting and I should probably check it out. I really don't know much about the tax (in)efficiency of these funds, but mwgr5 recommend the Total Us/International indexes as highly efficient funds.

[Maurader1]

Does it make sense to have such a heavy allocation in the US when the dollar is falling and seems to be on the edge of collapse?

[cts]

[ QUOTE ]
Does it make sense to have such a heavy allocation in the US when the dollar is falling and seems to be on the edge of collapse?

[/ QUOTE ]

Good question. I have no idea. Anyone else care to weigh in?

[mikeyKay]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
5.) Open an individual account through Vanguard and invest the remaining $16,000. Here is where I am pretty clueless. I read and enjoyed this 2+2 post and while I know nothing about investing, it's advice sounded pretty good. The breakdown one poster recommend (and everyone pretty much agreed on) was:

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



So I was thinking about allocating the $16,000 in this manner.

[/ QUOTE ]

The problem with doing this through vanguard is that the index funds require you have to $10k in each fund or else they take a yearly fee. adding up all of those yearly fees can take away anywhere from a quarter to a full percent of your gains. also, i beleive most of the funds require you to invest atleast $3k in each fund, which you would not have enough to cover initially. finally, i hear some of the funds, large value, small cap, small value, REIT, are not very tax efficient. alas, i have only read this in a book and planned to make a future post about how to evaluate their effect on your taxes. also, re-balancing a taxable account will run up some capital gains, so you should rebalance through deposits and withdraws, rather than doing every year or two. id poke around on the vanguard website to see what kind of minimuns and fees are involved with the funds you would like to purchase.

hopefully this helps some, and hopefully somebody can prove me wrong if im giving bad advice.

-mike

[/ QUOTE ]

Thanks for the advice Mike. What book have you been reading? It sounds interesting and I should probably check it out. I really don't know much about the tax (in)efficiency of these funds, but mwgr5 recommend the Total Us/International indexes as highly efficient funds.

[/ QUOTE ]

The book is "The Four Pillars of Investing" by Bernstein.