Investing Guide

Is playing good poker considered an investment using your time to make money or is it still gambling. Some people think poker is gambling, while others think it involves both skill and luck. I think you can make money playing poker if you have proper money management techniques and play with people who are less skilled. In the long run, you will make fewer mistakes than others and get a high return on investment. Some people calculate how much they make per hour playing poker.

People who start playing poker do not have proper money management techniques. They are playing higher stakes than their bankroll can handle. A string of bad luck and they are wiped out. An example would be having a bankroll of $300 and playing $55 single table tournaments (Sit and Go). If you get some bad beats, make some mistakes and lose 5 games in a roll, you’ll be broke. I’ve lost 7 games in a roll before and it was okay because I did not stake a large amount of my bankroll. The bankroll needs to be big enough to cover a long bad luck streak. This is similar to investing. You don’t put all your money into a few stocks. You need to properly manage your portfolio and not stake too much money in 1 stock.

In the short term, if you don’t have enough money to cover your string of losses, then you’re going to get wiped out. Many crazy things can happen in the short run. You can win a lot one day and get the worse beating of your life the next, but if you have proper money management techniques, your bankroll will not get wiped out. For example, one rule is to never stake more than 10% of your bankroll in one day. Another is to have about 15 times the amount of the buy in for the single table tournament (sit and go).

In the short run, you can make money in poker even if you are horrible at the game. If you get lucky and put some bad beats off, you can win a lot in a short amount of time. But in the long run, your luck will not last and you will leak away your money. The same is true for investing. People can make money in the market in the short term. Everybody was making money buying tech stocks in the late 90s. They did not have to know what they are buying; the stock prices just went up magically. But after the crash, a lot of people lost most of their money and some quit.

I am going to try to make money primarily from single table tournaments. I like sit and go because I am not risking a large amount of money for each tournament. They do improve and hone your final table skills so that you will be better when playing multi table tournaments.

Does any one play poker in a disciplined way to try to make money?

There are many different ways to invest your money. For people who do not have a lot of time on their hand, using a simple portfolio would save them time. They would rather be doing something else than looking at the thousands of mutual funds available.

Investors can invest in a target maturity fund. These mutual funds are funds of funds. They hold several mutual funds. Target maturity funds are like life style funds except that these funds change the asset allocation as time passes. Lifestyle funds keep the asset allocation fairly static so they do the rebalancing automatically. Target maturity funds changes the asset allocation to include more fixed income as the years pass to reduce the risk and volatility of the fund. A good target maturity fund would be Vanguard’s Target retirement 2045 (VTIVX) or 2040 or 2035… These funds are comprised of Vanguard’s total stock market index, international index and total bond index. The current holdings of VTIVX include:

Vanguard Total Stock Market Index Fund (VTSMX) 70.4%
Vanguard Total Bond Market Index Fund (VBFMX) 12.1%
Vanguard European Stock Index Fund (VEURX) 11.8%
Vanguard Pacific Stock Index Fund (VPACX) 5.7%

I think VTIVX needs more assets in international holdings. I think they need at least 25 percent in international funds. An investor can get a second fund to add to their international exposure if they choose.

Another decent lifestyle fund is Vanguard Life Strategy Growth Fund. This fund has less total stock market than VTIVX, but has a quarter of its money in an actively managed mutual fund. Both mutual funds are very similar.

Vanguard Total Stock Market Index Fund (VTSMX) 50.1%
Vanguard Asset Allocation Fund (VAAPX) 24.9%
Vanguard Total International Stock Index Fund (VGSTX) 15.0%
Vanguard Total Bond Market Index Fund (VBFMX) 10.0%

Just set up the account to automatically invest a set amount into the fund every 2 weeks or month. Just set it and forget it. You do not even have to rebalance because the fund does that for you. These two funds of funds are good choices for people who do not want to bother rebalancing their assets. They can change their asset allocation by adding a specific fund to their portfolio if they want.

If you want more control over your portfolio or find that the asset allocations from these mutual funds are not to your liking, you can use a few mutual funds instead. A popular index fund portfolio would be a combination of Vanguard Total Stock Market Index (VTSMX), Vanguard Total International Stock Market Index (VGTSX), and Vanguard Total Bond Market Index (VBFMX).

Many people who do not know much about investing put most of their money in a savings account. They are afraid to lose money so they avoid the stock market. They’d pick mutual funds for their 401k and then put the rest of their savings in a low yield savings account. This is okay, but they are barely keeping up with inflation or even losing to inflation if they are putting their money into a low yielding savings account.

Online savings accounts such as ING (4.35% APY), Virtual Bank(4.6% APY), Emigrant Direct(5.15%) and HSBC(5.05%) usually have a much higher yield than brick and mortar banks such as Washington Mutual which yields .4% - 3% depending on how much money you have in your account. Some people do not realize that they’re missing out on some interest with their low yielding accounts. For example, even a 2% difference in APY for 2,000 would be 40$ difference, which is nothing to scoff at.

But to make money and get rich in the long run, earning interest off a savings account will not get a person rich. People must learn about investing for the long run in order to create wealth through using the power of time and compounding interest. It is not tough to get started and if someone wants to get a low maintenance investment, stick with index funds such as the vanguard target retirement fund (VTIVX).

At best, you will hopefully keep up with inflation so as to not lose purchasing power. Jose from Money and Investing has an interesting article called Effective Interest- Risks of a Savings Account. You can download an excel file to determine your effective interest rate, which is how much you earn after taxes and factoring in inflation. And if you have some excuses not to save or invest, you can read Lame excuses not to contribute to retirement plans.

Investing is fun and easy to learn, but difficult to master, just like poker.

Why do people invest?

Some people want to retire early, save for a house, pay for college, for a vacation, or to save for a business.

A lot of people do not have specific goals when they are investing. Setting specific goals that will make it easier the task they set out to do. Writing investing goals are very vague does not help a person accomplish the goal because they did not say how they are going to accomplish the goal.

For instance, one goal could be to save enough for a down payment on a house. The goal was very general and it did not have a time frame as well as how much needs to be saved.

The goal can be rewritten as save $100,000 for a house in 5 years. They then know that their time frame is 5 years, so their investments need to be more conservative. With a shorter time frame they cannot recover their losses if their investments tank. Then they can specify how much they want to invest each month to reach the goal. Save $1,500 per month with an expected rate of return of 6%. The asset allocation can then be chosen such as 50% stocks, 50% bonds and asset allocation will change every year to become more conservative. They need to specify what types of investments they are going to use and their investing philosophy so that they will not stray and chase hot performing stocks. They can purchase shares of an open end mutual fund with an automatic purchasing plan to make achieving the goal easier.

It is easier to accomplish a goal when it is written in a way that is easy to implement.

Best way to become financially independent is to have enough passive income to support your lifestyle. That way, your income will cover all your bills and you do not have to work if you do not want to. There are several ways to get passive income streams.

A popular income stream is rental properties. People buy good value properties and rent it out to tenants. The rent covers the mortgage and bills, so the owner makes money from rent every month. Some people hire property manager to look over the property, but they charge 6 – 8 percent or more to look after the property. This is a good choice for people who live far away from the property that they own.

Some people make money from advertising through their websites. They can make anywhere from a few dollars to thousands of dollars a month from their websites through advertising and affiliate programs. It’s difficult to get a lot of traffic to the site at first, but with hard work and good content, people will come.

Creating Ebooks is another way to make passive income. People write Ebooks on just about any subject they are good at. They can increase sales through affiliate programs.
Another way is through interest earned on money invested in saving accounts, CDs and fixed income investing such as bonds, REITs, preferred stocks, UITs. They earn interest on their savings. Right now, people can get around 4-5 percent on saving accounts and CDs and 6-10 from corporate bonds and REITs. Common stocks are usually kept in portfolios for capital appreciation instead of income, but some stocks do pay decent dividends.

If you have less than $1,000

Put your money into an online savings account such as ING Direct ( 3.5%) or Emigrant Direct (4%). It is more convenient to put the money into a savings account because it is difficult to diversify with a small amount of money.

You can invest in some mutual funds that have minimum account balance of $250, $500, or $1000. Just make sure it is a no-load, has low ER and has good portfolio manager with a good track record (3 years minimum). If you do get a mutual fund, it is a good idea to get a diversified large capitalization blend fund as your core holding.

If you have $1,000 to $20,000, you have more options.

You can more options for mutual funds and it’s more cost effective to buy closed-ended funds, unit investment trust and exchange-traded funds from a discount broker. Since it is still difficult to diversify with individual stocks, most people should stick with open and closed ended mutual funds, unit investment trust and exchange-traded funds.

If you have more than $20,000

You can now build a portfolio with individual securities. The cost from the brokerage fees will not be a large percentage of your investments. A lot of people may not feel comfortable investing in individual stocks, so then can still invest in mutual funds.

Overall, it depends on your preference and how much time and effort you want to put into investing.  If you do not want to spend a lot of time researching, then a portfolio of index funds will be sufficient.